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BSTDB at 20
Enhancing Support to the
Black Sea Region
Annual Report2019
1 Komninon str., 54624, Thessaloniki, Greece T: +30 2310 290400 F: +30 2310 221796, +30 2310 286590 E: [email protected] www.bstdb.org
BLACK SEA TRADE AND DEVELOPMENT BANK
1
Contents
2 Introduction 2 Who We Are 3 Corporate Governance 5 Board of Governors 6 BoardofDirectors&AuditCommittee 7 Management
8 To the Board of Governors
9 Statement by the President
11 ΒSTDB’sKeyAccomplishments1999-2019
12 Highlightsof2019
13 EconomicOverviewoftheBlackSeaRegionin2019
22 BSTDBintheBlackSeaRegion:22 InFocus:BSTDBat20–EnhancingSupportfortheBlackSeaRegionEconomies25 PortfolioDescription28 SelectedBSTDBFinancingsin201934 Success Stories42 TechnicalAssistanceSupport
43 SustainabilityOverview
45 AnnualEvaluationOverview
50 InstitutionalActivities
55 FinancialStatementsfortheYearEnded31December201957 ResponsibilityforExternalFinancialReporting58 IndependentReasonableAssuranceReport60 Income Statement61 Statement of Other Comprehensive Income62 StatementofFinancialPosition63 StatementofChangesinMembers’Equity64 StatementofCashFlows65 NotestotheFinancialStatements119 IndependentAuditor’sReport
AnnexA126 OrganizationalChart
AnnexB127 Contact BSTDB
ANNUAL REPORT 2019
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Introduction
Who We AreTheBlackSeaTradeandDevelopmentBank(BSTDB),aninternationalfinancialinstitutionwithheadquartersinThessaloniki,Greece,wasestablishedbyAlbania,Armenia,Azerbaijan,Bulgaria,Georgia,Greece,Moldova,Romania,Russia,Turkey,andUkraine.BSTDBstartedoperationsinJune1999andhasanauthorizedcapitalofEUR3.45billionandasubscribedcapitalofEUR2.3billion.
Shareholder Structure
BSTDBsupportseconomicdevelopmentandregionalcooperationintheBlackSeaRegionthroughloans,guarantees,andequityparticipationinprivateenterprisesandpublicentitiesinmembercountries.
Asaninternationalfinancialinstitution,theBankhaspreferredcreditorstatus.ThismeansthattheBankwillusually(i)notrescheduledebtpaymentswithrespecttoitsloansto,orguaranteedby,itsmembercountriesand(ii)notrescheduleitsloanstoprivatesectorborrowerduetoageneralforeignexchangeunavailabilityintheborrower’scountry.
Greece 16.5%
Russia 16.5%
Turkey 16.5%
Romania 14.0%Bulgaria 13.5%
Ukraine 13.5%
Azerbaijan 5.0%
Albania 2.0%
Armenia 1.0%
Georgia 0.5%
Moldova 0.5%
BLACK SEA TRADE AND DEVELOPMENT BANK
3
Corporate GovernanceManagement Structure
BSTDB is committed to maintaining effective corporate governance through a framework of responsibilities andcontrols.Transparencyandaccountabilitysupportedbyclearlydefinedreportingsystemsenablethemaintenanceofanappropriatelycontrolledbusinessenvironment.
BSTDB’s governing constitution is set out in the Agreement Establishing the Bank. This document requires that theinstitutionbemanagedbyaBoardofGovernors,aBoardofDirectors,aPresident,VicePresidents,aSecretaryGeneral,andsuchofficersandstaff,asmaybenecessary.
EachoftheMemberStatesoftheBankisrepresentedontheBoardofGovernors.AllpowersoftheBankarevestedintheBoardofGovernors.Withcertainexceptions,theBoardofGovernorshasdelegatedtheexerciseofthesepowerstotheBoardofDirectors,whilestillretainingoverallauthority.
TheBoardofDirectors,chairedbythePresidentoftheBank,isresponsibleforguidingthegeneraloperationsoftheBank.EachoftheBank’sMemberStatesappointsaDirectorandanAlternateDirector,withfullpowerstoactfortheDirectorwhentheDirectorisnotpresent.
The Audit Committee is established by and reports directly to the Board of Directors. The composition of the AuditCommitteeisfourBoardofDirectormembers,onebeingappointedasChairman.
ThePresident,aschiefexecutiveoftheBank,isitslegalrepresentative.Inthiscapacity,andasChairmanoftheManagementCommittee,heconductsthecurrentbusinessoftheBankunderthedirectionoftheBoardofDirectors.ThePresidentisappointedbytheBoardofGovernors.
TheManagementCommitteecomprisesofthePresident(asChairman),threeVicePresidents,andtheSecretaryGeneral.IntheabsenceofthePresident,oneoftheVicePresidentschairsthemeetingsoftheManagementCommittee.TheVicePresidentsandSecretaryGeneralareappointedbytheBoardofDirectorsontherecommendationofthePresident.
Compliance
The compliance function of the Compliance and Operational Risk Management Office (DCR) of the Bank assistsmanagementineffectivelymanagingthecompliancerisksfacedbytheBank.Tothisend,itidentifies,assesses,adviseson,monitorsandreportsaccordinglyontheBank’scompliancerisk.
Withregardtointernalintegrityissues,theDCRmonitors,administersandadvisesoncodeofconduct-relatedissuesforBankofficialsandstaff.
With regard tofinancingoperations,anti-fraud, corruption,money laundering, terrorismfinancingandsanctionsduediligenceis–amongothertypesofduediligence–integratedintotheBank’snormalapprovalofnewbusinessandintothemonitoringofexistingactivity.TheBankscreensalltransactionstoensurethattheydonotrepresentsuchrisks.TheHeadoftheComplianceadvisesthebusinessgroups,asneeded,interalia,ontheCustomerDueDiligenceprocessandintegrityissues.
Reporting and Disclosure
BSTDB’scorporategovernancestructureissupportedbyappropriatefinancialandmanagementinformationreporting.Through its reportsanddisclosures, theBank, in linewith itspolicyofmaintaining industrybestpractice, followsthereportingconventionsofother internationalfinancial institutions.TheAccountingPoliciesadoptedbytheBankare incompliancewithInternationalFinancialReportingStandards.
ANNUAL REPORT 2019
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Withrespecttoexternalfinancialreporting,theBankpresentsfinancialstatementsinitsquarterlySummaryStatementstotheBoardofDirectors,andboththeinterimfinancialstatementsandtheAnnualReportarepublishedontheBank’swebsite.PursuanttoArticle35oftheEstablishingAgreement,publishedreportsareaccessible[transmittedto]theGovernmentsoftheMemberStates,membersoftheBoardofGovernorsandDirectors,andtheBSECPermanentInternationalSecretary.
Initsfinancialreporting,theBankaimstoprovideappropriateinformationonriskandperformance.Industrybestpracticeguidesevolvingdisclosurepracticebothinpublicfinancialreportsandmanagementinformationreporting.
Internal Audit
The Internal Audit is an independent, objective, assurance, and consulting activity that examines and evaluates theactivitiesoftheBankasaservicetomanagementandtheBoardofDirectors(primarilythroughitsAuditCommittee).TheAuditCommitteehastheresponsibility,interalia,ofsatisfyingitselfthattheinternalauditprocessisadequateandefficientthroughreviewingthepolicy,scope,workprogram,andreportingrelatingtotheBank’sinternalaudit.
AccordingtotheBank’sInternalAuditCharter,theInternalAuditDepartment’smainobjectiveistohelpmanagementandtheBoardofDirectorsdischargetheirresponsibilitiesandaccomplishtheobjectivesoftheBankbybringingasystematic,disciplined approach with which to evaluate and improve risk management effectiveness, control, and governanceprocesses. The Internal Audit’smission is to foster an environment of continuous improvement in controls and riskawareness.
Enterprise Risk Management
RecognizingtheneedforeffectiveinternalcontrolsandacknowledgingthatEnterpriseRiskManagement(ERM),includinginternalcontrolsoverfinancialreporting,isafundamentalapproachforthemanagementofanorganization,theBankhas established a functioning, consolidated, and on-going Enterprise RiskManagement system. This system includescertificationintheAnnualReportastotheeffectivenessofinternalcontrolsoverexternalfinancialreporting,usingthestandardsandpracticesprescribedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO),InternalControlFramework,andEnterpriseRiskManagement.
Upontheoverallassessmentoftheeffectivenessofinternalcontrolsoverfinancialreporting,coordinatedbytheInternalAuditDepartmentandaWorkingGroupwithrepresentativesofalldivisionsoftheBank,anannualcertificationstatementisissued,signedbythePresidentandtheVicePresidentFinanceandsubjecttoreviewandanattestationoftheBank’sexternalauditors.
Theexternalauditorsreviewandoffertheiropiniononmanagement’sassertionastotheeffectivenessofinternalcontrolsoverfinancialreporting.
External Auditors
TheExternalAuditorsareappointedbytheBoardofGovernorsupontherecommendationoftheBoardofDirectors.Theyarequalifiedoutsideauditorsofinternationalreputationandappointedforatermofoneyear,renewablefurtheronsuchtermsandconditionsasapprovedbytheBoardofDirectors.
TheExternalAuditors’servicesarelimitedonlytoauditrelatedservicesbutmaybesubjecttocertainexceptionsthatareintheinterestoftheBank.TheperformanceandindependenceoftheExternalAuditorsareassessedbytheAuditCommittee.
Inaddition,theExternalAuditorsreviewandoffertheiropiniononthemanagement’sassertionastotheeffectivenessofinternalcontrolsoverfinancialreporting.Thisopinionisgivenasaseparatereporttotheauditopinion.Attheconclusionoftheirannualaudit,theExternalAuditorsprepareamanagementletterfortheBoardofDirectors,whichisreviewedindetailanddiscussedwiththeAuditCommittee,settingouttheExternalAuditor’sviewsandmanagement’sresponseontheeffectivenessandefficiencyofinternalcontrolsandothermatters.
BLACK SEA TRADE AND DEVELOPMENT BANK
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Board of Governors
Asof31December2019
RepublicofAlbania
Governor: Mr.ErjonLUCI,DeputyMinisterofFinance
AlternateGovernor: positionvacant
RepublicofArmenia
Governor: Mr.ArthurJAVADYAN,Chairman,CentralBankofArmenia
AlternateGovernor: Mr.AndranikGRIGORYAN,Head,FinancialSystemStability&DevelopmentDepartment,CentralBankofArmenia
RepublicofAzerbaijan
Governor: Mr.SamirSHARIFOV,MinisterofFinance
AlternateGovernor: Mr.MikayilJABBAROV,MinisterofEconomy
RepublicofBulgaria
Governor: Ms.MarinelaPETROVA,DeputyMinisterofFinance
AlternateGovernor: Ms.GerganaBEREMSKA,Director,InternationalFinancialInsitutionsandCooperationDirectorate,Ministry of Finance
Georgia
Governor: Mr.KobaGVENETADZE,Governor,NationalBankofGeorgia
AlternateGovernor: Mr.IvaneMATCHAVARIANI,MinisterofFinance
HellenicRepublic
Governor: Mr.Adonis-SpyridonGEORGIADIS,MinisterofDevelopment&Investments
AlternateGovernor: positionvacant
RepublicofMoldova
Governor: Mr.IonCHICU,MinisterofFinance
AlternateGovernor: positionvacant
Romania
Governor: Mr.EugenOrlandoTEODOROVICI,MinisterofPublicFinance
AlternateGovernor: Mr.GyorgyATTILA,SecretaryofState,MinistryofPublicFinance
RussianFederation
Governor: Mr.SergeySTORCHAK,DeputyMinisterofFinance
AlternateGovernor: positionvacant
RepublicofTurkey
Governor: Mr.BulentAKSU,DeputyMinisterofTreasury&Finance
AlternateGovernor: positionvacant
Ukraine
Governor: Mr.TimofiyMYLOVANOV,MinisterofEconomicDevelopment,Trade&Agriculture
AlternateGovernor: Mr.VolodymyrKUCHYN,HeadofOfficeforEuropeanIntegration&InternationalPrograms,NationalBankofUkraine
ANNUAL REPORT 2019
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Board of DirectorsAsof31December2019
RepublicofAlbania
Director: Mr.ArianKRAJA,SecretaryGeneral,MinistryofFinance&Economy
AlternateDirector: positionvacant
RepublicofArmenia
Director: Mr.DavitANANYAN,ChairmanoftheStateRevenueCommittee
AlternateDirector: Mr.ArgamARAMYAN,Head,InternationalCooperationDepartment,MinistryofFinance
RepublicofAzerbaijan
Director: Mr.FamilISMAYILOV,DeputyHead,InternationalRelationsDepartment,Ministry of Finance
AlternateDirector: positionvacant
RepublicofBulgaria
Director: Ms.PetyaKUZEVA,Director,GovernmentDebtDirectorate,MinistryofFinance
AlternateDirector: Mr.NikolaSHERLETOV,ParliamentarySecretary,MinistryofFinance
Georgia
Director: Mr.NikolozGAGUA,DeputyMinisterofFinance
AlternateDirector: Mr.LashaKHUTSISHVILI,DeputyMinisterofFinance
HellenicRepublic
Director: Mr.IoannisTSAKIRIS,DeputyMinisterofDevelopment&Investments
AlternateDirector: positionvacant
RepublicofMoldova
Director: Ms.ElenaMATVEEVA,Head,PublicDebtDepartment,MinistryofFinance
AlternateDirector: positionvacant
Romania
Director: Ms.DianaBLINDU,HeadofDivision,GeneralDirectorateforInternationalFinancialRelations,MinistryofPublicFinance
AlternateDirector: Mr.StefanPETRESCU,DeputyDirectorGeneral,GeneralDirectorateforInternationalFinancialRela-tions,ExternalPublicFinance,MinistryofPublicFinance
RussianFederation
Director: Mr.EvgenySTANISLAVOV,Director,DepartmentofEconomicCooperation,MinistryofForeignAffairs
AlternateDirector: positionvacant
RepublicofTurkey
Director: Mr.KemalCagatayIMIRGI,ActingDirectorGeneral,ForeignEconomicRelations,MinistryofTreasuryand Finance
AlternateDirector: positionvacant
Ukraine
Director: positionvacant
AlternateDirector: Mr.VitaliyLISOVENKO,GovernmentalEnvoyforPublicDebtManagement,MinistryofFinance
Audit CommitteeAsof31December2019
Ms. Diana BLINDU,DirectorforRomaniaandChairpersonoftheAuditCommitteeMs. Elena MATVEEVA,DirectorfortheRepublicofMoldovaandAuditCommitteememberMr. Arian KRAJA,DirectorfortheRepublicofAlbaniaandAuditCommitteememberMr. Nikoloz GAGUA,DirectorforGeorgiaandAuditCommitteemember
BLACK SEA TRADE AND DEVELOPMENT BANK
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Management
Dmitry PankinPresident
Chairman of the Board of Directors
Hasan DemirhanVicePresidentBanking
Ivaylo MoskovskiVicePresidentOperations
Valeriy PiatnytskyiVicePresidentFinance
Aristotelis SpiliotisSecretaryGeneral
ANNUAL REPORT 2019
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To the Board of Governors
InaccordancewithArticle35oftheAgreementEstablishingtheBlackSeaTradeandDevelopmentBank and Section10of its By-Laws, I submit to theBoardofGovernorstheBank’sAnnualReportfor2019asendorsedbytheBoardofDirectors.TheTwentyFirstAnnualReportcontainstheBank’sfinancialstatements;separatefinancialstatementsfortheoperationsoftheBank’sSpecialFundshavealsobeenissued,asprescribedinSection12oftheBank’sBy-Laws.
Dmitry PankinPresidentChairman of the Board of Directors
BLACK SEA TRADE AND DEVELOPMENT BANK
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Statement by the President
The general slowing of global economic activity that occurred in 2019 impacted the Black Sea Region as well. TheRegion,afterpostingrealGDPgrowthof3.7%in2017and2.8%in2018,slowedtoaround1.7%growthin2019.Globaltradeconflictsslowedflowsofinternationalcommerce,andthiswasonefactorbehindtheslowergrowth.Inaddition,thesingle largestcomponentofGDPformation,consumption,wasweaker,whilethedisappointingtrend inthemostimportantindicatoroffuturegrowth,investment,alsolagged.Lingeringuncertaintiesinemergingmarketsandgrowingfearsarising fromthe tradeconflictshadadetrimental impactonconfidenceandpushedeconomicpolicies towardsminimalizationofvulnerabilityandensuringthatcountrieshavesufficientreservestohandleanycrisiswithoutunduedifficulty.Manycountries,atbothsovereignandcorporatelevel,borrowedathistoricallylowlevelsandmargins,butthisdidnottranslateintoappreciablyincreasedinvestmentactivity.Rather,muchofitwasusedeithertobuildbuffersortopayoffolddebts.Fedbyrisinggeopoliticaluncertainties,perceptionsofcountryriskremainedhighdespitethededicatedeffortsofcountriestoachieveandsustainhealthymacroeconomicindicators.
FortheBlackSeaTradeandDevelopmentBank,2019wasthefirstyearofimplementationofitsMedium-TermStrategyandBusiness Plan (MTSBP) for 2019-2022. This newMTSBP, approvedby theBoard ofGovernors in February 2019,intends tobuildupon theexcellentfinancialprofileof theBank toexpandoperationalactivityand toachievehigherdevelopmentandregionalcooperationimpactinitsoperations.
Inpractice,theBankexceededitsoperationaltargets,ashighquality,highvolumedemandforitsproductsallowedustoachieverecordlevelsofnewoperationalactivityinaverycompetitivemarket.TheBank’sBoardofDirectorsapproved32newprojectsforEUR1.064billion,anincreaseof86.8%over2018levels.Newcommitmentsrose36.4%relativeto2018,as26operationsamountingtoEUR842.8millionweresignedduringtheyear.Disbursementsfor2019reachedEUR872.0million,anincreaseof52.0%overthelevelsattainedin2018.Asaconsequence,netdisbursementsamountedtoEUR488.1millionandtheportfolioatyearendstoodatEUR1.851billion.
ThisgrowthwasmadepossiblebytheBank’sstrongcapitalpositionanditsabilitytoleverageprudentlyandeffectivelyinorder tomobilize resources topromote increased tradeand investment.Withborrowingconditions favorable, theBankexpandedanddiversifieditspresenceinfinancialmarkets,aprocesshighlightedbytheissuanceofabenchmarkfive-yearUSD400millionbondinJuneatrecordlowrates,whichinturnallowedittoon-lendtoinvestorsandclientsintheregiononcompetitiveandattractiveterms.TheBank’sratioofborrowedfundstototalequityroseto1.8:1,whilecapitalization remainedatahealthy35.4%, in linewith thecommitmentof theBank toachievingstablegrowth thatexpandsitspresenceandroleontheonehand,butmaintainsitsextremelystrongfinancialprofileontheotherhand.NetincomefortheyearreachedEUR13.7million,the15thconsecutiveyearthattheBankhasachievedanetprofit.
ANNUAL REPORT 2019
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TheoperationalactivitywasspreadoutamongtheMemberStatesandachievedwidecoverageinsectoraltermsaswell.Continuingatrendfrompreviousyearstheshareofoperationsintheso-called‘realsectors’oftheeconomyincreased,andinparticulartheBankprovidedassistancetoagreatershareofinfrastructuredevelopmentprojects,whicharethetypesofoperationsthatusuallyhaveahigherregionalcooperationcomponent.Thegrowthwasparticularlypronouncedinpublicsectoroperations,astheBankincreasedtheshareofsovereignoperationstonearly20%ofthetotalportfolio,underscoringtherisingvalueoftheBanktopublicagenciesinadditiontotheprivatefirmsandbankswhichhadformedtheBank’sprimaryclienteleinitsearlyyearsofoperation.
TheBank’ssuccessinattractingnewclientsandthehigherthanexpectedgrowthinitsportfolioledtoadecisiontorevisetheMTSBPfor2019-2022,toreflectthissituationandtopermitBSTDBtomeetthisdemand,whichhasgrownbothinvolumeandinthesophisticationofthetypesofoperationsundertaken.
InJune2019,BSTDBhelditsAnnualMeetingoftheBoardofGovernorsinIstanbul,Turkey,togetherwithawell-attendedBusinessForumthathighlightedtheprospectsofourhost,Turkey,aswellastheregionmorebroadly.TheproceedingswerehighlightedbythefactthattheBankcelebratedits20thanniversarysinceitbecameoperationalbackinJune1999.Thisofferedauniqueopportunitytotakeastepbackandtoseehowfar theRegionhascomealongoverthesetwodecades,andtoconsiderhowBSTDBhasgrownandevolvedinthiscontext,andasthemostnewlyformedmultilateraldevelopmentbanktoinitiateoperationsintheBlackSeaRegion.
Thisoccasiongavearealperspectiveandwasusefulandinspiring.ForalltheturmoilthattheRegionhasexperienced,ithasgrown insize, sophisticationandprosperityduringthisperiod.Countriesconsideredamongthe lowest incomeeconomiesgloballyhaverisentomiddleincomestatus,intheprocessliftingtensofmillionsoutofpoverty.Theyhaveimprovedtheirresilienceandstanding,demonstratingawillingnesstoundertakedifficultshort-termdecisionsforthesakeof longer-termprosperityandstability.While theycontinue to facemanychallenges inorder toachievegreaterconvergencetowardsthelivingstandardsofthemostdevelopedeconomies,thechangeismarked,notableandbroadbased.Vulnerabilitiesofthepasthavebeenmitigated,andsubstantialprogressachievedincreatingopen,welcomingbusinessenvironments.
Throughout this process, BSTDB has grown steadily and surely, seeking to achieve prudently managed growth thatsafeguardstheinstitutionandenhancesitsprofile.WhilethereisstillalongwaytogofortheBanktoachieveitsvisionofbecomingaprominentbusinesspartnerforbanks,clients,andagenciesactiveintheBlackSeaRegion,ithasachievedsubstantial,steadyprogresstowardsthisgoal,stepbystep,clientbyclient.
Dmitry PankinPresidentChairman of the Board of Directors
BLACK SEA TRADE AND DEVELOPMENT BANK
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BSTDB’sKeyAccomplishments1999-2019• InJune2019theBlackSeaTradeandDevelopmentBank(BSTDB)markedthetwenty’sanniversaryofthelaunchof
itsoperations.Duringtheperiod,BSTDBhassoughttofulfilitsdualmandatetosupporteconomicdevelopment in membercountriesandtopromoteregionalcooperationamongthembyproviding financingfor investmentoperations and trade transactions. The Bank has developed a broad range of financial products and services tobanks,firms,andagenciesintheprivateandpublicsectorinallitselevenmembercountries.Asthesophisticationoffirmsintheregionhasgrown,theBankhasbroadenedthearrayofactivities,providinglongertimehorizonsandaccommodatingmorecomplicatedstructures.
• Sincethecommencementofoperationsin1999,BSTDBhasapproved422operationsforatotalamountofEUR6.8billion.Thisfigurerepresentsonlyafractionofthetotalmobilizedresources,sincetheBankfinancesapartoftheprojectcost,requiringtheinvolvementofothersourcesoffinancing.TheBankhasdisbursedEUR5.9billionandhassupportednationaleconomicpolicypriorities inmembercountries, focusingonkeysectorsgeneratingeconomicgrowthandemployment,suchasmanufacturing,energy,transport,telecommunications,agribusiness,trade,andthefinancialsector.
• Supportforsmallandmedium-sizedbusiness(SME)developmenthasbeenasignificantcrosssectoralpriorityasSMEsaccountforthevastmajorityofoperationalandemploymentgrowthacrosstheregion.UnderitsSMESupportProgram,theBankhasprovidedoverEUR1.3billion,mainlychannelledthroughlocalfinancialinstitutionsinmembercountries.
• Goodinfrastructureisatthecoreofeconomicgrowthandhelpsbringpeopleandbusinessestogether.TheBankhassignedfinancingfor infrastructure, includingmunicipal infrastructureandpublicutilities,forEUR700million.TheBank’sinvestmentsintheenergysector,includingoilandgas,electricitygenerationanddistributionexceededEUR800million.AnotherEUR800millionwasinvestedindevelopingmanufacturingfacilitiesinmembercountries.
• BSTDBwasthefirstIFItoincorporatetradepromotionexplicitlyaspartofitsdevelopmentagenda.TheBSTDBTradeFinanceprogramhassupportedregionalexportsandimporttransactionsamongMemberStatestothecumulativetotalamountexceedingEUR1billionprovidedmainlythroughlocalfinancialinstitutionsinmembercountries.
• Maintenance of portfolio quality has remained a key feature of Bank operations. The Bank’s conservativeriskmanagementandcomprehensiveduediligencehaveresultedin limitedfinancial lossesandlowlevelsofnon-performingloans.Completedoperationsindependentlyevaluatedaspositiveintermsofefficiency,sustainabilityanddevelopmentimpact,havegrownsteadilyovertheyearsandexceeded70%.
• BSTDBhasbeenconsistentlyprofitablesince2004,rollingtheprofitsbackintoitsoperationalactivities.
• SincesecuringitsinitialinvestmentgraderatingfromMoody’sin2004,theBankhasbeenupgradedthreetimestoreachitscurrent“A2”long-termrating.TheBankhasalsoobtainedalong-termratingof“A-“byStandardandPoor’s.BSTDB’sratingisseveralnotcheshigherthantheaverageratingofitsshareholders,anditisthehighestratedinstitutionbasedintheBlackSeaRegion.
• Overtheyears,BSTDBhasbuiltnetworksofcooperationandpartnerships,theimportanceofwhichhasgrownsignificantly for purposes of knowledge sharing, procedural harmonization, strategy coordination andco-financing,amongotherthings.TheBankhasbecomeamemberofmultipleworkinggroupswithpeerIFIsandactivelycontributestodiscussionsonissuesofcommoninterest.BSTDBhasintroducedObserverStatusaimedatfacilitatingsynergiesandgreaterengagementofIFIsandotherdevelopmentbanksintheregion.BSTDB’sObserversincludetwelveleadingmultilateralandnationaldevelopmentinstitutions.
ANNUAL REPORT 2019
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Highlightsof2019• AspecialmeetingoftheBSTDBBoardofGovernorsapprovedtheBank’sMedium-TermStrategyandBusinessPlanfor
theperiodof2019-2022.TheStrategyaimstosignificantlyincreasetheBank’sportfolioandcapacityinthechangingeconomicandbusinesssettingthroughgreaterinvolvementininfrastructuredevelopmentandpublicsectoroperations,directtradefinancing,andothersectorswithhighdevelopmentimpact.
• In 2019, the first year of the implementation of the newMedium-Term Strategy, BSTDB’s outstanding portfolioreachedEUR1.851billion,showingarecord36%growthonthepreviousverygoodyear.InlinewiththeBank’snewbusinesspriorities,theshareofpublicsectoroperationsincreasedfrom13.5%oftheoutstandingportfolioin2018toover27%,mostnotablyinthepublicutilitiessector,whichgrewfrom11%to20%.AlthoughfinancialinstitutionscontinuedtobetheBank’s largestsinglesectorexposure, therealsectorfinancing increasedtoover67%of theportfolio.
• During theyear, theBoardofDirectorsapprovednewoperations toa record totalamountexceedingEUR1billion,whichrepresentsan86.8%increaseoverthepreviousyear.In2019theBanksigned26loanagreementsforEUR842.8million,a36.4%growthover2018.DisbursementstobusinessclientsinmembercountriesreachedEUR872million in2019,52%morethantheyearbefore.TheseoperationalachievementsoccurredastheBank’snon-performingloansdeclinedtooneoperationaccountingfor0.22%oftheportfolio.TheBankregisteredapositivenetincomeforthefifteenthconsecutiveyear.
• InMarch2019,BSTDB’s long-term“A-“ ratingoutlookwasupgradedfrom“Stable” to“Positive”byStandardandPoor’s.TheupgradewasdecidedontheprospectsforBSTDB’sexpectedwiderpolicyroleaftertheadoptionoftheMedium-TermStrategyfor2019-2022andtheBank’sextremelystrongfinancialprofile,healthycapitaladequacyandsolidliquidity.
• BSTDBhasexpandeditslendingfacilitiesinnationalcurrenciesofmembercountriesthroughissuinglocalcurrencybonds.In2019,BSTDBbecamethefirstmultilateraldevelopmentbanktoissuealocalcurrencybondinAzerbaijan.
• Thanks to the increasedfinancing limitsadoptedtosupport theBank’sBusinessPlantargets,BSTDBsigned itslargestloanofEUR160millionforthefinancingofthecapitalexpenditureplanofthePublicPowerCorporationS.A.ofGreece.TheoperationisexpectedtohavemultiplebenefitsfortheGreekeconomybyimprovingthecountry’senergymixandinfrastructure.
• BSTDBhasstrengthenedcooperationwithpeerIFIswhichhaveObserverStatuswiththeBank.In2019BSTDBandEIBlaunchedtheirfirstbusinesspartnershipbyjointlyprovidingaEUR100millionfinancingprogrammefornewinvestmentbyprivatesmallandmedium-sizedenterprisesandmediumcapitalizationcompaniesacrossGreece,RomaniaandBulgaria.Theprogramme, funded50/50by the twodevelopmentbanks, is supportinggrowth inagri-business,manufacturing,transportandrenewableenergy. BSTDBandKfWDevelopmentBanksignedanewUSD100millionfacilitytofuelBSTDB’sfinancingofmicro,smallandmedium-sizedenterprisesandsupporteconomicandsocialinfrastructureprojectsinBSTDBmembercountries(exceptBulgaria,RomaniaandRussia).
• InMarch2019,theBSTDBBoardofDirectorsappointedMr.AristotelisSpiliotisasSecretaryGeneralforaperiodoffouryears,followingaproposaloftheGovernmentoftheHellenicRepublic.
BLACK SEA TRADE AND DEVELOPMENT BANK
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Economic Overview oftheBlackSeaRegionin2019Facedwithweakexternaldemand,geopoliticaluncertainty,andunderperforming investments,thegrowthrate intheBlackSeaRegiondeclinedfrom2.8%in2018toapproximately1.7%in2019.However,duetotheconservativepoliciesfollowedbyBSTDBmembercountriesoverthelastfewyears,theirresiliencehasgreatlyimprovedasreflectedbytheimprovementincreditratingsofseveralmembercountries,whiletherewasonlyonecaseofratingdowngrade.
Ingeneral,itshouldbenotedthatgrowthin2019wascompressedinthewiderregionandglobally.Forexample,growthintheEurozone,whichisthemaineconomicpartnerfortheBSTDBmembercountries1,wasdownto1.2%,thelowestlevelofthelast6years.Similarly,economicactivityintheMiddleEastandCentralAsiawasuponly1.2%in2019,thelowestlevelsince1993.Weakexternaldemandislikelytocontinuein2020astheviruspandemictakesitstollontheregionandthewiderglobaleconomy.
Global Real GDP Growth, Select Regions
Source: National Statistical Agencies, IMF WEO April 2020.
-1%
0%
1%
2%
3%
4%
5%
6%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
BSTDB World Eurozone Emerging Europe Middle East and Central Asia
1 BSTDBmembercountriesinalphabeticalorderare:Albania,Armenia,Azerbaijan,Bulgaria,Georgia,Greece,Moldova,Romania,Russia,Turkey,andUkraine.
ANNUAL REPORT 2019
14
Followingtheglobaleconomiccrisisof2008andtheoilpriceshockof2014,governmentsinthewiderBlackSeaRegionstartedtoprioritize improving theresilienceof theircountries tovariousexternalshocks,adoptingmeasuressuchaskeepingfiscal deficits low, containing external debt and current account deficits and in general buildingbuffers. Thiswas achieved at the cost of foregoing economic growth. However, theweaker growth achievedwas based on solidfundamentals.This,inturn,isreflectedinthesovereignratingmapoftheregion.Forexample,in2019FitchupgradedfiveBSTDBmemberswhiletakingnoactiononthreecountriesanddowngradingonlyone.Moody’stookpositiveratingactionforthreecountries,keepingratingsofsevenstableanddowngradingonlyone.FourupgradeswereissuedbyS&Pwhiletherestwerekeptstableandtherewerenodowngrades.Ingeneral,outlooksforthemembercountriesasoftheendof2019wereeitherstableorpositivewithonlytwonegativeones.
Table: BSTDB Sovereign Credit Ratings Comparison end of 2018 vs. 2019
Endof2018 Endof2019
Fitch Moody’s S&P Fitch Moody’s S&P
Albania - B1(stable) B+(stable) - B1(stable) B+(stable)
Armenia B+(positive) B1(positive) - BB- (stable) Ba3 (stable) -
Azerbaijan BB+(stable) Ba2(stable) BB+(stable) BB+(stable) Ba2(stable) BB+(stable)
Bulgaria BBB(stable) Baa2(stable) BBB-(positive) BBB(positive) Baa2(positive) BBB (positive)
Georgia BB-(positive) Ba2(stable) BB-(stable) BB (stable) Ba2(stable) BB (stable)
Greece BB-(stable) B3(positive) B+(positive) BB (positive)* B1 (stable) BB- (positive)
Moldova - B3(stable) - - B3(stable) -
Romania BBB-(stable) Baa3(stable) BBB-(stable) BBB-(stable) Baa3(stable) BBB-(negative)
Russia BBB-(positive) Ba1(positive) BBB-(stable) BBB (stable) Baa3 (stable) BBB-(stable)
Turkey BB(negative) Ba3(negative) B+(stable) BB- (stable) B1(negative) B+(stable)
Ukraine B-(stable) Caa1(stable) B-(stable) B (positive) Caa1(positive) B (stable)
*asofJan24,2020ChangesareinboldformatSource:Respectiveratingagencies
Theemergenceand the rapid spreadof the coronavirus in early 2020 is creating significantdownwardpressuresongrowthprospectsfortherestoftheyear.Chinaislikelytopostitsweakestgrowthindecadesin2020,whichisnegativelyimpactingglobaleconomicprojectionsgiventheshareofChinaintheglobaleconomy.Comparedtothebeginningofthe2000s,whenitaccountedforlessthan4.0%ofglobalGDPinnominalUSDtermsandfor7.4%inpurchasingpowerparity,by2019China’sshareinglobaloutputreachedalmost16%and19%respectively.Therefore,thecurrentslowdowninChinawillhavefarstrongerglobalimplicationsboththroughthedemandchannelandthroughpossibleshocksinglobalsupplychains.Thisdownwardpressureisfurtherfuelledbythefastspreadofthevirusinotherregionsoftheworld.
Withexternaldemandalreadyweak,BSTDBmembercountriesreliedmainlyondomesticdemandtodrivetheireconomicactivityin2019.PreliminaryestimatessuggestthathouseholdconsumptionpostedpositivegrowthinallBSTDBmembercountries;itwasthemaincontributortogrowthinnineofthem,whileintwomembercountriesGDPgrowthwasdrivenbynetexports.Ineightmembereconomiesinvestmentgrowthwaspositivealbeitweak,whilenetexportshadnegativecontributiontoGDPgrowthinsevenmembers.
Whiledomesticconsumptiondrivengrowthcanbeviableovertheshortperiod,inthelongtermthereisalsoaneedforconsistentandstronginvestmentgrowth,whichwillprovidethebasistogeneratenewwealthandmeetincreasingdemand. Otherwise, domestic demandmight result in worsening external imbalances, which, in turn, will feed thenegativecontributionofnetexportstooverallgrowth.
BLACK SEA TRADE AND DEVELOPMENT BANK
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InvestmentsWhilethereisstilladebateaboutthedirectionofthecausalitybetweeneconomicgrowthprospectsandinvestment,thereisgeneralunanimityinthebeliefthatconsistentandlong-termgrowthrequiresinvestments.SimpleanalysisoftherecenthistoricaldevelopmentsintheBlackSeaRegionindicatesthattheregionisnotanexception.
Accordingtoconventionalwisdom,thereisalagbetweenactualinvestmentanditsimpactonthegrowthrate.So,itisassumedthatthisyear’sinvestmentwillinfluenceGDPgrowthinthenextseveralyearswithdiminishingimpactasyearspass.Thisislikelytoberelevantmostlyfortheadvancedeconomies.Inemerginganddevelopingeconomies,whichformthebulkoftheBlackSeaRegion,investmentscanhaveanimmediateimpactaswellgiveninvestmentneedsinquestion.Toaccountforthesedifferences,itisbettertolookatmultipleyearannualaveragesratherthanasingleyear.Thechartsbelowshowten-yearannualaveragesoftheratioofgrossfixedcapitalformationtogrossdomesticproduct(GFCF/GDP)andtheten-yearaverageofGDPgrowth(GDP%change).
Whiletodifferingdegrees,thedatashowsthatingeneral,highercapitalformationisassociatedwithhighereconomicgrowthrates.However, investmentisnottheonlyrawmaterialofgrowth.Thereareseveralotherfactorsalso,whichprobablyexplaindivergenceinMoldovaandRussiaforexample.However,eventhereitislikelythatgrowthrateswouldhavebeenlowerintherespectivedecadesifinvestmentshadbeenlower.Asimilarassociationexistsbetweenforeigndirectinvestmentandgrowthrate,withminorexceptionsthatcanbeexplainedbyotherfactors.
Whatthesechartssayisthattoachievehighergrowthinthemediumtolongtermthereisastrongneedforinvestments.Giventhatsavingratesinthecountriesdiffersubstantially,someeconomiesarenotinapositiontogeneratethenecessaryresourcesdomesticallyandwillthereforeneedtoattractmoreFDItodrivetheircapitalformation.
GDP Growth Rate and Gross Fixed Capital Formation, 1999-2018
Albania
Bulgaria
Moldova
Turkey
1999-2008GFCF/GDP (LHS)
2009-2018
1999-2008 2009-2018
1999-2008 2009-2018
1999-2008 2009-2018
35%
24%
23%
22%
21%
30%28%26%24%22%20%
10%8%6%4%2%0%
6%
4%
2%
0%
23%
22%
21%
20%
33%31%29%27%25%
10%
6%
4%
2%
0%
8%6%4%2%0%
GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
Armenia
Georgia
Romania
Ukraine
1999-2008 2009-2018
1999-2008 2009-2018
1999-2008 2009-2018
1999-2008 2009-2018
27%
25%
20%
15%
10%
8%
4%
0%
-4%
6%24.8%
24.7%
24.6%
3%
0%
25%
23%
21%
26%
12%
8%
6%
4%
2%
0%
8%
4%
0%
24%
22%
20%
18%
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
Azerbaijan
Greece
BSTDB
Russia
1999-2008 2009-2018
1999-2008 2009-2018
1999-2008 2009-2018
1999-2008 2009-2018
35%
30%
25%
20%
25%
20%
15%
10%
25%
26%
24%
22%
20%
9%
6%
3%
0%
20%
15%
10%
6%
3%
0%
-3%
9%
6%
3%
0%
20%
15%
10%
5%
0%
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
GFCF/GDP (LHS) GDP, %change (RHS)
Source:NationalStatisticalAgenciesandBSTDBcalculations
ANNUAL REPORT 2019
16
External BalanceAttheaggregatelevel,thecurrentaccountsurplusofBSTDBcountriesdeclinedfromUSD76.8bn(2.4%ofGDP)in2018toUSD60.4bn(1.9%ofGDP)in2019.However,thissinglefigurehidessubstantialdifferencesamongcountries.Attheindividualcountrylevel,majoradjustmentsincurrentaccountbalanceoccurredinTurkey,whereadeficitofUSD20.7bn(2.7%ofGDP) in2018 turned intoa surplusofUSD8.7bn (1.1%ofGDP) in2019.However, the improvement in theTurkishexternalbalancewasmorethanoffsetbytheretreatintheRussiancurrentaccountsurplusfromUSD113.7bn(6.8%ofGDP)in2018toUSD64.6bn(3.8%ofGDP)in2019.Overall,intermsofratiotoGDP,thebiggestimprovementintheexternalbalancein2019comparedtothepreviousyearoccurredinTurkey,followedbyUkraine,Georgia,Greece,Armenia,andMoldova.AbettertradebalancewasthemainsourceoftheexternalimprovementinTurkeyandGeorgia,whileinUkraineandMoldovaitwasmainlyduetoimprovementinsecondaryincomebalanceandinGreeceandArmeniaitwasrelativelyspreadoverthecategories.DeteriorationwasnotedinAzerbaijanfollowedbyRussia,Bulgaria,Albania,andRomania.Therelativedropincrudeoilpriceandcrudeoilproductionexplainsthefallinexternalsurplusesinthefirsttwocountries,thesurgeinimportsofgoodswasthemostimportantreasonforthelasttwoeconomies,whileinBulgariaitwasmainlyduetoaworseningoftheprimarybalance.
Current Account Balance in BSTDB Region
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
% of GDP (LHS) USD bn (RHS)
Source:NationalStatisticalAgenciesandBSTDBcalculations
BLACK SEA TRADE AND DEVELOPMENT BANK
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MerchandisetradevolumeofBSTDBmembercountries,whichaccountsforthemajorshareofthecurrentaccountbalancewasdown3.2%y/yin2019toUSD1.6tn(48.1%ofGDP).TotalexportsofBSTDBmembersweredown3.6%y/yasexportsof“mineralproducts”that includescrudeoilandnaturalgasdeclined6.4%y/y.Excludingexportsofthemineralproducts,exportsweredown1.7%y/ytoUSD0.5tnorslightlybelowtherecordhighof2018.Totalimports,ontheotherhand,weredown2.7%y/ytoUSD0.7tnin2019resultinginUSD82.4bnmerchandisetradesurplus,downfromUSD92.4bnin2019.
Intra-BSTDBtradevolume,ontheotherhand,wasdown1.0%in2019,likelyduetotheimpactofthedeclineinoilandoilrelatedproducts.However,theshareofintraregionaltradevolumeintotaltradevolumeforBSTDBmembercountriesincreasedfrom13.4%in2018to13.7%in2019,thehighest ithasreached inthe lastfiveyears. InnominalUSDterms,intraregionaltradevolumewasUSD213.2bnin2019,whileasaratiotoGDPitwas6.7%,downfrom6.8%recordedin2018.
BSTDB Trade – Overall and Intraregional
0%
5%
10%
15%
20%
0
500
1,000
1,500
2,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total Trade of BSTDB countries X+M, USD bn (LHS)
Intra-BSTDB Trade / Total Trade (RHS)
Total Intra-BSTDB Trade (X+M), USD bn (LHS)
Intra-BSTDB Trade / GDP (RHS)
Source:NationalStatisticalAgencies,WorldBankandBSTDBcalculations
ANNUAL REPORT 2019
18
Public FinancesOneofthekeymacroeconomiccharacteristicsoftheregionintherecentyearshasbeenthededicationtofiscalprudencethatresultedinimprovedbudgetbalances,oftenatthecostoftheforegoneeconomicgrowth.Thishashelpedtobuildupbuffersforfiscalexpansioninthefuture.Withthisavailablebufferandtherelativeslowdownineconomicgrowth,budgetbalanceswereeventuallyrelaxedin2019,insomecasesduetoapolicystimuluswhileinothersduetoautomaticstabilizationmechanisms.Accordingtoavailableestimates,theoverallgeneralgovernmentbalanceinBSTDBmembercountrieswentfromasurplusof0.5%ofGDP2018toadeficitof0.6%ofGDPin2019.Itisexpectedthatexpansionaryfiscalpolicieswillcontinueintheregionin2020duetofiscalstimulusesbeingimplementedtomitigatetheeconomiceffectsofthepandemic.
Asaresult,generalgovernmentgrossdebtintheregionhasalsoincreased,albeitmarginallyfrom34.4%ofGDPin2018to34.8%ofGDPin2019.Whileincreasing,itcomparesveryfavorablytolevelsobservedinotherregions.Forexample,theratiowas117.3%forG7countries,55.1%foremerginganddevelopingAsia,etc.However,itisworthnotingthattherearesubstantialintraregionaldifferenceswithdebtratiosrangingfromabove175%ofGDPinGreeceandbelow20%inRussia,AzerbaijanandBulgaria.Goingforward,generalgovernmentgrossdebtintheregionisforecasttoincreaseto35.4%ofGDPin2020andtocontinuetoriseafterwards,althoughitwillremainbelowthelevelscomparedtomostotherregions.
General Government Gross Debt, % of GDP
0%
20%
40%
60%
80%
100%
120%
140%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
e
BSTDB G7 Emerging Asia La�n America Middle East and Centr. Asia
Source:IMFWEOOctober2019
BLACK SEA TRADE AND DEVELOPMENT BANK
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Labor MarketThedropintheeconomicgrowthratenaturallyhadanimpactonemploymentintheregion.Againsta0.6millionincreaseinthelaborforce,employmentdecreasedby0.4million.GiventhatrelativelyweakgrowthwasrecordedinthelargesteconomiesoftheBlackSeaRegion,theoverallimpactwasnegativeandovershadowedthemorepositivetrendsinothersmallercountries.TogetherjoblossesinRussiaandTurkeyreached1.2million,whiletheunemploymentrateinthesecountriesinchedupto5.2%and13.8%respectively.Excludingthesetwocountries,employmentwasupby0.8millionintherestoftheregion.Still,giventheweight intheregion,thenegativetrendsinRussiaandTurkeyresultedintheunemploymentrateintheBlackSeaRegiontoincreasefrom7.2%in2018to7.9%in2019.AsidefromRussiaandTurkey,adeclineinemploymentwasrecordedinGeorgiatoo.Ofthe0.8millionincreaseintherestofthecountries,themaincontributionscamefromUkraine(+450K),Bulgaria(+108K),Greece(+77K),andAzerbaijan(+59K).
Employment and Unemployment Rate
135.0
137.0
139.0
141.0
143.0
145.0
7.0%
7.2%
7.4%
7.6%
7.8%
8.0%
2015
2016
2017
2018
2019
Unemployment rate (LHS) Employed, mn (RHS)
Source:NationalStatisticalAgenciesandBSTDBcalculations
ANNUAL REPORT 2019
20
Consumer Prices
Unlikethelabormarket,slowinggrowthhadamildpositiveimpactonconsumerpricesintheregion,withtheannualinflationratedroppinginsixcountries,remainingbroadlyflatintwocountriesandmarginallyincreasinginthreecountries.However,regionalinflation,calculatedbasedonGDPweightsofthemembercountries,inchedupto6.7%in2019from6.4%in2018,thehighestlevelofthelastfouryears.
Inflation Rate in the Black Sea Region
0%
2%
4%
6%
8%
10%
12%
14%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Weighted average Simple average Median
Source:NationalStatisticalAgenciesandBSTDBcalculations
BLACK SEA TRADE AND DEVELOPMENT BANK
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Conclusion
Overall,facedwiththeglobalslowdownineconomicactivity,regionalgeopoliticalinstabilityand,asofearly2020,theemergenceandspreadofthecoronavirus,BSTDBmembercountriesneedtolookfornewdriversofgrowth.Domesticdemand,bothprivateandpublic,arereliabledriversofgrowthintheshortterm,whilecompressedexternaldemandunderminesrelianceonexportdrivengrowth. In thisconstrainedenvironment,BSTDBmembercountriesneedtotryto increase investment inareaswhichwillexpandproductivecapacityandoverallproductivity.While investmenthasincreasedsincethelowsoftheglobalfinancialcrisisof2008-2009,theyremainbelowpre-2008period,whichappearstobeakeyfactorbehindtherelativelyslowergrowthinthepost2008period.
Thisisparticularlyrelevantgiventhatvirusrelateddisruptionsintheglobalsupplychainmayleadtotheneedforpoliciesfordiversificationandshiftsoffocalpointsinsupplychains.Whilesocialandhealthrelatedconcernsnaturallydominatethe topicabout the spreadof thevirus, thereare long term implications for supply chainsof theglobally integratedproduction networks. Some companies already face problems in procuring goods- intermediate and finished- fromcountrieshardhitbythevirus,asituationwhich leadseithertoadecline inutilizationortemporaryclosureseven incountriesnotaffectedbythevirus.Itisparticularlyrelevantincaseswhensingleitemproductionisconcentratedinonecountryorregion.Onelikelyconsequenceofthisisthattherewillbeagrowingpremiumondiversifyingsourcesofsupply.Inotherwords,itishighlylikelythatglobalcompanieswilltrytodiversifytheirsupplychainsbyconsideringinvestmentsinotherregionsorbyestablishingnewcollaborationswithcompaniesthathaveoperationsinotherpartsoftheworld.
WesternEurope isoneofthemost importantfinalmarketstodayandasignificantamountof its imports,eitherfinalgoodsorintermediarygoods,comefromChinaandothercountriesinSouthEastAsia.Thesetradechannelswereputunderstrainasthecoronavirusspreadandhasstimulatedthesearchfornewsourcesofsupplye.g.diversification.Inseekingtodiversifysupplychains,itishighlylikelythatglobalcompanieswillpayattentionnotonlytogeographicdiversitybutalsogeographicproximitytothefinalmarkets,alongsidetheusualfactorsofinfrastructureavailability,laborquality,etc.Inthisrespect,theBlackSeaRegioniswellplacedasitmeetsmostofthesecriteriaand,therefore,canbeamajorbeneficiaryofsupplychaindiversificationinthefuture.However,whilethisexogeneousfactormightbenefittheregionintermsofessentialinvestments,thereisalsoaneedforcontinuedimprovementintheinvestmentclimateintheregion.Withdeliberateconsolidationofthefiscalposition,improvementoftheexternalbalancessincetheglobalfinancialcrisisandoverallslowdowninglobalgrowth,governmentsintheregionstandreadytosupporttheeconomicdevelopmentandattractnecessaryprivateinvestmentsthatwillhelptheregiontoachievehighergrowthratesinthefuture.
ANNUAL REPORT 2019
22
BSTDBintheBlackSeaRegion
In Focus: BSTDB at 20 – Enhancing Support for the Black Sea Region
20th Anniversary of the Bank’s Operations
TheinitiativetoestablishBSTDBwasundertakeninthe1990s,astressfulperiodofsystemictransition,macroeconomicconstraints,andoccasionalpoliticalturmoilformanyoftheBank’sMemberStates.Despitethesedifficulties,theBank’sshareholdersremainedcommittedtotheideaofthecreationofawhollylocallyownedandfocuseddevelopmentBank.Thiscommitmenthasbeensustainedandenhancedovertheyears,formingthebedrockforalltheBank’sachievements.
In2019theBankmarkedthe20thanniversaryofitsoperationsintheBlackSeaRegion.Duringtheperiod,BSTDBhassoughtto fulfil itsdualmandatetosupporteconomicdevelopment in itsmembercountriesandtopromoteregionalcooperationamongthembyprovidingfinancingforinvestmentoperationsandtradetransactions.Startingfromscratch,theBankhasdevelopedabroadrangeoffinancialproductsandservicestobanks,firms,andagenciesactiveinallofitsmembercountries.
Over its twenty years, the Bank has operated against a global and regional economic and political setting that hasexperiencedbothgoodandnotsogoodtimes.Despitethechallenges,BSTDBhasnotexperiencedsignificantproblems.OurshareholdersrepresentedontheBank’sgoverningbodiesalwaysdemonstratedcommitmenttotheBank’sdevelopmentmandatetosupportgrowthandeconomiccooperationintheregion.
Key Milestones
In2007,theBSTDBBoardofGovernorsdecidedtotripletheauthorizedcapitalandthesubscribedcapitalwasdoubledtoEUR2.3billion.By2018,allcontributionstothecapitalincreasewerepaidinfullbytheBank’sfoundingmembers.
BSTDBhasalwaysbeenawareofthehugeimportanceofthecommitmenttofinancialresourcesbyitsMemberStatesfortheestablishmentofadevelopmentinstitution.IthasplacedalargeresponsibilityupontheBanktoproveitsworthtotheregionbyfindingnewwaystoprovidevalueaddedtotheagencies,banksandfirmswithwhichitworks.
TheBankhasrecordedpositivenetincomeforfifteenyears,startingfrom2004.Continuedimprovementinloanportfolioperformanceandimpact-portfolioqualityhasincreasedsteadilyovertheyearsintermsofefficiency,sustainabilityanddevelopmentimpact-currentlyover75%(accordingtoindependentevaluation).Havingattainedlong-termcreditratingsofA2fromMoody’sandA-(PositiveOutlook)fromStandard&Poor’s,BSTDBisthehighestratedinstitutionintheBlackSea Region. It has built cooperation networkswith leading development partners- twelvemultilateral and nationaldevelopmentbanksandinstitutionsactiveintheBlackSeaRegionhaverequestedandobtainedObserverStatuswiththeintentofachievingenhancedcooperationwithBSTDB.
The Need for Inclusive Growth in the Black Sea Region
Economicgrowthisanessentialrequirementfordevelopment,andthemajorcontributingfactortopovertyreduction.Forgrowthtoberapidandsustained,itshouldbebroad-basedacrosssectorsandinclusiveofthelargepartoftheworkforce.
Energygenerationandtransportationmaybeamongtheearliestdriversofgreenergrowth.Inagriculture,wherethereisahugepotential,newtechnologiesmayhelptheregionbecomingamajorfoodproducerandexporter.Manufacturing
BLACK SEA TRADE AND DEVELOPMENT BANK
23
remainscentraltoBlackSeaRegioneconomies, intermsofproductivityandincomegrowth,andfor innovationnoneof thiswouldbepossiblewithoutknowledge.Theknowledge-based industries– IT,biotechnology, renewableenergy,technicalsupportservices,neworganizationalstructures,marketingandadvertisingskills–arepotentialnewsourcesofeconomicgrowth.
Investment in Infrastructure – a Growth Enhancing Perspective
FormosteconomiesinSouthEasternEurope(SEE)thecurrentinvestmentlevelsarenotsufficienttomaintainthesizeofthecapitalstockrelativetoGDPunderreasonablegrowthassumptions.Accordingtoestimates,thecountriesintheSEEregionshouldinvestininfrastructuresome25%ofGDP,withabout7%comingfromthepublicsectorandtherestfromtheprivatesector.Atthesametime,theyinvestedmorethan25%ofGDPininfrastructureonlyduringthepre-crisisboom,andtheirinvestmentratedeterioratedsignificantlyafter2008.
ThereismuchmoretobedonefortheSEEregiontodeveloptheenergyandtransportationinfrastructure,andcommunicationnetworks.Thereisalsoasignificantinvestmentneedforphysicalinfrastructurewhichcouldhavealong-lastingmultipliereffect.
TheViennaInstituteforInternationalEconomicStudies(hasestimatedthattheshortandmedium-termfinancingneedsfornewconstructionoftransportinfrastructureintheWesternBalkanscomestoaroundfourbillionEuros,onaveragesome6%ofGDP.Suchinvestmentcouldleadtoanadditionalgrowthofuptoonepercentagepointperyearoveraperiodof15yearsandsome200,000newjobscouldbecreatedintheregion.
ItshouldthereforebeapriorityforthecountriesoftheBlackSeaRegiontospeedupinvestmentandbuildupsimilarinfrastructure,thelackofwhichhamperssustainableandinclusivegrowth.Theyneedtoincreasecross-bordercooperation,buildingoncomplementaritiesandcreatingsynergies.
The Role of Private Sector Participation in Financing Infrastructure Projects - a Catalyst for Innovation and Growth in South Eastern Europe and the Black Sea Region
Privatesectorparticipationininfrastructureprojectsislimitedandcautious,butitneedstobepromotedincooperationwiththepublicsector–thisisaroleMDBsmaysuccessfullyplayinbringingtogetherandfacilitatingthepartnershipbetweenthepublicandtheprivatesectors.
EuropeandCentralAsiaexperiencedarevivalininfrastructureprojects,ledbyTurkeyandRussia.
TheCentralandSouthEasternEuropeanregionshavebeenafast-growingphotovoltaicmarket,accordingto industryassociationSolarPowerEurope.Thishasenabledseveralcountriestoalreadymeettheirindividual2020EUtargetsforthepercentageofenergyconsumptionfromrenewables.
The Role of the Public Sector in Promoting Private Sector Investment
Onbusinessenvironmentthegovernmentshouldprovidepolicystabilityandpredictabilityinordertopromoteinvestmentandattractexternalfinancingonmorefavorableterms.
Inaddition,countriesintheregionshouldaimto:
• Harmonize standards (investmentpromotion, trade facilitation,environmentalprotection,employmentandworksafety,andcompetitionpolicies)
• Providetaxpolicystability• Ensurealevel-playingfieldandequaltreatmentofdomesticandforeigninvestors• Wherepossiblecoordinateinfrastructuredevelopmentsoastoachievebothgreaterefficiencyandscale
ANNUAL REPORT 2019
24
BSTDB’s Role in Supporting Investment in Infrastructure
TheshareofMultilateralDevelopmentBanks(MDBs)infinancinginfrastructureprojectsismodest,providingonly19%ofthetotalinvestment.TheroleofMDBs,anddevelopmentinstitutionsmoregenerally,expandedtoincludeenablingprivateinvestmentthroughsyndicationsupportandotherrisk-mitigationfacilities.
ThenewBSTDBMedium-TermStrategyandBusinessPlanfor2019-2022providesforashiftinfocustowardsfinancinginfrastructureprojectsinbothpublicandprivatesectors.ApriorityforBSTDBisfinancinginter-connectivityandcreatingpointsofaccessformunicipalitiestotransportationandenergynetworks.
Lookingintothefuture,BSTDBisconsideringprovisionoffinancingfacilitieswith:
• Longermaturities• Highervalues• Newareasoffocus,includingmunicipalinfrastructure,andfacilitationofdevelopinglocalroad,rail,energytransport
connectivity• Provisionofnew,innovativespecialproducts• Creatingsynergies,attractingfundingfromotherfinanciers
Inadditiontocatalyzingprivate-sectorparticipationthroughprovisionofloans,BSTDBmayenableprivateinvestmentbyprovidingavarietyofcreditenhancementproductsaimedatmobilizingprivatecapital.
Theseinclude:
• Instruments promoting investment and private sector participation, such as A/B loans, syndication support,mezzanineandbridgeloansandperformancebonds
• Instrumentswhichcouldpreventapotentialdefault,enhancerecoveryprospectsandreduciesloss in the event of a default,suchaspolitical-riskandpartialguarantees
• Anunfundedriskmitigating instrument, suchasBSTDB’s innovativeURPproduct, to facilitate themobilizationoffunds(loansorbonds)atlowercosts,bysubstitutingtheriskratingofthesovereigngovernmentwithitsownhigherriskrating
• Provisionoftechnicalassistance,facilitationofprojectpreparation,andsupportforlegalaspects,usingspecialfunds,asweusedtointhepast,suchastheHellenicFund,AustrianFund,RussianFund
Prospects for the Future
Forthefuture,theseachievementsprovideanincentivetostrengthenandexpandtheBank’soperationalactivities.Asthesophisticationoffirmsintheregionhasgrown,theBankhasbroadenedthearrayofactivities,providinglongertimehorizonsandaccommodatingmorecomplicatedfinancialproductsandloanstructures.BSTDBisincreasingitsactivitiestargetingpublicsectorentities,includingmunicipalitiesandregionalauthorities,aswellaspublic-privatepartnershipsandothertypesofinfrastructureinvestmentprojects.
TheBankislookingforwardtothecomingyears,aperiodofmanychallenges,butduringwhichitexpectsthatcontinuedeffortswillhelptomakenecessaryprogressinthepursuitofachievingtheBoardofGovernors’approvedstrategicgoals.Tothisend,theBankstandsreadyandopentocooperatefurtherwithallthosewhowishtocontributetotheeconomicprogressoftheBlackSeaRegiontowardseconomicprosperityandsocialstability.
BLACK SEA TRADE AND DEVELOPMENT BANK
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Portfolio Description SincethebeginningofoperationsinJune1999,theBankhasapproved422operationsamountingtoaboutEUR6.8billion.Throughoutthisperiod,therewere367signedoperationsforatotalsigningamountofEUR5.6billion.Atotalof296operationsforaboutEUR4.0billionwererepaid.Attheendof2019,therewere120operationsinthetotalportfoliowithanoutstandingbalanceofEUR1.851billion.
BSTDB Portfolio Development 2000-2019
100
257
398
435
486
567
664
891
1,073
1,054
1,145
1,372
1,276
1,238
1,517
1,894
1,930
2,036
2,266
3,103
65
154
231
345
408
479
525
680
941 906
1,010
1,180
1,168
1,145
1,320
1,703
1,721
1,754
2,056
2,701
39
64
100
210
288
332
340
506
678 630
673
720
786
779
962
1,114
1,192
1,166
1,358
1,851
0.00
500.00
1000.00
1500.00
2000.00
2500.00
3000.00
3500.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
EUR
(000
s)
Board Approved Opera�ons Signed Ac�ve Opera�ons Outstanding
Source:BSTDB
ANNUAL REPORT 2019
26
Cumulative Signed Operations by Sector
Consumer Discre�onary
4.8%Consumer Staples
7.6%
Energy6.7%
Financials39.0%
Health Care3.3%
Industrials12.7%
Informa�on Technology
0.6%
Materials9.6%
Real Estate1.4%
Telecommunica�on Services
3.0%
U�li�es11.3%
Source:BSTDB
Asofend2019theoutstandingoperationsoftheBank(cumulativedisbursementslessrepaymentsforactiveoperations)representedEUR1.851billion,distributedbycountryasperthefollowinggraph:
Outstanding Operations by Country
Albania2.2% Armenia
5.0% Azerbaijan6.6%
Bulgaria6.3%
Georgia6.3%
Greece20.9%
Moldova2.1%
Romania7.4%
Russia11.8%
Turkey22.7%
Ukraine8.7%
Source:BSTDB
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Active Signed Operations by Country
Albania2.2%
Armenia4.1% Azerbaijan
5.0%
Bulgaria7.3%
Georgia5.8%
Greece17.3%
Moldova2.2%Romania
8.1%
Russia15.1%
Turkey22.7%
Ukraine10.2%
Source:BSTDB
2019 Portfolio Developments
In2019theBoardofDirectorsapproved32newoperationsforatotalofEUR1.064billion.Twenty-sixnewoperationsweresignedforatotalofEUR842.8million.Asaresult,theBankhad120outstandingoperationswith104clientsattheendof2019.
Portfoliostructurebysectorremainedbroadly in linewiththeBank’shistoricaltrends.As inpreviousyears,themostsignificantexposureswereinfinancial institutions,utilities,industrials,energy,materialsandhealthcare.SignificantexposuretofinancialinstitutionsreflectsBSTDB’sstrategicfocusonSMEsectordevelopment,tradefinance,leasingandmortgagelinesofcreditextendedthroughfinancialintermediariesinmembercountries.TheBank’sparticipationinregionalSMEequityfundsrepresentedafurther1.64%oftheoutstandingportfolio.
Enhancedeffortwasputintoincreasingtheshareofthereal(i.e.non-financial)sector,whichreached66.9%ofoutstandingportfolioatyear-end.Twothirdsofthenewapprovalsin2019wenttotherealsector.Thesectorialstructurewaswelldiversified,withprojectsoriginatingfromvarious industriesandeconomysectors:energy,agribusiness,transport&publicutilities,financingsmallandmediumenterprises,leasing,tradefinanceetc.
Co-Financed Operations
TheBankvalues itscooperationwithother IFIsandfinanciers inmobilizing investment intheBlackSeaRegionandrealizingcross-borderoperations.SuchoperationspossesshighdevelopmentandshareholdervalueandarethereforeamongtheBank’spriorityactivities.
Inthecourseof2019,32.3%ofsignedoperationswereco-financedbytheBankwithpartnerinstitutions.Co-financedoperationsaccountedfor45%oftheBank’sactiveportfoliooutstandingbalance.
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Selected BSTDB Financings in 2019
Syvash Wind Power Project
Ukraine
BSTDB provided a long-term loan of EUR 30million to the special purpose company SyvashEnergoProm LLC for theconstructionandoperationofthe250MWSyvashwindparkintheKhersonregionofSouthernUkraine.SyvashEnergoPromLLC isaUkrainiancompanyestablished for theconstructionof theSyvashWindParkbyTotalErenofFrance,NBTofNorwayandAlGihazofSaudiArabia.
TheoperationisexpectedtohaveeconomicbenefitsfortheUkrainianeconomybycreatingnewjobsandgeneratingtax revenues. The operationwill also support the development of renewable energy in Ukraine and the overall de-carbonizationoftheenergysector.
FinancingfortheSyvashWindParkwasprovidedbyagroupofdevelopmentfinancialinstitutionsincludingBSTDB,EBRD,FMO,GreenforGrowthFund,NEFCO,PROPARCO,FinnfundandIFU.
BSTDBamount: EUR 30 million
TotalOperationcost: EUR 377 million
Typeoffinancing: Project finance
Maturity: 10 years
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PPC S.A.
Greece
AEUR160millioncorporateloanwasprovidedbyBSTDBtotheGreekPublicPowerCorporationS.A.(PPC)forfinancingthecompany’scapitalexpenditureprogram,comprisingalargenumberofmediumandlowvoltageelectricitydistributionschemes,includinga7,327kmnewmediumandlowvoltagenetworkandautomationcomponentsforthereinforcementandmodernizationoftheelectricitydistributionnetworkthroughpeninsularandinsularGreece.
BSTDB’sfinancingisexpectedtohavemultiplebenefitsfortheGreekeconomyandtheenergysectorinparticular,byimprovingthecountry’senergymixandinfrastructure.ItwillassistinrestoringGreece’seconomicgrowthbygeneratingtaxrevenues,creatingnewjobsandboostingconfidenceinavitalsectoroftheeconomy.
TheoperationmarksthebeginningofavaluablecooperationbetweenBSTDBandPPC,thebiggestpowerproducerandelectricitysupplycompanyinGreecewithapproximately7millioncustomers.
BSTDBamount: EUR 160 million
TotalOperationcost: N.A.
Typeoffinancing: Corporate loan
Maturity: 5 years
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Epicentr Group
Ukraine
TheprivateEpicentrGroupisthelargestdo-it-yourself(DIY)retailnetworkinUkraineintermsoftotalstoresarea,numberof stores and revenues, being larger than its nearest competitor by over 20 times. Aiming to diversify its activities,theGroupstarteditsownagribusinessdivisionwithatargettobuildasolidmarketpositioninasectorpredominantlygeneratinghardcurrencyrevenues.
AgribusinessisoneofthesectorsinwhichUkraineexcels,duetoitsundisputablecompetitiveadvantages.Soilandclimate,geographicpositionandpotentialforproductivitygrowthmakeUkraine’sagribusinessoneofthemostcompellingsectorsfor investment.For the lastseveralyearsUkrainehasgainedoneof thekeypositionsamongthe largestexportersofagriculturalproduce.
TheGroupapproachedBSTDBwitharequesttoconsiderfinancingpartofthecorporatedevelopmentprogramforitsagribusinesssegmentfortheyears2019-2020,estimatedatoverUSD240million.BSTDBapproveddebtfinancingofUSD70milliontosupporttheconstructionofthreenewgrainsilos,themodernizationoffourexistingonesandthepurchaseofagriculturalmachinery.
TheBank’sfinancingisexpectedtobeinstrumentalfortheexpansionoftheGroupintheagribusinesssectorinUkraineandtocontributetothedevelopmentoftheinfrastructureofthissector,creationofnewjobsandincreasingtheexportrevenues,thusstrengtheningthenationalcurrencyofthecountry.
BSTDBamount: USD 70 million
TotalOperationcost: USD 240 million
Typeoffinancing: Corporate loan
Maturity: 7 years
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State Leasing Transport Company – Lavna Port
Russia
TheBankisfinancingthedevelopmentofanewportinLavna,intheKolaBayoftheBarentsSea,oppositetheexistingportofMurmansk.TheprojectispartofthecomprehensivedevelopmentoftheMurmanskTransportHub(MTH)whichisbeingimplementedundertheRussianFederalTargetedProgram,“DevelopmentofRussia’sTransportSystem”.Anice-freeportwithcoaltransshipmentfacilitiesatLavnaisamongthekeyfacilitiesoftheMTHproject.
BSTDB’slong-termloanofUSD69milliontotheStateLeasingTransportCompanysupportstheacquisitionofmoderntransshipmentequipmenttobeinstalledatLavnadeep-seaterminal,whichuponadheringtotherequirementsoftheBankhasthepotentialtoresultinamodern,well-runfacilitythatemploystheindustry’sbesttechnologiesandpracticesinhandlingcoal,andaccountingfullyfortheE&Sissues.
BSTDBamount: USD 69 million
Typeoffinancing: Corporate loan
Maturity: 9 years
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Istanbul Municipality Waste to Energy Plant
Turkey
BSTDB provided a long-term debt of EUR 40 million to the Istanbul Metropolitan Municipality for the construction and operation of a greenfield municipal solid waste incineration plant with energy recovery of up to 90MWe. The plant’s 3 incineration lines will have a total processing capacity of 1,000,000 t/year of municipal solid waste.
The operation will have important benefits for the Turkish economy. Aside from the environmental benefits related to improving the municipal solid waste management, the plant will also contribute to the electricity generation capacity of Istanbul, as it will produce electricity from readily available domestic resources. Additionally, once operational, the plant is expected to generate profits and create employment, hence having positive multiplier effects.
The Waste Incineration and Energy Generation project is co-financed by BSTDB alongside BNP Paribas, Société Générale and SERV, the Swiss Export Risk Insurance Agency. The Bank has led the environmental and social due diligence on behalf of the Lenders and SERV.
BSTDB amount: EUR 40 million
Total Operation cost: EUR 318 million
Type of financing: Loan
Maturity: 7 years
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SOCAR Trading
Azerbaijan
BSTDBprovidedaUSD50millionrevolvingtradefinancefacilitytoSOCARTradingS.A.,tobeusedmainlyforthepurchaseofRussianUraloilfordeliverytoSOCAR’snewSTARRefineryinTurkey.SOCARTradingistheinternationalmarketinganddevelopingarmofSOCAR,theStateOilCompanyofAzerbaijan.
Theoperationhasastrongregionalcooperationanddevelopmentimpact,asitinvolvesprivateandstate-ownedexportingentitiesfromthreeBSTDBmembercountries(Azerbaijan,RussiaandTurkey). ItwillcontributetoincreasingthetradeturnoverbetweenRussiaandTurkey,willsupportthestate-ownedoilcompanyofAzerbaijan,therecipientoftheBSTDBloan,andisduetocontributetotheenergysecurityofTurkey.
Fast-growingTurkeyhasbeendependentonimportedenergyresources,leadingtoincreasedexternaldeficit.Addressingthisdeficithasbeenan importantchallenge forTurkey.Besidescreatingnew jobs,STARrefinery, therecipientof theRussianUraloilfinancedwiththeBSTDBfunding,isanimportantenergysecuritycooperationprojectforTurkey,beingexpectedtomeetover25%ofthecountry’sdemandforrefinedoilproducts.
BSTDBamount: USD 50 million
Typeoffinancing: Trade finance
Maturity: 1 year, revolving
Source: STAR Refinery in Aliağa, western İzmir province, Turkey, Nov. 8, 2017. (AA Photo)
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Over 15-years Cooperation by Boosting the Development of Ukrainian Gas-filling Stations Operator, Galnaftogaz
An illustrationof the long-termfruitfulcooperationbetweenBSTDBand itsbusinesspartners is the relationshipwithGalnaftogaz, aprivate companyhaving as its primary activity the constructionandoperationof gasfilling stations inUkraine.
SincethefirstloanextendedbyBSTDBbackin2004,theBankandGalnaftogazhaveenteredintoseveralloanagreementsinanaggregateamountexceedingUSD100million,mainlysupportingthenetworkexpansionbybuildingnewgasfillingstations,modernizingexistingones,diversifyingsupplysourcesandfinancingtheassociatedincreasedworkingcapitalneeds.
During the over 15 years of cooperation between BSTDB and Galnaftogaz, the relationship has been very fruitful,supportingthenotablegrowthof thecompany’sbusiness.Galnaftogazsucceededtosubstantially increase itsmarketsharefrom5%in2004toover18%in2019andbecametheleaderintheUkrainianpetroleumretailmarket.Thecompanyinvestedextensivelyinitsretailnetworkwhichexpandedfrom161gasfillingstationsin2004toalmost400in2019,whileoverthesameperiodcompanyrevenuesincreased6.6timesexceedingUSD1.5billionin2019,EBITDAgrewalmost19timesandthenetprofitincreased25times.WhilethekeyassetsareprimarilylocatedinWesternandCentralUkraine,thecompanyalsooperatesacrossotherregionsofthecountryandisalargeemployer,currentlyemployingmorethan8,500people(from5,000in2004).
ThesignificantgrowthofthecompanyhasaddedvaluetotheUkrainianeconomy,themostrelevantbeingthesubstantialtax revenue contributed by Galnaftogaz to the Ukrainian budget, new jobs creation and downstream linkages withsuppliersfromothercountriesintheBlackSeaRegion.
Success Stories – Selected Operations with High Development Impact During 1999-2019
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Supporting the Moldovan Agribusiness and Exports: Trans-Oil Group
BSTDBisalong-standingfinancingpartnerofTrans-OilGroup,thelargestMoldovanproducerofvegetableoilandrefinedbottledvegetableoil,aleadingproducerofflourandoneofthemostimportantexportersinthecountry.
Theagriculturesectoraccountsforaround15%ofgrossvalueaddedinMoldovaandemploysaboutonethirdoftheworking-agepopulationofthecountry.Trans-OilGroupworkswithover400farmslocatedthroughoutthecountry,whichmakestheperformanceofthecompanyveryimportantnotonlyforthelivelihoodofitsmorethan1,700employees,butindirectlytoover6,000people.
The cooperation between BSTDB and Trans-Oil Group started in 2017 when the Bank participated in the Group’ssyndicatedPre-ExportFinanceFacility(PXF).ThemostrecentiterationofthePXFisaUSD150millionfacilityinwhichtheBankparticipatedwithUSD20millioninthetranchewiththelongestmaturity.Thepre-exportfacilityisusedtofinancetheseasonalworkingcapitalneedsassociatedwiththeorigination,primaryprocessing,storageandtransportationofagriculturalcommodities,refinedsunfloweroilandtheirsubsequentsaleforexport.
Furthermore,in2019BSTDBbecameananchorinvestorinthebondissuedbyTrans-OilGroup,thefirstcorporatebondeverissuedinMoldova.TheBankprovidedanamountofUSD22.25millionoutofthetotalUSD300millionoffering.TheBSTDBparticipationwillhelp indiversifyingthefundingsourcesofTrans-Oilandpromotingitwithinthe internationalinvestorcommunity.
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Supporting the Development of Airports in BSTDB Member Countries
Airportsplayanimportantroleintheeconomicdevelopmentofacountrybyfosteringtrade,supportingnewjobscreationandpromotingtourismdevelopment.Byfacilitatingtourismandtrade,airportsandairtravelgenerateeconomicgrowthandincreaserevenuesfromtaxes.
Also,byeasingtheconnectionbetweencitiesandmarkets,airportsareakeyinfrastructurevassetwithpositivespill-overeffectsonaneconomy’sproductivecapacity:itenablesforeigndirectinvestment,facilitatestheestablishmentofbusinessclustersandspecialization.Hence,airportshaveasubstantialpositiveeconomicimpact,bothdirectlyandasanenablerofotherindustries.
Inpursuingitsdevelopmentmandate,BSTDBhasfinancedwithoverEUR160milliontheconstructionandmodernizationofairports,notablyinGreece,TurkeyandRussia.MostfundinghasbeenprovidedthroughthePPPmechanisminclosepartnershipwithindustryleadersandalongsideotherinternationalfinancialinstitutionssuchastheEBRD,EIB,IFCandotherdevelopmentbanks.
Forinstance,inGreeceBSTDBparticipatedwitha17-yearloanamountingtoEUR62.5millioninthefinancingpackageforthemodernizationof14regionalairportsincludingAktion,Chania(Crete),Kavala,Kefalonia,Kerkyra(Corfu),Kos,Mitilini,Mykonos,Rhodes,Samos,Santorini,Skiathos,ThessalonikiandZakynthos.Combined,theseairportsserveover25millionpassengers.ThePPPprojectisimplementedbyFraportGreece,aconsortiumofFraportAGFrankfurtAirportServicesWorldwideandaleadingGreekindustrialconglomerateCopelouzosGroup.Theprojectiscurrentlybeingimplementedand,uponcompletion,isexpectedtocontributetotourismdevelopmentandjobcreationintheislandsandmainlandGreece.
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In Turkey,BSTDBprovidedlongtermloansfortheconstructionandmodernizationofseveralairports.
In2012theBankprovidedaEUR40milliontoaprojectcompanyestablishedbyTAVAirportsHoldingforthemodernizationofIzmirairport.Theprojectentails,amongothers:demolishingtheexistingdomesticterminal,designing,engineeringandbuildinganewdomesticterminalanditsrelatedaccessroadandcarpark,renovatingtheinternationalterminaloftheairport,aswellasoperatingandmaintainingtheAdnanMenderesAirportdomesticandinternationalterminalsinaccordancewiththeinternationalnormsandstandardsunderaleaseagreementvaliduntil2032.TheBSTDBloanhasamaturityof16yearsand ispartofaEUR250millionfinancialpackageco-financedalongsidetheEBRDandseveralinternationalcommercialbanks(asEBRDB-lenders)andaTurkishcommercialbank.
Also,backin2010BSTDBhadfinancedwithEUR29millionthemodernization,operationandmaintenanceofIstanbulSabihaGokcenairportunderaBuild-Operate-Transfer(BOT)contract.TheprojecthadatotalcostofaboutEUR340millionandwasco-financedbyaTurkishandaninternationalcommercialbank.Earlier, in2005a loanofEUR18millionwasapprovedbyBSTDBforthedevelopment,construction,operationandmaintenanceofanewdomesticandinternationalterminalatAnkaraEsenbogaairport,aimingtotripletheoverallcapacityoftheairportto10millionpassengersperyear.TheprojectwasimplementedbyaprojectcompanyestablishedbyTepeandAkfenGroups,reputableTurkishconstructioncompanies,experiencedinotherairportmodernizationandoperationprojectsinTurkeyandabroad.
In Russia, BSTDB co-financed with a group of development and commercial banks the expansion, operation andmaintenanceofPulkovoAirportinSt.PetersburgattheamountofEUR15millionin2010.TheOperationwasthefirstinternationalpublic-privatepartnershipprojectinRussiaandhadastrongdevelopmentimpactimprovingthereliabilityofairtrafficandfacilitatingtechnologytransferandjobcreation.TheprojectwasawardedtheInternationalPPPDealoftheYear.
Suchlargeinfrastructureprojectshavesubstantialdevelopmentimpactforthecountryandcatalyzesolidmobilizationofcapital fromoutside theBlackSeaRegion,exploitingco-financingopportunitieswith internationalcommercialanddevelopmentinstitutions.
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Fostering Corporate Business Expansion Across the Region: Hellenic Dairies (Fabrica de Lapte – Tyrbul)
BSTDBandHellenicDairiesGroup(Greece)havealongtrackrecordoffruitfulcooperation.In2012,BSTDBextendedafirstlong-termloantoFabricadeLapteBrasov(theGroup’ssubsidiaryinRomania)foratotalamountofEUR30million,followedbyasecondlong-termloanofEUR10millionin2014.In2016,BSTDBextendedathirdlong-termcorporateloantofinancethecapitalexpendituresandassociatedworkingcapitalneedsofHellenicDairies’subsidiariesinRomaniaandBulgaria.TheaggregateamountofBSTDBfinancingtotheGrouphasreachedEUR68million.
HellenicDairiesS.A.wassetupin1965andholdsaleadingpositioninthefieldofproductionofdairyproductsinGreecewithitsthreeproductionfacilitiesinthecountry.Overthelast15years,theGrouphasalsosetupoperationsinRomaniaandBulgariaanddevelopedbusinessrelationswithpartnersin47countries,mainlywithinEurope.
TheGroup’scooperationwithBSTDBhassupportedtheachievementofitsbusinessdevelopmentstrategy.BSTDBfundinghasbeenusedtofinancetheconstructionofnewproductionlinesandstoragefacilities,aswellastheprocurementofmachineryandequipmentintheGroup’sproductionplantsinRomaniaandBulgaria.
Thesuccessfulpartnershipisillustratedinnumbersaswell:onlyinRomania,sincetheintroductionofBSTDB’sfirstloan,didtherevenuesofFabricadeLapteincreasealmost12times,currentlyexceedingEUR100millionandthenetprofitgrewbyover9times.TheGroupiscurrentlyemployingover1400people.
ThenotablegrowthoftheGroup’sbusinesshasaddedvaluetotheBulgarianandRomanianeconomiesbygeneratingadditional export and tax revenues and supporting the activities of a successful private company active in Romania,BulgariaandGreeceandhencepromotingthecooperationamongBSTDBMemberStatesviainvestmentsandexports.
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Promoting Romanian Farmers’ Access to Finance: Agricover Group (Romania)
ThesuccessfulrelationshipbetweenBSTDBandAgricoverGroupdatesbackto2013whenBSTDBextendeditsfirstlong-termloantotheAgricoverGroupofCompanies:AgricoverSA(agribusiness)andAgricoverIFN(agrifinance),foratotalamountofEUR15million.
In2017BSTDBextendedasecondlong-termloantoAgricoverCreditIFNforanamountofRON69.5million(aboutEUR15million),usedtofinancetheRomaniangrainfarmerswhicharesuppliersofAgricoverGroup’sprocessingandtradingcompanies.
AgricoverGroupisthepioneerofagriculturebusinessinRomania.IthasbeenactiveintheRomanianagriculturemarketsince2000,withitsagribusinessandagrifinancebusinessunits,bothofwhicharecontinuouslygrowing.Thesuccessfullong-termcooperationofBSTDBwithAgricoverGroupresultedinanotablegrowthoftheGroup’sbusinessinRomania.
SuchgrowthhasalsoaddedvaluetotheRomanianeconomy,themostrelevantbeinggeneratingadditionalexportandtaxrevenues.
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Supporting the Development of Environment-friendly Urban Transportation: Istanbul Metro (Turkey)
Istanbulhasbeenexperiencingafastpopulationgrowth:from9millioninhabitantsin2001toover15millioncurrentlyandthegrowthtrendisexpectedtocontinue.TheIstanbulMetropolitanMunicipalityhassetamongitsmainprioritiesaddressingthetrafficcongestionproblemsinthecity.
Significantinvestmentsinmunicipalinfrastructureareunderwaywithaconsiderableinvestmentbudget.BSTDBhasbeenareliablefinancierofseveraloftheseprojects:
Otogar-Bağcılar and Kirazlı-Ikitelli-Basak Houses/Olympic Village Metro Line
In 2007 BSTDB financed alongside commercial banks from Turkey and abroad and another development financialinstitutiontheexpansionofthemetroandlightrailtransportsysteminIstanbul.Theprojectentailedboththeextensionofthe lightrail fromOtogarstation(servingthemajor intercitybusterminalontheEuropeansideof Istanbul)tothedenselydevelopedresidentialareasofBağcılarandKirazlıandtheexpansionofthemetrolinealongKirazlı-Ikitelli-BasakHouses/OlympicVillageintheEuropeansideofIstanbulwithadouble-tracksystemof16.5kmand13stations.TheBSTDBparticipationinthefinancingpackagewasUSD21millionforatotalprojectcostexceedingUSD530million.
Kadikoy-Kartal Metro Line
Furthermore,in2008theBankjointlyfinancedalongsideotherclubbanksthemetroprojectfortheconstructionofadoubletracksystemmetrolineof21kmserving17stationsalongtheD-100highwaybetweenKadikoyandKartal.ThemetrolineservicespassengerscrossingtheBosphorusviatheIbrahimagaStationwithdirectaccesstotheBosphorusTubeTunnelCrossing,henceprovidingaconvenientandfastaccesstotheEuropeansideandthemetrosystemofIstanbul.TheBSTDBparticipationwasEUR50millionandthetotalprojectcostamountedtoaboutEUR750million.
Umraniye-Atasehir-Goztepe Line
Lately, in2019theBank jointlyfinancedwithEBRDandSociétéGénérale (asEBRDBLender) theÜmraniye-Atasehir-Goztepemetrolineconsistingof13kilometreswith11stations.ThelinewillconnectÜmraniye,AtasehirandKadikoydistrictsofIstanbulandwillinterlinkthreerailsystemlinesinaNorth-Southorientation,whilealsoprovidinginterfacestolinesinanEast-Westdirection.ThelinewillbeanAutomatedMetroSubwaySystem(driverless).BSTDB’sparticipationisEUR77.5millionandthetotalprojectcostisestimatedatEUR175million.
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Fostering the Development of Micro, Small and Medium-sized Enterprises: FONDI BESA (Albania)
FONDIBESAisthelargestnon-Bankingfinancial institutioninAlbania,operatinginthemicro/SMEsegmentthroughanetworkof80officesalloverAlbania.Thecompanyhasmorethan33,000activeclientsandaloanportfolioofoverEUR95million.Itsmissionistohelptheeconomicgrowthandpovertyreductioninurbanandsemi-urbanareasofAlbaniabypromotingmicro,smallandmediumenterprisesthroughthecreationofaprivatemicro-financeAlbanianfundwhichisself-sustainable.ClientsofFONDIBESAincludepeoplefromallsocio-economiclayers,includingunemployedandstart-upbusinesses.FONDIBESAprovidesallkindsoflending,includingconsumerandmortgageloans.
TheBSTDBcooperationwithFONDIBESAstartedin2014withacreditlineofEUR6million,supplementedin2016byanewcreditlineofEUR5millionformicro,smallandmedium-sizedenterprises(MSME).In2019thelongtermBSTDBpartnershipwithFONDIBESAwas furtherenhancedwithanadditionalMSMEcredit lineofEUR10million.ThroughthisfinancingBSTDBwasable toreacha largernumberofmicro,smallandmedium-sizedenterprises inAlbaniaandcontributetoimprovingtheiraccesstofinance,hencefosteringjobcreation,incomegenerationandpovertyalleviation.
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Technical Assistance Support
Black Sea Project Promotion Facility
Aiming to support the investment initiatives in the Black Sea Region, the Russian Federation initiated in 2017 theestablishmentoftheBlackSeaProjectPromotionFacility(theBSPPF),fundingitbyaninitialcontributionofUSD1million.BSPPF finances technical assistance services for the preparation of feasibility studies, Business Plans, due diligenceanalyses,creationofnetworksorpartnerships foractivitiesmostlyrelatedtoenergyefficiencyandrenewableenergysources, environmentally friendly technologies, infrastructure, trade exchanges, and knowledge-sharing. FinancingrequestsmaybebroughtbyBSTDBandthePermanent InternationalSecretariatof theOrganizationof theBlackSeaEconomicCooperation(BSECPERMIS).BSPPFfocusesonpilotmedium-sizedprojectsmeetingtheestablishedcriteriaandrequirementsofBSECPERMISandBSTDB.In2019,theBSPPFfundedathirdassignmentsubmittedbyBSTDBforlegaladvisoryservicesonissuesofBulgarianlawrelatedtomunicipalfinancing.TheBSPPFtheninitiatedafourthassignmentrelatedtothecreationofaPPP-BSTDBCentertopromotepublic-privatepartnership(PPP)investmentintheBlackSearegion.
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SustainabilityOverview
Addressing SustainabilityThe Principles
BSTDBhascommittedtoaddressenvironmentalandsocialsustainabilitybyapplyingthecoreprinciplesinitsoperatingmodelandfinancingdecision-making.Thus,pollutionpreventionandmitigation;respectforfundamentalhumanrightsin theworkingenvironment;addressingclimatechange;promotingefficientuseofnatural resources,protectionandconservationofbiodiversity;anddisclosureofinformationonenvironmentalandsocialperformanceofitsoperations,andengagementinopendialoguewithstakeholders,areallpartofthegeneralsustainabilityapproachoftheBank.
Environmental and Social Due Diligence
AlloperationsconsideredbytheBankforfinancingundergomandatoryenvironmentalandsocialduediligence.Dependingontheassociatedpotentialenvironmentalandsocialrisksandimpacts,andthescopeoftheenvironmentalandsocialduediligencethatisnecessarytoidentify,assessandmitigatetheserisksandimpactsalloperationsarescreenedintoA,B+,B,CandFIcategories.
TheduediligenceofoperationsfinanceddirectlybyBSTDB,dependingonrelevance ineachspecificcase,focusesonsuchissuesastheenvironmentalandsocialmanagementappliedbytheborrowers;laborandworkingconditionsandhowpeoplearetreatedintheworkingenvironment;theappliedpollutionpreventionandabatementmeasuresandhowefficienttheresourcesarebeingused;potentialrisksonthelocalcommunities,theirhealth,safetyandsecurity;issuesrelated to land acquisition, involuntary resettlement and economic displacement; impacts on biodiversity, ecosystemservicesandsustainableuseoflivingnaturalresources;protectionofanyculturalheritage;andpotentialrisksandimpactsonindigenouspeoplesifpresentintheareaofinfluenceoftheoperation.
The due diligence of operations financed by BSTDB through Financial Intermediaries (FIs) normally focuses on thecapabilityofsuchFIstomanagetheenvironmentalandsocialrisksandimpactsassociatedwiththeirbusinessactivityinamannerthatiscompliantwiththerequirementsoftheBank’sEnvironmentalandSocialPolicyandthenationallegislationineffect, includingthecountry’scommitmentsunder international law. If thesearefoundtobesatisfactorytheBanknormallydelegatesthefunctionandresponsibilityforenvironmentalandsocialissuestoitsFIBorrower.
CategoryAoperationsaresubjecttoEnvironmentalandSocialImpactAssessment(ESIA)processandrequiremeaningfulconsultationwith the public thatmay be affected by such operations. This includes setting of procedures for publicnotification,disclosureofrelatedinformationabouttheoperationanditspotentialE&Srisksandimpacts,publicreviewandcomment.CategoryAoperationsarealsopubliclydisclosedona30/60calendardayschemebeforethesemaybesubmittedtotheBoardofDirectorsforconsideration.
Compliance requirements and standards followed
AlloperationsconsideredbyBSTDBneedtocomplywiththefollowingminimalenvironmentalandsocialrequirements:1)compliancewithnationalpublicinformationlawsandregulations,includingnationalcommitmentsunderinternationallawor,whereapplicable,therelevantEUenvironmental,labor,healthandsafetyregulations;2)availabilityofpermits,approvals,licensesandcertificatesrequiredunderrelevantlawsandregulations;3)CategoryAoperationsneedtomeettherequirementsappliedbyWorldBank/IFCor,whereapplicable, EUregulations,namely theEnvironmental ImpactAssessment(EIA)Directiveandrelevantsector-specificandcross-cuttingdirectives.CategoryAoperationsthatarelikelytogeneratetrans-boundaryimpactsneedtomeettherequirementsstipulatedundertheEspooandAarhusConventionsirrespectivewhetherthecountryofoperationisapartytotheConvention;and4)MeettherequirementsoftheBSTDBEnvironmentalandSocialExclusionList.
BSTDBmakes its best efforts to apply good international environmental and social practices in all the operations itfinances.Bygoodpractices,theBankrecognizestheperformancestandardsandrequirementsoftheleadingMultilateralDevelopmentBanks (MDBs),developmentagencies, theEuropeanUnion (EU)E&Sstandards, the ILOCLS, theWorld
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HealthOrganization(WHO)standards,relevantIMOconventions,aswellasrelevantinternationalconventions,suchasConventionontheProtectionoftheBlackSeaAgainstPollution,andthemultilateralenvironmentalagreementsundertheUnitedNationsEconomicCommissionforEurope(UNECE),inparticulartheConventiononAccesstoInformation,PublicParticipationinDecision-MakingandAccesstoJusticeinEnvironmentalMatters(AarhusConvention),andConventiononEnvironmentalImpactAssessmentinaTrans-boundaryContext(EspooConvention).
Public Disclosure of Environmental and Social Information
TheBankaspartofitssustainabilityapproachcommittedtoinformthepublicinatransparentandtimelymannerabouttheenvironmentalandsocialaspectsassociatedwith itsoperations.This information ispostedontheBank’swebsiteasOperationSummaryDocuments (OSDs)and includesgeneral informationabout theoperationfinanced,aswellasinformationonE&Scategorization,thepotentialrisksandimpacts,andhowthesewillbeaddressedthroughoutthelifeofBSTDB’sfinancing.OSDsaredisclosedtothepublicaftersuchoperationsareapprovedbytheBank’sBoardofDirectors.
BSTDBalsodisclosestothegeneraland/orinterestedpublicrelevantenvironmentalandsocialinformationofitsCategoryAoperations,thatareoperationsassociatedwithpotentiallysignificantrisksandimpacts.Forprivatesectoroperationsthisinformationisdisclosednolaterthan30calendardaysbeforetheBoardofDirectorsmeeting,and60calendardaysforpublicsectoroperations.Thus,anystakeholdersdirectlyorindirectlyaffectedbytheBank’sCategoryAoperations,orhaveaninterestinsuchoperations,canreviewtherelevantinformation,makeenquiries,andprovidecomments.
Monitoring and Institutional Aspects
All the operations financed by the Bank are monitored against the agreed environmental and social compliancerequirementsinordertoensurethatrelevanttermsandconditionsstipulatedinthelegalagreementaremet.Inadditiontothat,monitoringhelpstheBanktodeterminewhetherthepreventionandmitigationmeasuresemployedinmanagingtheenvironmentalandsocialrisksandimpactsareeffectiveorneedadjustments.
AllaspectsofenvironmentalandsocialsustainabilityoftheBankareledbytheEnvironmentalandSocialSustainabilityOffice,whichisinchargeofdevelopingandimplementingrelevantstrategicobjectives,policystatements,andinternalprocedures;itleadstheindependentenvironmentalandsocialduediligenceprocessofoperations;andadvisesseniormanagementontherelevantrisksandimpactsofthefinancingdecision-making,andthegeneralE&SperformanceoftheBank; thus, ensuring theBank’s activitiesdonot affect the stateof theenvironmentandhumanwell-being, andcontributingtoamoreefficientfulfillmentoftheBank’sdevelopmentmandate.
BSTDBhas committed itself to allocate thenecessary resources in order to ensure that its sustainability approach iseffectivelyfollowedandimplemented,isfullyintegratedintoitsoperationcycle,andisappliedinasystematicmannertoalltheoperationsfinancedbytheBank.
International Cooperation
BSTDB is actively cooperating with governmental bodies from its Member States, partner multilateral and bilateralfinancialinstitutions,businesses,civilsociety,andgeneralpublic,inensuringthatitssustainabledevelopmentobjectivesaremeteffectivelyandinatransparentmanner.
Since its establishment the Bank has established closed ties with its partnerMultilateral Financial Institutions (MFI)withintheWorkingGrouponEnvironmentalandSocialStandards (WGESS).WGESS isahigh-level forumrepresentedbythekeyenvironmentalandsocialrepresentativesofMFIsanddevelopmentagenciesaroundtheworld,whichaimsatharmonizingtheenvironmentalandsocialassessmentpracticesbysharingexperiences,discussingissuesofconcern,developingcommonapproaches,andworkinginpartnership.
BSTDBisalsoactivelyinvolvedattheEuropeanlevelintheEuropeanDevelopmentFinanceInstitutions(EDFIs)WorkingGrouponEnvironmental and Social Issues,which is anotherhigh-level forumwhere the EuropeanBilateral FinancialInstitutions join efforts to harmonize their environmental and social practices and achieve higher developmenteffectivenessoftheirfinancing.
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AnnualEvaluationOverviewI N D E P E N D E N T E x - P O S T E V A L U A T I O N S
IntroductionAccordingtotheBSTDB’sEvaluationPolicy,theIndependentEvaluationOfficeoftheBankpresentsthisannualevaluationoverview to highlight key findings and trends from the conducted post-evaluations since the commencement of theBank’soperationsin2000.
ThisoverviewandotherevaluationproductsensureaccountabilityandqualitymanagementimprovementoftheBank’sperformance,basedonarigorous, internationallyharmonized independentevaluationof theBSTDBoperations.Eachannual evaluationoverview is presented to theManagement, theBoardofDirectors and theBoardofGovernors tohighlightkeyfindingsinoperationalandinstitutionalperformance.
Theevaluationoverviewsaggregateandcomparesthefindingsoftheconductedpost-evaluationsonanannualcumulativebasis.Theyrevealthedegreeofmandatefulfilmentaswellasimportanttrendsandcausallinks.Thesereportsdonotcontaincommerciallysensitive/operation-specificinformationand,therefore,representthemainvehicleforbroaderdisclosureandaccountabilityontheBank’sperformance.
TheannualevaluationoverviewpresentsasynthesisofthefindingsoftheBank’sevaluatedoperationsoverthepast20years,focusingonBSTDB’smandatefulfillment.ItpreservesthecorporatememoryoftheBankbydistillingtheessenceof“Lessonslearned”fromtheBank’sevaluationsinadiversityofoperations.
Independent Evaluation: Methodology and Adherence to Highest IFI StandardsTheBSTDBPost EvaluationPolicy commits the independent evaluation toGoodPractice Standards on Evaluation, asmaintainedbytheEvaluationCooperationGroup(ECG)oftheMultilateralDevelopmentBanks(MDBs).Thesestandards,interalia,ensuretheorganizationalandbehavioralindependenceoftheevaluationfunction,safeguardingtheimportantaccountability roleof theevaluation to theBoardsofDirectors/Governors.TheEvaluationOfficeofficiallybecameanobserveratECGin2010whenitstartedtomaintainapro-activerole inenhancingandapplyingtherespectiveMDB-specificstandards in independentevaluation. In2012and2013, theECGperformedacomprehensivepeerreviewofBSTDB’sEvaluationOffice,assessingitsmethodology,rigorandoverallpracticeagainsttherespectiveMDBstandards.ThereviewconcludedthatBSTDBmeetsthekeystandardsonevaluationindependenceandmadeanumberofenhancementrecommendations that were implemented by BSTDB in 2013. Subsequently, in April 2014 the Bank’s IndependentEvaluationOfficewasofficiallyadmittedasafullmemberoftheECG,acknowledgingitscommitmenttohighestMDBstandardsinevaluation.
ThecurrentevaluationoverviewprovidesanoverallpictureofBSTDB’sperformanceovertheperiodof2000-2019,withahighlightofthelatesttrendsanddevelopments(2015-2019),basedontheanalysisof131evaluationsofcompletedoperationsandadozenrelatedevaluationstudies.
Theanalysiscovers20yearsofBSTDBoperationsgroupedintofourfive-yearperiods,tosmooth-outannualfluctuations,asrequiredbytheapplicableevaluationmethodology.The2015-2019dataiscomparedwiththetargetofreaching70%positivelyperformingsampleofevaluatedoperationssetintheBank’spreviousandcurrentMedium-TermBusinessPlans.
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TheMDB-harmonizedevaluationmethodologyuses4ratingsforrankingperformanceofoperations,2positiveand2negative:Excellent,Satisfactory,PartiallyUnsatisfactory,Unsatisfactory.Theseratingsapplytoeachofthe5evaluationcriteria:
• RELEVANCE:ConsistencyofoperationalobjectiveswiththeBSTDBmandate• EFFECTIVENESS:Extenttowhichobjectivesareachieved• EFFICIENCY:Extenttowhichbenefitsarecommensuratewithinputs• SUSTAINABILITY:Likelihoodthatresultswillbemaintained• INSTITUTIONALIMPACT:Coversimprovementsinnormsandpractices
Theratingsonthose5criteriaformtheoverallrating,asinglemeasureofmandate-centeredoperation’sperformance.
Performance of Evaluated Operations
Overall Performance
Inthelatestaggregateperiod(2015-2019)BSTDB’spositivelyratedoperationsrepresent69%.Thisdenotesaslightdeclinefromearlierperiods(71%in2018,70%in2019)andstandsat1percentagepointbelowthetargetof70%,setbytheBank’sMedium-TermStrategy.Inbroaderterms,thelatest5-yearperiodrevealsapositivetrendcomparedtoprevious5-yearperiods(upwardsfrom37%in2000-2004,44%in2005-2009,and58%in2010-2014).
Ontheupperendoftheratings,theshareof“Excellent”declinedfrom16%in2005-2009,to5%in2015-2019.
TheshareofBSTDBoperationsratednegatively(PartlyUnsatisfactoryorUnsatisfactory),indicatesstructuralimprovement,asthelowest-ratedshare(Unsatisfactory)decreasedfrom24%in2010-2014to7%in2015-2019.
46%41%
24%
7%
17% 15%18%
24%26% 28%
52%
64%
11%16%
6% 5%
0%
10%
20%
30%
40%
50%
60%
70%
2000-2004 2005-2009 2010-2014 2015-2019
Performance Chart
Unsa�sfactory Partly unsa�sfactory Sa�sfactory Excellent
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63%56%
42%31%
37%44%
58%69%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
- 2015-20192010-20142005-20092000-2004
Posi�ve
Nega�ve
Performance of Bank's Opera�ons for 2000-2004, 2005-2009, 2010-2014, 2015-2019
Relevance, Effectiveness, Efficiency, Sustainability and Institutional Development
Amoreanalytical reviewof theevaluationratingsundereachof thefivecriteria (Relevance, Effectiveness, Efficiency, Sustainability and Institutional Development) ishelpful tounderstandthebroaderpicture,aswellaswheretheBankneedsmoreeffort,toenhanceoverallperformance.Anoutlineoftheshareofpositivelyratedoperations,outofall131evaluatedoperationssince2000,ispresentedbelow:
• Relevanceofoperations–66%(2000-2019)and70%(2015-2019)positivelyrated• Effectiveness–68%(2000-2019)and75%(2015-2019)positivelyrated• Efficiency–50%(2000-2019)and57%(2015-2019)positivelyrated• Sustainability–57%(2000-2019)and62%(2015-2019)positivelyrated• InstitutionalDevelopment–53%(2000-2019)and59%(2015-2019)positivelyrated
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66% 68%
50%
57%53%
70%75%
57%
62%59%
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Relevance Effec�veness Efficiency Sustainability Ins�tu�onalDevelopment
2000-2019
2015-2019
Performance Details: 2000-2019
Key Performance IndicatorsSince2016,theIndependentEvaluationOfficeoverviewsthekeyPerformanceIndicators(KPIs),approvedbytheBoardofGovernorsaspartoftheBank’sMedium-TermStrategyandBusinessPlan.Whiletherearevariousindicators,theoverviewhasafocusonthecompositeindicatorofMandateFulfilmentasitisfundamentalfortheBank’sroleandmission.Thetargetforthisindicatoristomaintainashareof70%orhigher ofex-postevaluatedoperationstoratepositiveonoverallperformance(combinedRelevance; Effectiveness; Efficiency; Sustainability and; Institutional Development).Asalreadynoted,thisshareforthelast5-yearperiodstandsat69%-veryclosebutjustbelowthetarget.
Independent Validation of Self-Evaluation ReportsTheBank’sOperationTeamsprepareself-evaluationreportsoneachoperation(OperationCompletionReports-OCRs).TheIndependentEvaluationOffice’snormallyissuesperformanceratingsthatdifferrelativetotheratingsassignedbytheoperationteamsintherespectiveOCRs.ThedivergencebetweentheOCRsandtheindependentevaluations,expressedinbinaryterms(i.e.reflectingonlythecaseswheretheindependentevaluationresultedinachangefrompositivelyratedself-evaluationtonegativelyrated2,orvice-versa)isasfollows:
• TheoverallOCRperformanceratingsissuedduring2015-2019werevalidatedbytheEvaluationOfficewithoutchangein69%ofthecases.
• Forthesameperiod,theOCRratingsthatwereupgradedanddowngradedbytheindependentevaluationwere0%and31%ofthetotal,respectively.
2Positive:ExcellentorSatisfactory;Negative:PartlyUnsatisfactoryorUnsatisfactory
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Benchmarking with Peer IFIsAll aspectsof evaluatedperformancehavebeen subject to rigorouspeerMDBbenchmarking since2004. Thesecomparisonsareconductedregularlyonthebasisofdataandtimeaggregation,toensurevalidityandoverallconsistency.
Since2008BSTDBhasmaintaineditsperformancegenerallyinlinewithcomparableMDBs.Thecomparativeevaluationreveals20yearsofgrowthandimprovement,withinsettargets,withsomedeviations.Atypicalrecurringchallengeisthesideeffectofvolume-dominatedincentives.Hereareferenceismadetothephenomenonknownas“approvalculture”-focusingonvolumesofnewoperationswithlesseffortonthequalityandsustainability,henceerodingthedevelopmentdimension),aswellasrelatedwavesofprematurecancellations.
Thelast5-yearsofdataplacestheBankwithintheaverageperformancerangeamongMDBs.
Follow-up of Evaluation RecommendationsTodate,allevaluationrecommendationsacceptedbytheManagement,AuditCommitteeandtheBoardofDirectorshavebeeneitherimplementedorareunderimplementation.Therearenooutstandingissues.
Conclusion Thereisaconsistentupwardtrend,withlatestresults(69%)beingjustbelowthetargetof70%positivelyratedoperationsset in theBank’sMedium-TermBusinessPlan.Since2008BSTDBmaintains itsperformancegenerally in linewiththecomparableMDBs, indicatingcertainadvantagesandlagssuchaswavesofoperationcancellations incertainperiods,affectingtheevaluationratingsdownwards.TheBankwillcontinuetoperformpeerbenchmarking,bothgenerallyandwithaparticularfocus,inordertostayabreastofgoodpracticeandlatestdevelopmentsindevelopmentfinance.
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InstitutionalActivities
Human ResourcesHumancapitalandstaffresourcesareakeyfactorinthesuccessoftheBSTDB.Theinstitutionstrivestomaintainitsstatusasacompetitiveemployerfollowinginternationalstandardsandbestpractices,applyingmeritocraticrecruitment,andaremunerationsystemthatpromotesexcellenceandpositiveincentives.
HR Development
The year 2019 wasmarked by the implementation and improvement of certain important HR policies. ImportantmodificationsweremadetotheBank’sbenefitsandallowancepolicy,andstaffpensionplanrules;importantnewbenefitswereintroducedundertheBank’srulesforworkandleave;andanewtransitionalsystemforthecalculationandpaymentofmonetaryrewardswasimplemented.
Thefollowingisamoredetaileddescriptionofeachoftheseachievements:
Therevisionofthebenefitsandallowancepolicyinconjunctionwiththestaffpensionplanruleswasaimedatfacilitatingstaffaccesstoad-hocfunding,whichwaspreviouslyavailableintheformofgeneral-purposeloans,whilereducingtherelevantadministrativeburdenfortheBank.
Thenewbenefitsintroducedwithintheframeworkoftherulesforworkandleavewereintendedtoprovidemoreflexibilityforstaffunderthesetofmaternityleavebenefits,andtoexpandthesetofbenefitsavailableunderadoptionleave.
A new Bank performance management system was implemented several years ago. This system was intended tooffer increasedobjectivityby linking individual performance to theperformanceof the institution throughaprocessof cascading objectives at different organizational levels. It also introduced monetary rewards directly linked toperformance.Theexperienceaccumulatedwiththesystem’s implementation,however,necessitatedarevisionofthesysteminviewofensuringthecomprehensivenessandaccuracyoftheappraisalprocess.Whilesuchrevisioncontinues,theBankdevelopedandimplementedatransitionalsystemforthecalculationandpaymentofmonetaryrewards,whichencouragedmanagerialjudgementwithinsetfinanciallimits.
Staffing and Recruitment
BSTDBconductsrecruitmentonawidegeographicalbasis.Whilepreferenceisgiventocitizensofthemembercountries,recruitmentiscompetitiveandisbasedontheprofessionalqualificationsofthecandidates.Asoftheendof2019,theBank’stotalheadcountwas113full-timeemployees.
Staff Development
TheBSTDBofferslearningopportunities,addressingthedevelopmentneedsofitsstaffwithinthecontextoforganizationalbusinessrequirements.Thepolicyontraining,learninganddevelopmentestablishesaclearlinkbetweentheinstitution’sbusinessneedsandthedevelopmentofprofessionalandtechnicalskillsofthestaff.In2019,theshareofthelearninganddevelopmentneedsofthestaffaddressedthroughin-housegrouptrainingactivitiescontinuedtoincrease.
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Staff Benefit System
BSTDBoperatesamarket-orientedstaffcompensationandbenefitssystemdesignedtomatchtheemploymentstandardsofotherIFIs.
The BSTDB medical, life and temporary incapacity/long-term disability insurance plan provides adequate coverageemphasizingpreventivemedicalcare.BSTDBalsooffersoptionalpost-separationmedicalcoverage.TheBSTDBpensionplan,launchedinJanuary2003,iscomprisedofafullyfundeddefinedbenefitandamatcheddefinedcontributioncomponent.Thiscombinationofferstheflexibilityrequiredforbestmeetingtheneedsofamulti-nationalworkforce.
Information TechnologiesTheITDepartmentisalignedwiththeBank’sstrategicgoalsandobjectivesinordertodeliverservicestohelpthebusinesstoreachtheirobjectivesandtomeetcustomerneedsandtheBank’smission.
IThas implementedanewuser interface inusing theOpentext,ExtendECMforSAP (xECMforSAP), latest softwareversion,whereauserinterfaceforeachdivisioniscreatedandoperationsworkspacesarecreatedforeachoperation,withaninformationstructuretostoreofficialoperationsinformation.TheabovesoftwareisintegratedwithSAPsowhenanoperationisregisteredinSAP,automatically,itcreatestheworkspacefortheoperationinxECMforSAP.Theoperationworkspace is connected to a financial database, which allows it to display financial information in the operation’sworkspace. Thisway, staffworkingon anoperation canhave all information required in a single space. The solutioncreatedisalsoaccessiblefrommobiledevices.
Also, the IT Department has capitalized on its investment in the Target Business Intelligence software to producedashboardsof information regarding theBank’soperations allowingdifferent viewsof operationsdatawhich lead tobetterdecisionmaking.
Tobetterpresent theBank to thepublic, itscustomers,andstakeholders theBankhascreatedanewwebsitewhichlaunchedinMay2019.ThenewwebsiteallowstheBanktocommunicateitsmissionbutalsoitsactionsmoreefficientlytothepublic,clients,investors,andstakeholders.Thenewwebsiteiseasiertonavigate,locateinformation,andcommunicatewiththeBank.
The Bank has also upgraded its IT infrastructure including its physical desktops and laptops toWindows 10. Also, ithasupgradeditsvirtualserverstothelatestsoftwareversionandanewVirtualDesktopInfrastructure(VDI)basedonWindows10andOffice2016hasbeencreatedandmadeavailabletoallusers.TheBankhasupgradeditsvideoconferencecapabilitiesbyacquiringtwoCiscovideoconferenceunitsandWebExservices,allowingittoremotelyandquicklyreachouttoclients,vendorsandotherIFIsforincreasingcollaborationandreachingitsbusinessobjectives.
Atrainingprogramincludingone-to-onetraining,butalsoonlinetrainingcourseshasbeenmadeavailabletoallstaffonMicrosoftOffice2016andtheBank’sEIMonoperationsworkspace.
External Relations During 2019, the External Relations and Communications Department focused on promoting the corporate imageandawarenessoftheBankunderaspecialActionPlandevisedtomarkthe20thanniversaryofBSTDBoperations.TheDepartment supported the Bank’s strategic and business objectives by facilitating cooperationwithMember States’governments,developmentcommunity,andbusinesscircles.
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Close Interaction with the Development Community
BSTDB maintained active participation in multilateral consultation mechanisms with peer IFIs and internationaldevelopmentinstitutionstofacilitateknowledgesharingandpromotedevelopmentaleffectiveness.
In June2019,BSTDBhosted theSpringMeetingof theEvaluationCooperationGroup (ECG)on IFIs, theauthorityonindependentevaluationandrelatedbestpracticestandards.AfterbecominganofficialmemberoftheECGin2014,theBank’sEvaluationOfficeenjoyedforthefirsttimetheprivilegeofchairingaregularECGmeetingaddressingademandingprofessionalagenda,suchasinternationalevaluationstandards,methods,peerreviews,andthematicstudiesofcommoninterest.TheECGalsocontributed toa seminaronPublicPrivatePartnershipsand theMobilizationofPrivateSectorFinanceintheDevelopmentContext.
Asinpreviousyears,BSTDBhascontributedtodiscussionsintheframeworkofIFIsjointworkinggroupsonothermatters,includingcorporategovernance,procurement,stakeholderengagementandinformationdisclosure,etc.
InSeptemberBSTDBhostedaSherpaMeetingof the InternationalDevelopmentFinanceClub (IDFC)attendedby16nationalandinternationaldevelopmentinstitutionsfromacrosstheglobetodiscussissuesofcommonconcern,includingthealignmentofdevelopmentfinancingwiththeSustainableDevelopmentGoalsandclimatefinance.
BSTDBwelcomedSirSumaChakrabarti,PresidentoftheEuropeanBankforReconstructionandDevelopment(EBRD)andhisteaminSeptembertodiscusscurrentjointactivitiesinelevencommonmembercountriesandfuturebusinessandinstitutionalcooperation,includingstaffexchangeandprofessionaltraining.EBRDisakeyBSTDBpartnerindozensofco-financedoperationsinGreece,Turkey,Ukraine,BulgariaandAzerbaijan.ThetwobanksarecontributingtoseveralSMEequityfundsoperatingintheBalkansandCaucasus.
TheBanklaunchedajointEUR100millionfinancingprogramwiththeEuropeanInvestmentBank(EIB)inSeptemberfornewinvestmentbysmallandmedium-sizedcompaniesandmediumcapitalizationcompaniesacrossGreece,RomaniaandBulgaria.Funded50/50byEIBandBSTDB,theProgramfocusesonsupportinggrowthbyagri-business,manufacturing,transport and renewable energy companies andmarks the first business partnership between the twodevelopmentbanks.
InDecember, BSTDBhosted a signing ceremony for a newUSD100million credit line fromKfWDevelopment Bank(Germany). The 8-year facility fuels BSTDB’s financing of micro, small and medium-sized enterprises and supportseconomicandsocialinfrastructureprojectsintheBank’smembercountries(excludingBulgaria,RomaniaandRussia).
TheBankmaintainedinformationexchangeandknowledgesharingasanactivememberoftheInteractGroupoftheAssociationoftheEuropeanDevelopmentFinanceInstitutions(EDFI).
Support for Regional Cooperation
BSTDBcontributedtotheeffortsoftheOrganizationoftheBlackSeaEconomicCooperation(BSEC),theParliamentaryAssemblyofBSEC,theBusinessCouncilofBSEC,andtheInternationalCentreofBlackSeaStudiesaimedatenhancingregionalcooperationacrosssectorsanddevelopmentagenda.
On the occasion of the 2019 AnnualMeeting in Istanbul in June, BSTDB held a Regional Business Forum under theauspicesoftheGovernmentoftheRepublicofTurkey.TheForumdiscussionsfocusedontheeconomicpolicyprioritiesofmembercountriesreflectedintheBank’sstrategyfor2019-2022.Theobjectivewastodefineinternationalbestpracticesinbringinginvestmentstoregionalinfrastructuredevelopmentandinusingnationalcurrenciesindevelopmentfinancing.TheBank’spartnershipwithleadingTurkishbusinessassociationsincludingtheTurkishBanksAssociation,DEIK,TUSIAD,andtheIstanbulChamberofCommerceassuredahighattendanceattheForumbyTurkishandinternationalbusinessmenandinvestorswhoalsohadproductiveB2BmeetingswithBSTDBbankerstodiscussspecificinvestmentproposals.
InDecember,theBankhostedaregionalworkshoptoencouragewomenfromthecountriesoftheBlackSeaEconomicCooperation(BSEC)tothriveintheworldofbusinessandentrepreneurship.Co-organizedwiththeGreekChairmanshipoftheBSECBusinessCouncil,theThessalonikiChamberofCommerceandIndustry,theeventfeaturedabroadvariety
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ofspeakersincludingpresidentsoffemalebusinessassociations,womenCEOsofcommercialenterprisesandBankingprofessionals. The participants discussed the challenges that are faced by businesswomen, professional education,networkingandthelong-standingdilemmaofbalancingworkandfamilylife.
Duringtheyear,BSTDBcontributedspeakerstomanyregionaleventshostedbyinternationalinstitutionsandbusinessentities.
Operational DevelopmentsInthefourthquarterof2019,theBankfinalizedanon-performingloansaletoanassetmanagementcompanyconcludingaborrower’slong-standingBankruptcyprocess.Thesaleoftheloancontractfacilitatedthereturnofthecompany´sidleassetsbacktothelocaleconomy,therebyhavingapositiveimpactinanunderdevelopedregionofaMemberCountry.
In2019,theBankimplementedanewsupervisionandmonitoringprocess,whichfurtherimprovedthemonitoringofexistingoperations.Italsofinalizedtherecruitmentprocessforthehiringoftwofinancialanalystsinordertoenhanceandspeeduptheprocessingofnewoperations.
Administrative ServicesDuring2019,theAdministrativeServicesDepartmentcontinuedeffortstospearheadtheprocessfortheacquisitionofnewpremises,improvetheoverallefficiencyofthedepartment,andprovidehigherqualityofservicetothestaffoftheBank.
• New premises:Thehiringofthenecessaryconsultants(projectmanagerandindependentengineer)wascompleted.Additionalmarketresearchwasconducted(requestsforexpressionof interest)tobestmaptheopportunitiesforappropriatenewpremises,atvariousstagesofdevelopment,inThessaloniki.Thedraftingofthetermsforacallfortendersthatwillbeissuedwithin2020beganinearnest.
• Reorganizationoflogisticalsupport:Additionalsupportforthedepartment’sdesks/unitsthatwereoverwhelmedbyarecentincreaseinhandledcases(traveldesk,expatriates’desk)wasprovidedthroughthereorganizationofthesecurityposition’stasksandtheproperuseofinternships.
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Financial Statements for the Year Ended31 December 2019
Together with Auditor’s Report
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Internal Controls over External Financial ReportingResponsibility for External Financial Reporting
Management’s Responsibility
Manavgement’s Report Regarding the Effectiveness of Internal Controls Over External Financial Reporting
TheManagementoftheBlackSeaTradeandDevelopmentBank(“theBank”)isresponsibleforthepreparation,integrity,andfairpresentationofitspublishedfinancialstatementsandallotherinformationpresentedinthisreport.Thefinancialstatements have been prepared in accordancewith International Financial Reporting Standards (IFRS) issued by theInternationalAccountingStandardsBoard.
Thefinancialstatementshavebeenauditedbyanindependentauditingfirm,whichhasbeengivenunrestrictedaccesstoallfinancialrecordsandrelateddata,includingminutesofallmeetingsoftheBoardofDirectorsandcommitteesoftheBoard.Managementbelievesthatallrepresentationsmadetotheexternalauditorsduringtheirauditwerevalidandappropriate.Theexternalauditors’reportaccompaniestheauditedfinancialstatements.
ManagementisresponsibleforestablishingandmaintainingeffectiveinternalcontrolsoverexternalfinancialreportingforfinancialpresentationsinconformitywithIFRS.Thesystemofinternalcontrolscontainsmonitoringmechanisms,andactions are taken to correct deficiencies identified.Management believes that internal controls for external financialreporting,whicharesubjecttoscrutinyandtestingbymanagementandinternalaudit,andarerevisedasconsiderednecessary,supporttheintegrityandreliabilityofthefinancialstatements.
Thereareinherentlimitationsintheeffectivenessofanysystemofinternalcontrols,includingthepossibilityofhumanerrorandthecircumventionofoverridingcontrols.Accordingly,evenaneffectiveinternalcontrolssystemcanprovideonly reasonableassurancewith respect tofinancial statements.Furthermore, theeffectivenessofan internal controlsystemcanchangewithcircumstances.
TheBank’sBoardofDirectorshasappointedanAuditCommittee,whichassiststheBoardinitsresponsibilitytoensurethesoundnessoftheBank’saccountingpracticesandtheeffectiveimplementationoftheinternalcontrolsthatmanagementhasestablishedrelatingtofinanceandaccountingmatters.TheAuditCommitteeiscomprisedentirelyofmembersoftheBoardofDirectors.TheAuditCommitteemeetsperiodicallywithmanagementinordertoreviewandmonitorthefinancial,accountingandauditingproceduresoftheBankandrelatedfinancialreports.Theexternalauditorsandtheinternal auditors regularlymeetwith theAudit Committee,with andwithout othermembers ofmanagement beingpresent,todiscusstheadequacyofinternalcontrolsoverfinancialreportingandanyothermatterswhichtheybelieveshouldbebroughttotheattentionoftheAuditCommittee.
TheBankhasassesseditsinternalcontrolsoverexternalfinancialreportingfor2019.TheBank’sassessmentwasbasedon the criteria for effective internal controls over financial reporting described in the “Internal Control – IntegratedFramework”(2013)issuedbytheCommitteeofSponsoringOrganisationsoftheTreadwayCommission(COSO).Baseduponthisassessment,managementassertsthat,at31December2019,theBankmaintainedeffectiveinternalcontrolsoveritsfinancialreportingasreflectedintheFinancialStatementsfor2019.
TheBank’sexternalauditorshaveissuedanauditreportonthefairnessofthefinancialstatementspresentedwithinthisreport.Inaddition,theyhaveissuedareasonableassurancereportontheeffectivenessoftheBank’sinternalcontrolsoverfinancialreporting.
Dmitry Pankin Valeriy PiatnytskyiPresident VicePresident,Finance
Black Sea Trade and Development BankThessaloniki7 May 2020
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DeloitteCertifiedPublicAccountantsS.A. 3aFragkokklisias&Granikoustr.Ma-rousiAthensGR151-25Greece Tel:+302106781100 www.deloitte.gr
INDEPENDENT REASONABLE ASSURANCE REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
TotheBoardofDirectorsandGovernorsofBlackSeaTradeandDevelopmentBank
Report on the Effectiveness of Internal Control over Financial Reporting
Wewere engaged by the Board ofDirectors of the Black Sea Trade andDevelopment Bank (the Bank) to report ontheeffectivenessof internalcontroloverfinancial reportingof theBank asof31December2019, in the formofanindependent reasonableassuranceconclusionaboutwhether the internal controloverfinancial reporting iseffectivebasedoncriteriaestablishedinInternalControl—IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).
Bank’s Responsibilities
The Bank’sManagement is responsible for maintaining effective internal control over financial reporting and for itsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingAnnualReport.
Our Responsibility
OurresponsibilityistoexpressareasonableassuranceconclusionontheBank’sinternalcontroloverfinancialreportingbasedontheevidenceobtained.
WehavecompliedwiththeindependenceandotherethicalrequirementsoftheCode of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles ofintegrity,objectivity,professionalcompetenceandduecare,confidentialityandprofessionalbehavior.
ThefirmappliesInternationalStandardsonQualityControl1and,accordingly,maintainsacomprehensivesystemofqualitycontrol including documented policies and procedures regarding compliancewith ethical requirements, professionalstandardsandapplicablelegalandregulatoryrequirements.
WeconductedourengagementinaccordancewiththeInternationalStandardonAssuranceEngagements(ISAE)3000(Revised).Thisstandardrequiresthatweplanandperformourprocedurestoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Theproceduresselecteddependonourjudgementandincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,testingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk,andperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourproceduresprovideareasonablebasisforourconclusion.
Wecommunicatedanyfindingsimportantenoughtomeritattentionbythoseresponsibleforoversightofthecompany’sfinancialreporting,tothosechargedwithgovernance.
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Definition and Limitations of Internal Control over Financial Reporting
ABank’s internalcontroloverfinancialreporting isaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancial reportingand thepreparationoffinancial statements forexternalpurposes inaccordancewithgenerallyacceptedaccountingprinciples.ABank’s internalcontroloverfinancialreportingincludesthosepoliciesandprocedures that (1)pertain to themaintenanceof records that, in reasonabledetail, accuratelyand fairly reflect thetransactionsanddispositionsoftheassetsoftheBank;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthebank;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthebank’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseof its inherent limitations, internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseof changes in conditions,or that thedegreeof compliancewith thepoliciesorproceduresmaydeteriorate.
Conclusion
Inouropinion,BlackSeaTradeandDevelopmentBankmaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreporting,asof31December2019,basedoncriteriaestablishedinInternalControl—IntegratedFramework(2013)issuedbyCOSO.
Athens,7May2020
TheCertifiedPublicAccountant
DespinaXenakiReg.NoSOEL:14161DeloitteCertifiedPublicAccountantsSA3aFragkokklisias&Granikoustr.,GR151-25Marousi,Athens,GreeceReg.NoSOEL:E120
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INCOME STATEMENTFortheyearended31December2019
PresentedinthousandsofEUR Note 2019 2018
InterestandsimilarincomeInterestandsimilarexpenseNetinterest(expense)onderivatives
78
93,969(53,274)(4,113)
78,717(37,974)(7,599)
Net interest income
Net fees and commissionsNetgainsfromequityinvestmentsthroughprofitorlossNetgainsfromdebtinvestmentsecuritiesthroughOCIForeignexchangeincome(losses)Otherincome(loss)
915
36,582
967268119
(1,067)4
33,144
1,65257229
(1,352)(3)
Operating income
PersonnelexpensesAdministrativeexpensesDepreciationandamortization
10,2510
17,18
36,873
(15,758)(5,187)(572)
34,042
(15,952)(4,770)(453)
Income before impairment
Impairment(losses)onloansatamortizedcostImpairment(losses)ondebtinvestmentsecuritiesthroughOCIFairvalue(losses)onloansthroughprofitorlossFairvaluegains(losses)onequityinvestmentsthroughprofitorloss
11121415
15,356
(1,841)(111)477
(217)
12,867
(6,292)(368)(446)(585)
Net income for the year 13,664 5,176
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
BLACK SEA TRADE AND DEVELOPMENT BANK
61
STATEMENT OF OTHER COMPREHENSIVE INCOMEFortheyearended31December2019
PresentedinthousandsofEUR Note 2019 2018
Net income for the year
Othercomprehensiveincome(expense):Itemsthatwillnotbereclassifiedsubsequentlytoprofitorloss:Actuarial(losses)gainsondefinedbenefitschemeGainsonequityinvestmentsfinancialassetsItemsthatareormaybereclassifiedsubsequentlytoprofitorloss:Gains(losses)oninvestmentsecuritiesfinancialassets
2323
23
13,664
(3,020)4,219
12,518
5,176
2,414713
(8,929)
Othercomprehensiveincome(expense) 13,717 (5,802)
Total comprehensive income (loss) 27,381 (626)
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
ANNUAL REPORT 2019
62
STATEMENT OF FINANCIAL POSITIONAt31December2019
PresentedinthousandsofEUR Note 2019 2018
AssetsCashandduefrombanks
DebtinvestmentsecuritiesatamortizedcostDebtinvestmentsecuritiesatfairvaluethroughother comprehensive incomeLess:impairmentlossesDebtinvestmentsecuritiesnet
Derivativefinancialinstruments–assets
LoansatamortizedcostLess:deferredincomeLess:impairmentlossesLoansatfairvaluethroughprofitorloss
Loansnetofimpairment
EquityinvestmentsatfairvaluethroughprofitorlossEquityinvestmentsatfairvaluethroughother comprehensive incomeEquityinvestmentsatfairvalue
Other assetsPropertyandequipmentIntangibleassetsRightofuseassets
24
12,24
12,2412
82,621
-
420,591(765)
48,598
49,339
346,640(644)
13
14,514
11,514
419,826
3,128
1,808,187(8,170)
(43,314)12,754
395,335
662
1,318,418(3,052)
(34,775)12,277
15,5
15,5
1,769,457
798
29,588
1,292,868
1,015
26,640
16171821
30,386
35,853489422
1,255
27,655
29,541455653
-Total Assets 2,343,437 1,795,767
LiabilitiesBorrowingsAmountsduetobanksDebtsevidencedbycertificatesDerivativefinancialinstruments–liabilitiesPayablesandaccruedinterestLeaseliability
1919132021
246,4371,238,718
6,55220,2621,059
227,109726,92124,16415,973
-
Total liabilities 1,513,028 994,167
Members’ EquityAuthorizedsharecapitalLess:unallocatedsharecapital
2222
3,450,000(1,161,500)
3,450,000(1,161,500)
SubscribedsharecapitalLess:callablesharecapitalLess:payablesharecapitalpastdue
222222
2,288,500(1,601,950)
-
2,288,500(1,601,950)
(1,428)
Paid-insharecapital
ReservesRetainedearnings
23
686,550
54,00989,850
685,122
32,95783,521
Totalmembers’equity 830,409 801,600
Total Liabilities and Members’ Equity 2,343,437 1,795,767
Off-balance-sheet items Commitments 5 353,496 252,801
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
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STATEMENT OF CHANGES IN MEMBERS’ EQUITYFortheyearended31December2019
Sharecapital
PresentedinthousandsEURSubscribed Callable Payable Reserves
RetainedEarnings Total
At 31 December 2017
TotalcomprehensiveincomeMembers’contributionsTransfertogeneralreserve
2,288,500
---
(1,601,950)
---
(44,984)
-43,556
-
33,583
(5,802)-
5,176
83,521
5,176-
(5,176)
758,670
(626)43,556
-
At 31 December 2018
TotalcomprehensiveincomeMembers’contributionsTransfertogeneralreserve
2,288,500
---
(1,601,950)
---
(1,428)
-1,428
-
32,957
13,717-
7,335
83,521
13,664-
(7,335)
801,600
27,3811,428
-
At 31 December 2019 2,288,500 (1,601,950) - 54,009 89,850 830,409
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
ANNUAL REPORT 2019
64
STATEMENT OF CASH FLOWSFortheyearended31December2019
PresentedinthousandsofEUR Note 2019 2018
Cash flows from operating activitiesNet income for the year
Adjustmentfor:Depreciationandamortization ImpairmentlossesFairvalue(gains)lossesonloansatFVTPLFairvalue(gains)lossesonequityinvestmentsatFVTPL Net interest incomeForeignexchangeadjustmentonprovisionsOperating(loss)beforechangesinoperatingassetsChangesin:Derivativefinancialinstruments Other assetsAccountspayable Deferred incomeFairvaluemovementsCashgeneratedfromoperationsProceedsfromrepaymentofloansProceedsfromrepaymentofequityinvestmentsFundsadvancedforloansFundsadvancedforequityinvestmentsForeignexchangeandotheradjustmentsInterest income receivedInterestexpensepaid
17,1811,12
1415
11
13,664
5721,952(477)217
(36,582)198
5,176
4536,660446585
(33,144)1,073
1316
20,211423
(20,456)
(20,078)(2,147)4,1915,118
16,737
(18,751)
6,919(189)(808)
(3,167)(8,216)
14
14
(16,635)381,756
2,096(871,130)
(825)(4,874)89,804
(52,117)
(24,212)377,988
4,756(572,966)
(859)(827)
75,522(44,214)
Netcashfrom/(usedin)operatingactivities
Cash flows from investing activitiesProceedsfrominvestmentsecuritiesatFVTOCIPurchaseofinvestmentsecuritiesatFVTOCIPurchaseofproperty,softwareandequipment 17,18
(471,925)
812,753(759,717)
(379)
(184,812)
409,139(523,141)
(408)
Netcashfrom/(usedin)investingactivities
Cash flows from financing activitiesProceedsreceivedfromsharecapital Proceeds from borrowingsRepaymentsofborrowings
222020
52,657
1,4281,267,253(736,128)
(114,410)
43,556433,639
(202,201)
Netcashfrom/(usedin)financingactivities
Net increase in cash and cash equivalents
532,553
113,285
274,994
(24,228)
Cashandcashequivalentsatbeginningofyear
Cash and cash equivalents at end of year
24
24
172,253
285,538
196,481
172,253
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
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NOTES TO THE FINANCIAL STATEMENTS
1. ESTABLISHMENT OF THE BANK
Agreement Establishing the Bank
The Black Sea Trade and Development Bank (the ‘Bank’), whose headquarters are located at 1 Komninon Street,Thessaloniki, in theHellenicRepublic,wasestablishedasan internationalfinancialorganizationundertheAgreementEstablishingtheBankdated30June1994(‘EstablishingAgreement’).InaccordancewithArticle61oftheEstablishingAgreement,followingtheestablishmentoftheBanktheEstablishingAgreementcameintoforceon24January1997.TheBankcommencedoperationson1June1999.
ThepurposeoftheBank istoacceleratedevelopmentandpromotecooperationamong itsshareholdercountries.Asa regional development institution, the Bank iswell placed tomobilize financial resources and to improve access tofinancingforbusinessesinthewholeregionaswellasforthoseactiveonlyinitsindividualmembercountries.TheBankoffersprojectandtradefinancingfacilities,equityparticipationsandguarantees.Bankfinancingofprojectsandprogramsisavailabledirectlyorincooperationwithothernationalandinternationaldevelopmentinstitutions.TheBankmayalso,whereappropriate,providetechnicalassistancetopotentialcustomers.
As at financial position date the Bank’s shareholders are comprised of the following 11 countries: Albania, Armenia,Azerbaijan,Bulgaria,Georgia,Greece,Moldova,Romania,RussianFederation,TurkeyandUkraine.
Headquarters Agreement
Thestatus,privilegesandimmunitiesoftheBankandpersonsconnectedtherewithintheHellenicRepublicaredefinedin theHeadquartersAgreementbetween theGovernmentof theHellenicRepublicand theBank (‘HeadquartersAgreement’)signedon22October1998.
Board of Governors and Board of Directors
EachoftheMemberStatesoftheBankisrepresentedontheBoardofGovernors(BoG),withallpowersoftheBankvestedintheBoG.Withtheexceptionofcertainreservedpowers,theBoGhasdelegatedtheexerciseofitspowerstotheBoardofDirectors(BoD),whileretainingoverallauthority.Atfinancialpositiondatethemembersare:RepublicofAlbania,ErjonLuci,DeputyMinisterofFinance;RepublicofArmenia,ArthurJavadyan,Chairman,CentralBankofArmenia;RepublicofAzerbaijan,SamirSharifov,MinisterofFinance;RepublicofBulgaria,MarinelaPetrova,DeputyMinisterofFinance;Georgia,KobaGvenetadze,GovernorNationalBankofGeorgia;HellenicRepublic,Adonis-SpyridonGeorgiadis,MinisterofDevelopment&Investments;RepublicofMoldova,IonChicu,MinisterofFinance;Romania,EugenOrlandoTeodorovici,MinisterofPublicFinance;RussianFederation,SergeyStorchak,DeputyMinisterofFinance;RepublicofTurkey,BulentAksu,DeputyMinisterofTreasury&Finance;Ukraine,TimofiyMylovanov,MinisterofEconomicDevelopment,Trade&Agriculture.
TheBoD,chairedbythePresidentoftheBank, is responsibleforguidingthegeneraloperationsoftheBank.EachoftheBank’sMemberStatesappointsaDirectorandanAlternateDirector,whohas fullpowers toact for theDirectorwhentheDirectorisnotpresent.Atfinancialpositiondatethemembersare:RepublicofAlbania,ArianKraja,SecretaryGeneral,MinistryofFinance&Economy;RepublicofArmenia,DavitAnanyan,ChairmanoftheStateRevenueCommittee;RepublicofAzerbaijan,FamilIsmayilov,DeputyHead,InternationalRelationsDepartment,MinistryofFinance;RepublicofBulgaria,PetyaKuzeva,Director,GovernmentDebtDirectorate,MinistryofFinance;Georgia,NikolozGagua,DeputyMinister of Finance; Hellenic Republic, Ioannis Tsakiris, Deputy Minister of Development & Investments; Republicof Moldova, Elena Matveeva, Head, Public Debt Department, Ministry of Finance; Romania, Diana Blindu, Head ofDivision,GeneralDirectorateforInternationalFinancialRelations,MinistryofPublicFinance;RussianFederation,EvgenyStanislavov,Director,DepartmentofEconomicCooperation,MinistryofForeignAffairs;RepublicofTurkey,KemalCagatayImirgi,ActingDirectorGeneral,ForeignEconomicRelations,MinistryofTreasuryandFinance;Ukraine,VitaliyLisovenko,GovernmentalEnvoyforPublicDebtManagement,MinistryofFinance.
BoGandBoDmemberscanbechangedatanytimeuponthediscretionoftherespectiveMemberState.
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Notes to the Financial Statements
Thefinancialstatementsfortheyearended2019weresubmittedbytheManagementtotheBoardofDirectors(BoD)forapprovalon7May2020,andwereapprovedonthatdate.
PursuanttoArticle23oftheEstablishingAgreement,thesefinancialstatementsshallbesubjecttoapprovalbytheBoardofGovernors(BoG)intheirAnnualMeetingtobeheldon18June2020.
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
2.1 Basis of Preparation
ThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)aspublishedbytheInternationalAccountingStandardsBoard(IASB).
Basis of Measurement
Thefinancialstatementshavebeenpreparedonahistoricalcostbasisexceptforfinancialassetsandfinancialliabilitiesheldatfairvaluethroughprofitorlossandallderivativecontracts,whichhavebeenmeasuredatfairvalueinaccordancewithIFRS9.
Functional and Presentation Currency
TheBank’sfunctionalcurrency istheEuro(EUR)asdefinedbytheEuropeanCentralBank(ECB).TheEuro ismostrepresentativeoftheBank’soperationsandenvironmentasasignificantpercentageoftheBank’slendingoperationsareinEuro,andtheadministrativeexpensesandcapitalexpendituresareprimarilydenominatedandsettledinthiscurrency.TheBank’spresentationcurrencyistheEUR.
Judgments and Assumptions
IFRSrequirestheuseofestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Useofavailableinformationandapplicationofjudgmentare inherent in the formationof estimates in the following areas: impairment of loans-and-receivables,valuationoffinancialinstrumentsnotquotedinactivemarkets,includingOTCderivativesandcertaindebtsecurities,impairmentofinvestmentsecurities,estimationofretirementbenefitsobligation,andcontingenciesfromlitigation.Actualresultsinthefuturemaydifferfromthosereported.
Theareasinvolvingahigherdegreeofjudgmentorcomplexity,orareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedintheNote‘Useofestimates’.
2.2 Going Concern
Thefinancialstatementshavebeenpreparedonagoingconcernbasis.AsdisclosedinNote27,2020beganwiththeoutbreakofanewstrainofCoronavirus(COVID-19)pandemic,subsequenttotheyear-end,ManagementhaveperformedprocedurestoassessandmonitorthefinancialandoperationalimpactsofCOVID-19asdetailedinNote27.ManagementhavenotidentifiedtheneedforassetimpairmentsandareoftheviewthattheBankwillcontinuetooperatethroughthispandemicasagoingconcern.
2.3 Adoption of New and Amended Standards (IFRS) EU
Newstandardsandamendments to standardsaswellas IFRIC23whichwere issuedby the InternationalAccountingStandardsBoard(IASB),appliedon1January2019:
BLACK SEA TRADE AND DEVELOPMENT BANK
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Notes to the Financial Statements
• Amendment to International Financial Reporting Standard 9 ’Financial Instruments’:PrepaymentFeatureswithNegativeCompensation.
On12.10.2017the InternationalAccountingStandardsBoard issuedanamendment to IFRS9 thatpermitssomepre-payablefinancialassetswithnegativecompensationfeatures,thatwouldotherwisebeenmeasuredatfairvaluethroughprofitorloss,tobemeasuredatamortizedcostoratfairvaluethroughothercomprehensiveincome.TheamendmenttoIFRS9clarifiesthatafinancialassetpassestheSPPIcriterionregardlessoftheeventorcircumstancethat cause the early termination of the contract and irrespective of which party pays or receives reasonablecompensationfortheearlyterminationofthecontract.TheadoptiondidnothaveanymaterialimpactontheBank’sfinancialstatements.
• International Financial Reporting Standard 16 ’Leases’On13.1.2016theInternationalAccountingStandardsBoardissuedIFRS16‘Leases’whichsupersedes:
- IAS17‘Leases’- IFRIC4‘Determiningwhetheranarrangementcontainsalease’- SIC15‘OperatingLeases–Incentives’and- SIC27‘Evaluatingthesubstanceoftransactionsinvolvingthelegalformofalease’.
ThenewstandardsignificantlydifferentiatestheaccountingofleasesforlesseeswhileessentiallymaintainingtheexistingrequirementsofIAS17forthelessors.Inparticular,underthenewrequirements,theclassificationofleasesaseitheroperatingorfinanceiseliminated.Alesseeisrequiredtorecognize,forallleaseswithtermofmorethan12months, the right-of-useasset aswell as the correspondingobligation topay the leasepayments. Theabovetreatmentisnotrequiredwhentheassetisoflowvalue.
Atinitialrecognition,theright-of-useassetcomprisestheamountoftheinitialmeasurementoftheleaseliability,anyinitialdirectcosts,anyleasepaymentsmadebeforethecommencementdateaswellasanestimateofdismantlingcosts.
Atinitialrecognition,theleaseliabilityisequaltothepresentvalueoftheleasepaymentsthatarenotpaidatthatdate.ThishasbeenadoptedbytheBankwithnosignificantimpactonitsfinancialposition.
• Amendments to International Accounting Standard 19 ‘EmployeeBenefits’:PlanAmendment,CurtailmentorSettlement
On7.2.2018theInternationalAccountingStandardsBoardissuedanamendmenttoIAS19withwhichitspecifiedhowcompaniesdeterminepensionexpenseswhenchangestoadefinedbenefitpensionplanoccur.Incasethatanamendment,curtailmentorsettlementtakesplaceIAS19requiresacompanytoremeasureitsnetdefinedbenefitliabilityorasset.TheamendmentstoIAS19requirespecificallyacompanytousetheupdatedassumptionsfromthisremeasurementtodeterminecurrentservicecostandnetinterestfortheremainderofthereportingperiodafterthechangetotheplan.Inaddition,theamendmenttoIAS19clarifiestheeffectofaplanamendment,curtailmentorsettlementontherequirementsregardingtheassetceiling.TheadoptiondidnothavematerialimpactontheBank’sfinancialstatements.
• Amendment to International Accounting Standard 28 ’InvestmentsinAssociates’:Long-termInterestsinAssociatesandJointVentures.
On12.10.2017theInternationalAccountingStandardsBoardissuedanamendmenttoIAS28toclarifythatlong-terminterests in an associateor joint venture that formpart of thenet investment in the associateor joint venture—towhichtheequitymethodisnotapplied—shouldbeaccountedforusingIFRS9,includingitsimpairmentrequirements.InapplyingIFRS9,theentitydoesnottakeaccountofanyadjustmentstothecarryingamountoflong-termintereststhatarisefromapplyingIAS28.TheadoptiondidnothavematerialimpactontheBank’sfinancialstatements.
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Notes to the Financial Statements
• Improvements to International Accounting Standards –cycle2015-2017.
Aspartoftheannualimprovementsproject,theInternationalAccountingStandardsBoardissued,on12.12.2017,non-urgentbutnecessaryamendmentstovariousstandards.
• IFRIC Interpretation 23 ‘UncertaintyoverIncomeTaxTreatments’.
On7.6.2017theInternationalAccountingStandardsBoardissuedIFRIC23.TheInterpretationclarifiesapplicationofrecognitionandmeasurementrequirementsinIAS12whenthereisuncertaintyoverincometaxtreatments.TheInterpretationspecificallyclarifiesthefollowing:
- Anentityshalldeterminewhethertoconsidereachuncertaintaxtreatmentseparatelyortogetherwithoneormoreotheruncertaintaxtreatmentsbasedonwhichapproachbetterpredictstheresolutionoftheuncertainty.
- Theestimationsfortheexaminationbytaxationauthoritiesshallbebasedonthefactthatataxationauthoritywillexamineamountsithasarighttoexamineandhavefullknowledgeofallrelatedinformationwhenmakingthoseexaminations.
- Forthedeterminationoftaxableprofit(taxloss),taxbases,unusedtaxlosses,unusedtaxcreditsandtaxrates,anentityshallconsiderwhetheritisprobablethatataxationauthoritywillacceptanuncertaintaxtreatment.
- Anentityshallreassessanestimateifthefactsandcircumstanceschangeorasaresultofnewinformation.
TheadoptiondidnothavematerialimpactontheBank’sfinancialstatements.
Exceptforthestandardsmentionedabove,thefollowingamendmentstostandardswhichareeffectiveforannualperiodsbeginningafter1January2019.
• Amendment to International Financial Reporting Standard 9 “FinancialInstruments’,to International Accounting Standard 39 ’FinancialInstruments’andto International Financial Reporting Standard 7 ’Financialinstruments:Disclosures’:Interestratebenchmarkreform.
Effectiveforannualperiodsbeginningonorafter1.1.2020:
On26.9.2019theInternationalAccountingStandardsBoardissuedamendmentstoIFRS9,IAS39andIFRS7,accordingtowhichtemporaryexceptionsfromtheapplicationofspecifichedgeaccountingrequirementsareprovidedinthecon-textofinterestratebenchmarkreform.
Inaccordancewiththeexceptions,entitiesapplyingthosehedgeaccountingrequirementsmayassumethattheinterestratebenchmarkisnotalteredasaresultoftheinterestratebenchmarkreform.Reliefisprovidedregardingthefollowingrequirements:
- Thehighlyprobablerequirementincashflowhedge,- Prospectiveassessments,- Separatelyidentifiableriskcomponents.
TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.
• Amendments to International Accounting Standard 1 ’PresentationofFinancialStatements’and to International Accounting Standard 8 ‘AccountingPolicies,ChangesinAccountingEstimatesandErrors:’Definitionofmaterial’.
Effectiveforannualperiodsbeginningonorafter1.1.2020:
On31.10.2018theInternationalAccountingStandardsBoard,aspartoftheDisclosureInitiative,issuedamendmentstoIAS1andIAS8toalignthedefinitionof‘material’acrossthestandardsandtoclarifycertainaspectsofthedefinition.
BLACK SEA TRADE AND DEVELOPMENT BANK
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Notes to the Financial Statements
Thenewdefinitionstatesthatinformationismaterialifomitting,misstatingorobscuringitcouldreasonablybeexpectedtoinfluencedecisionsthattheprimaryusersofgeneral-purposefinancialstatementsmakeonthebasisofthosefinancialstatements,whichprovidefinancial informationabouta specific reportingentity. Theamendments includeexamplesofcircumstancesthatmayresultinmaterialinformationbeingobscured.TheIASBhasalsoamendedthedefinitionofmaterialintheConceptualFrameworktoalignitwiththereviseddefinitionofmaterialinIAS1andIAS8.
TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.
• Amendment to International Financial Reporting Standard 3 “BusinessCombinations”:DefinitionofaBusiness.
Effectiveforannualperiodsbeginningonorafter1.1.2020:
On22.10.2018 the InternationalAccountingStandardsBoard issuedanamendment to IFRS3aimedat resolving thedifficultiesthatarisewhenanentitydetermineswhetherithasacquiredabusinessoragroupofassets.Theamendments:
- Clarifytheminimumrequirementsinorderforabusinesstohavebeenacquired,- The assessment for the acquisitionof either a businessor a groupof assets is simplified and it is basedon the
currentconditionofacquiredelementsratherthanonthemarketparticipant’sabilitytointegratethemintohisownprocesses,
- ThedefinitionofoutputsisamendedsothatapartfromtherevenuearisingfromordinaryactivitiesfallingwithinthescopeofIFRS15,italsoincludesotherincomefrommainactivitiessuchasincomefrominvestmentservices,
- Guidanceisaddedtoassesswhetheraproductionprocessissubstantivebothincaseswhereaproductisproducedatthedateofacquisitionandincaseswherethereisnoproductproduced,
- Anoptionalexercise is introducedbasedonthefairvalueoftheassetsacquiredtoassesswhetherabusinessorgroupofassetshasbeenacquired.
TheadoptionisnotexpectedtohaveanyimpactontheBank’sfinancialstatements.
• Amendment to International Financial Reporting Standard 10’ConsolidatedFinancialStatements’andto International Accounting Standard 28 ’InvestmentsinAssociatesandJointVentures’:Saleorcontributionofassetsbetweenaninvestoranditsassociateorjointventure.Effectivedate:Tobedetermined.
On11.9.2014theInternationalAccountingStandardsBoardissuedanamendmenttoIFRS10andIAS28inordertoclarify theaccountingtreatmentofa transactionofsaleorcontributionofassetsbetweenan investorand itsassociateor jointventure. Inparticular, IFRS10wasamendedinordertobeclarifiedthat incasethatasaresultofatransactionwithanassociateorjointventure,aparentlosescontrolofasubsidiary,whichdoesnotcontainabusiness,asdefinedinIFRS3,itshallrecognizetoprofitorlossonlythepartofthegainorlosswhichisrelatedtotheunrelatedinvestor’sinterestsinthatassociateorjointventure.Theremainingpartofthegainfromthetransactionshallbeeliminatedagainstthecarryingamountoftheinvestmentinthatassociateorjointventure.Inaddition,incasetheinvestorretainsaninvestmentintheformersubsidiaryandtheformersubsidiaryisnowanassociateorjointventure,itrecognizesthepartofthegainorlossresultingfromtheremeasurementatfairvalueoftheinvestmentretainedinthatformersubsidiaryinitsprofitorlossonlytotheextentoftheunrelatedinvestor’sinterestsinthenewassociateorjointventure.Theremainingpartofthegainiseliminatedagainstthecarryingamountoftheinvestmentretainedintheformersubsidiary.
InIAS28,respectively,itwasclarifiedthatthepartialrecognitionofthegainsorlossesshallbeappliedonlywhentheinvolvedassetsdonotconstituteabusiness.Otherwise,thetotalofthegainorlossshallberecognized.
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Notes to the Financial Statements
On 17.12.2015, the International Accounting Standards Board deferred the effective date for the application of theamendmentthathadbeeninitiallydetermined.TheneweffectivedatewillbedeterminedbytheInternationalAccountingStandardsBoardatafuturedateaftertakingintoaccounttheresultsofitsprojectrelatingtotheequitymethod.
TheadoptionisnotexpectedtohaveanyimpactontheBank’sfinancialstatements.
• International Financial Reporting Standard 14’Regulatorydeferralaccounts’.
Effectiveforannualperiodsbeginningonorafter1.1.2016:
On30.1.2014theInternationalAccountingStandardsBoardissuedIFRS14.Thenewstandard,whichis limited-scope,addressestheaccountingtreatmentandthedisclosuresrequiredforregulatorydeferralaccountsthataremaintainedinaccordancewithlocallegislationwhenanentityprovidesrate-regulatedgoodsorservices.Thescopeofthisstandardislimitedtofirst-timeadoptersthatrecognizedregulatorydeferralaccountsintheirfinancialstatementsinaccordancewiththeirpreviousGAAP.IFRS14permitstheseentitiestocapitalizeexpenditurethatnon-rate-regulatedentitieswouldrecognizeasexpense. TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.
• International Financial Reporting Standard 17 “InsuranceContracts”
Effectiveforannualperiodsbeginningonorafter1.1.2021:
On18.5.2017theInternationalAccountingStandardsBoardissuedIFRS17whichreplacesIFRS4’InsuranceContracts’.IncontrasttoIFRS4,thenewstandardintroducesaconsistentmethodologyforthemeasurementofinsurancecontracts.ThekeyprinciplesinIFRS17arethefollowing:
Anentity:- Identifiesasinsurancecontractsthosecontractsunderwhichtheentityacceptssignificantinsuranceriskfrom
anotherparty (thepolicyholder) by agreeing to compensate thepolicyholder if a specifieduncertain futureeventadverselyaffectsthepolicyholder,
- Separatesspecifiedembeddedderivatives,distinctinvestmentcomponentsanddistinctperformanceobligationsfromtheinsurancecontracts,
- Dividesthecontractsintogroupsthatitwillrecognizeandmeasure,- Recognizesandmeasuresgroupsofinsurancecontractsat:
i)Arisk-adjustedpresentvalueofthefuturecashflows(thefulfilmentcashflows)thatincorporatesalloftheavailableinformationaboutthefulfilmentcashflowsinawaythatisconsistentwithobservablemarketinformation;plus(ifthisvalueisaliability)orminus(ifthisvalueisanasset),ii)Anamountrepresentingtheunearnedprofitinthegroupofcontracts(thecontractualservicemargin),
- Recognizestheprofitfromagroupofinsurancecontractsovertheperiodtheentityprovidesinsurancecover,andastheentityisreleasedfromrisk.Ifagroupofcontractsisorbecomesloss-making,anentityrecognizesthelossimmediately,
- Presentsseparatelyinsurancerevenue,insuranceserviceexpensesandinsurancefinanceincomeorexpenses,and,
- DisclosesinformationtoenableusersoffinancialstatementstoassesstheeffectthatcontractswithinthescopeofIFRS17haveonthefinancialposition,financialperformanceandcashflowsofanentity.
It is alsonoted that inNovember2018 the InternationalAccountingStandardsBoardproposed todefer the IFRS17effectivedateto1.1.2022.
TheadoptionisnotexpectedtohaveanyimpactontheBank’sfinancialstatements.
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Notes to the Financial Statements
• Amendment to the International Accounting Standard 1 ’PresentationofFinancialStatements’:Classificationofliabilitiesascurrentornon-current.
Effectiveforannualperiodsbeginningonorafter1.1.2022:
On23.1.2020,theInternationalAccountingStandardsBoardissuedamendmentstoIAS1relatingtotheclassificationofliabilitiesascurrentornon-current.
Morespecifically:- Theamendmentsspecifythattheconditionswhichexistattheendofthereportingperiodarethosewhichwill
beusedtodetermineiftheliabilitymustbeclassifiedascurrentornon-current.- Managementexpectationsabouteventsafterthebalancesheetdatemustnotbetakenintoaccount.- Theamendmentsclarifythesituationsthatareconsideredsettlementofaliability.
TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.
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Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIESAsummaryoftheBank’saccountingpoliciesappliedinthepreparationofthesefinancialstatementsarepresentedinthissection.Thesepolicieshavebeenconsistentlyappliedtoallperiodspresentedinthefinancialstatements.
3.1 Foreign Currencies Translation
Foreigncurrencytransactionsbeingrevenues,expenses,gainsandlossesareinitiallyrecordedinEURbyapplyingtotheforeigncurrencyamounttheexchangeratebetweentheEURandtheforeigncurrencyattherateprevailingatthedateoftransaction.
Whenpreparingthefinancialstatementsexchangegainsandlossesarisingfromthetranslationofmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesattheendofyeararerecognizedintheincomestatement.
Non-monetaryitemsthataremeasuredathistoricalcostaretranslatedusingthehistoricalexchangerateatthedateofthetransaction.Translationdifferencesonnon-monetaryitemswhichareheldatFVTPLasprepaymentsarerecognizedintheincomestatement.Translationdifferencesonnon-monetaryitemswhichareatFVTOCIasequityinvestmentsareincludedinothercomprehensiveincome.
TheBankusestheofficialexchangeratespublishedfortheEURbytheEuropeanCentralBank(ECB).TheexchangeratesusedbytheBankatthefinancialpositiondatewereasfollows.
31December2019
31December2018
1EUR
=======
UnitedStatesdollarPoundsterlingRussianrubleAzerbaijanmanatGeorgianlariArmenian dramRomanianleu
1.123400.85080
69.956301.903503.20950
537.260004.78300
1.145000.89453
79.715301.946803.07010
553.650004.66350
3.2 Recognition and Derecognition of Financial Instruments
TheBankrecognizesafinancialassetorfinancialliabilityinitsstatementoffinancialpositionwhenitbecomesapartytothecontractualrightsorobligations.
TheBankderecognizesafinancialassetoraportionofafinancialassetwhen(i)losescontrolofthecontractualrightsthatcomprisethefinancialassetoraportionofthefinancialassetor(i)theBankretainstherighttoreceivecashflowsfromtheasset,buthasassumed theobligation topay it in fullwithoutmaterialdelay toa thirdpartyundera ‘passthrough’ arrangement. The Bank derecognizes a financial liability when a liability is extinguished, that is when theobligationspecifiedinthecontractisdischarged,cancelledorexpires.Theevaluationofthetransferofrisksandrewardsofownershipprecedestheevaluationofthetransferofcontrolforderecognitiontransactions.
Onderecognitionofafinancialasset,thedifferencebetweenthecarryingamountoftheasset(orthecarryingamountallocatedtotheportionoftheassetderecognized)andthesumof(i)theconsiderationreceived(includinganynewassetobtainedlessanynewliabilityassumed)and(ii)anycumulativegainorlossthathadbeenrecognizedinOCIisrecognizedinnetincomeorloss.
3.3 Cash and Cash Equivalents
Forthepurposesofthestatementofcashflows,cashandcashequivalentsconsistofcashonhand,placementswithotherfinancialinstitutionsanddebtsecuritieswithoriginalmaturitiesofthreemonthsorless.Thesearehighlyliquidassetsthatarereadilyconvertibletoaknownamountofcashandaresubjecttoinsignificantriskofchangeinvalueduetothemovementsinmarketrates.
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Notes to the Financial Statements
3.4 Financial Assets
Theclassificationoffinancialassetsdefineshowexistinginformationisreflectedinthefinancialstatements.Inparticular,the valuationmethod and the impairment calculation are defined by this classification, which are based on criteriaestablishedbytheBank.
3.4.1 Classification
TheBankrecognizesafinancialassetinitsfinancialstatementsatthetimeofthecreationofthecontractualclaim(thatis,thedaythetransactiontookplace).Inrecognition,theBankdeterminesthebusinessmodeltowhichitbelongs.Financialassetsareclassifiedinthreecategories:
1. Financial assets measured at amortized cost (AC):thiscategoryclassifieseachassetorgroupofassetsforwhichtheBank’sbusinessmodelconstitutesitsholdingforthepurposeofcollectingcontractualcashflows.ThepossiblesaleoffinancialassetsshouldnotbetheresultofBusinessPlanningfortheirmanagement.FinancialassetsareclassifiedatAConlyifbothofthefollowingcriteriaaremet:
- The objective of the Bank’s business model is to hold the asset in order to collect thecontractualcashflows,and,
- Thecontractualtermsgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipaloutstanding:
(i) Principalisthefairvalueofthefinancialassetatinitialrecognition,(ii) Interestconsistsofconsiderationforthetimevalueofmoney,forthecreditriskasso-
ciatedwiththeprincipalamountoutstandingduringaparticularperiodoftimeandforotherbasiclendingrisksandcosts,aswellasaprofitmargin.
TheBank’soperations,whicharenon-derivativewithfixedordeterminablepaymentsandwithfixedmaturities,meeting theabovecriteriaaremeasured initiallyat fairvalueplus transactioncostsandincludinganypremiumordiscount thatmayariseon thedateofacquisition.Thirdpartyexpenses,suchaslegalfees,incurredinsecuringaloanaretreatedaspartofthecostofthetransaction.ThesefinancialassetsaresubsequentlymeasuredatACusingtheeffectiveinterestmethod,lessanyprovisionfor impairmentoruncollectability.Allother feesand relating incomegeneratedare reported in theincomestatement(seenote‘Netfeesandcommissions’).Allsuchfinancialassetsarerecognizedonsettlementdate.
Thesefinancialassetsincludecashandcashequivalents,loansandadvancesonamountsdisbursedtooperations,receivablesaccrued,andcertaindebtinvestmentsthatmeettheabovecriteria.
2. Financial assets measured at fair value through other comprehensive income (FVTOCI),andareafterreclassifiedatfairvaluethroughprofitorloss(FVTPL)onderecognition:gainsorlossesarisingfromthemeasurementarerecordedinaseparatemembers’equityaccount.ThiscategoryclassifieseachassetorgroupofassetsforwhichtheBank’sbusinessmodelrecommendsthatitbeheldforthepurposeofcollectingcontractualcashflowsandsellingthemwhentheBusinessPlanningoftheiracquisitionhasbeenachieved.DebtinstrumentsareclassifiedandsubsequentlymeasuredatFVTOCIonlyifbothofthefollowingcriteriaaremet:
- Theobjectiveof theBank’sbusinessmodel isachievedbybothcollecting thecontractualcashflowsandsellingthefinancialasset;and
- Thecontractualtermsgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipaloutstanding:
(i) Principalisthefairvalueofthefinancialassetatinitialrecognition.(ii) Interest consist of consideration for the time value of money, for the credit risk
associatedwiththeprincipalamountoutstandingduringaparticularperiodoftimeandforotherbasiclendingrisksandcosts,aswellasaprofitmargin.
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Notes to the Financial Statements
This category includesTreasuryfinancialassets suchaseurocommercialpaper (ECP)orbonds thatare intendedtobeheldtomaturity,whichmayormaynotbesold in the future.Their fairvalue isdeterminedbyreferencetoquotedmarketbidprices.Theunrealizedgainsandlossesthatarisefromfluctuationsinfairvaluearerecognizedasaseparatecomponentofmember’sequityuntilthefinancialassetissoldorderecognizedforanyotherreasonoruntiltheinvestmentisdeterminedtobeimpaired,atwhichtimethecumulativegainorlosspreviouslyreportedinmember’sequityisincludedinincome.Foreignexchangegainsorlossesandanyincomeaccrued,byusingtheeffectiveinterestratemethodarerecognizeddirectlyinincome.Allsuchfinancialassetsarerecognizedontradedate.
Financialassetsnotmeetingtheabovecriteria,aswellasthosefinancialassetsdesignatedaretobemeasuredatFVTPL.
Inordertoclassifyassetsintheabovetwocategories,contractualcashflowsshouldconsistsolelyofpaymentsofprincipalandinterest(SPPIs).
3. Financial assets (equity instruments) measured at FVTOCI.On initialrecognitiontheBankcanmakeanirrevocableelection,onaninstrument-by-instrumentbasis,todesignateinvestmentsinanequityinstrumentnotheldfortradingnorcontingentconsideration,asafinancialassetmeasuredatFVTOCI.ThosenotelectedaremeasuredatFVTPL.Dividendsreceivedarerecordedintheincomestatement.
Afterinitialrecognitionatcost,plustransactioncosts,thesefinancialassetsaresubsequentlymeasuredatfairvaluewithallgainsandlossesarisingfromchangesinfairvalue(realizedandunrealized),includingforeignexchangegainsandlosses,recognizedinothercomprehensiveincomeasaseparatecomponentofmembers’equity.Forthosenotpurchasedfromanactivemarketthefairvalueisdeterminedusingaccepted valuation techniques. These valuation techniques used are net asset value and earnings-basedvaluationsusingcomparableinformationanddiscountingcashflows.Allsuchfinancialassetsarerecognizedonsettlementdate.
The cumulative gains or losses are not reclassified, e.g. not recycled, to incomeon disposal of theinvestmentsandnoprovisionsforimpairmentsarerecognizedintheincomestatement.However,thecumulativegainor lossafterthe investment issubsequentlyderecognizedcanbetransferredwithinmembers’equity.
4. Financial assets measured at FVTPL:thiscategoryclassifiesitemsthatdonotmeettheSPPIcriterionaswellastheitemsthattheBankholdsfortrading.Theirclassificationdependsprimarilyonthefollowingtwoimportantfactors(i)theBank’sbusinessmodelfortheseassetsand(ii)thecharacteristicsofthecontractualcashflowsoftheasset.
Thesefinancialassetsareinitiallymeasuredattheirfairvalueandsubsequentlycarriedatfairvalueonthestatementoffinancialpositionwithallchangesinfairvaluegainsandlossesandforeignexchangegainsand losses,recognized inthe incomestatement intheperiod inwhichtheyoccur.Transactioncosts on these financial assets are expensed in the income statement. This category includes anytreasuryassetsheldfortradingorresaletorealizeshort-termfairvaluechangesaswellasanyloansforwhicheitherofthecriteriaforrecognitionatACisnotmet.ItcanalsoincludeadebtinstrumentoranequityinstrumentthatisnotwithinthecategorynormeasuredatFVTOCI.DerivativeinstrumentsarealsocategorizedasfinancialassetsatFVTPL.Allsuchfinancialassetsarerecognizedontradedate.
Inaddition,adebtinstrumentthatcouldmeetACcriteriacanbedesignatedandmeasuredatFVTPL.Upon initial recognition, if such designation significantly reduces or eliminates a measurement orrecognitioninconsistency,referredtoasan‘accountingmismatch’,whichwouldarisefrommeasuringassetsorrecognizingthegainsandlossesonthemondifferentbases.
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Notes to the Financial Statements
3.4.2 Measurement
TheBankmeasuresfinancialassetsatfairvalueoninitialrecognition,asdetailedabove.IntheeventtheBankconsidersthatthefairvalueoninitialrecognitiondiffersfromthetransactionprice,thatdifferenceisrecognizedasagainorlossoninitialrecognitionbutonlyifthefairvalueisbasedonarequestedactivemarketpriceforidenticalassetsorisbasedonavaluationtechniqueusingdatasolelyfromidentifiedmarkets.Inallothercasesthefairvalueisadjustedtotheamountofthetransactionprice.
Financial assets that are subsequentlymeasuredat eitherACordebt instruments at FVTOCI, are subject toprovisionsforimpairment.
BasedontheBank’screditpolicy,theBankdoesnotoriginatecredit-impairedfinancialassets,nordoestheBankpurchasecredit-impairedassets,exceptionbeingthoseloanswouldbeacquiredatadeepdiscount.
Financialassetsarenotreclassifiedsubsequenttotheirinitialrecognition,exceptintheperiodaftertheBankchangesitsbusinessmodelformanagingfinancialassets.
3.4.3 Business Model Assessment
Thefactorofthebusinessmodelrefers,amongstothers,tothemannerinwhichtheBankmanagesitsfinancialassetsbyclassifyingtheminportfoliosthatarepartofitsbusinessmodel.TheassessmentprocessappliedbytheBankthroughitsbusinessmodel,basedonstrategicobjectives,classifies itsassets inthefollowingthreecategoriesinaccordancewithIFRS9:
i) Hold to Collect
EachassetorgroupofassetsforwhichtheBank’sbusinessmodelrecommendsthatitbeheldforthepurposeofcollectingcontractualcashflowsisclassifiedas‘Holdtocollect’.
ii) Hold to Collect and Sell
EachassetorgroupofassetsforwhichtheBank’sbusinessmodelrecommendsthatitbeheldforthepurposeofcollectingcontractualcashflowsandsellingthemwhenthestrategicplanningoftheiracquisitionhasbeenachievedisclassifiedas‘Holdtocollectandsell’.
iii) Trading Portfolio
Thefinancialassetsheldfortradingareclassifiedas‘Tradingportfolio’.
Theadoptedbusinessmodeldetermines the sourceof revenue,as it arises from individualportfolioseitherthroughthecollectionofcontractualcashflowsorfromthesaleoffinancialassetsorthecombinationoftheabove.
The assessment of the business model reflects the Bank’s strategy under normal business conditions. Theassessment is not affected by actions required in ‘emergency situations’ (e.g. liquidity needs, non-inherentcapital requirements for credit risk, etc.).Also,Managementdecisions taken to complywithnew regulatoryguidelinesarenotincludedintheassessment.
Ingeneral,theBankhasincludedthemajorityofitsloanportfoliosinthehold-to-collectbusinessmodel.TheassessmentofabusinessmodelismadewithinthedefinitionofoperationalobjectivesasdefinedbytheBank’sManagement,aswellas intheoperationalmanagementof itsassets.Theassessmentiseffectedatportfoliolevelratherthanatindividualassetlevels.
Thebusinessmodelappliedtoloanportfolio,treasuryportfolioandequityinvestmentportfolioisreassessedateachreportingperiod.Thereassessmentofthebusinessmodelhasbeenestablishedinordertodetermineifevidenceinitiallyusedhaschanged.
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Notes to the Financial Statements
3.4.4 Loans
LoansoriginatedbytheBank,iswheremoneyisprovideddirectlytotheborrower.Loansareinitiallyrecordedatfairvalue,whichisusuallythenetamountdisbursedatinceptionincludingdirectlyattributableoriginationcostsandcertaintypesoffeesorcommission(e.g.syndicationcommission,front-end,commitmentfeesandhandlingcharges) thatare regardedasanadjustment to theeffective interest rateof the loan,andare subsequentlymeasuredatamortizedcostusingtheeffectiveinterestratemethod.
LoansthataredesignatedasatFVTPLarerecognizedatavaluearrivedatbyusingacombinationofdiscountedcashflowmodels.Thesemodelsincorporatemarketdatapertainingtointerestrates,aborrower’screditrating,andunderlying assets.Whereunobservable inputs havebeenused, a sensitivity analysis has been includedunder‘fairvaluehierarchy’describedwithinthe‘RiskManagement’sectionofthisreport.
3.5 Impairment
3.5.1 Financial Assets
TheimpairmentrequirementsofIFRS9applytofinancialinstrumentsthataremeasuredatACorFVTOCI,andoff-balance-sheet lendingcommitments suchas loancommitmentsandfinancialguarantees.Thesefinancialassetswillbetestedtodeterminewhethertheircreditqualityhaschangedsignificantlysincethedateoftheircreation.Thisresultedintheclassificationofthedatain3stages,whichinascendingorderindicatesthecreditriskandcorrespondingprovisioningchargeofeachitem.Assuch,stage1includesassetswhosecreditqualityisnotsignificantlydegradedandtheimpairmentthattheywillincurwillbeequaltoa12-monthExpectedCreditLoss(ECL).Stage2includesassetswhosecreditqualityhasbeensubstantiallydowngradedandaresubjecttolifetimeECL.Thesameappliestotheitemsclassifiedinstage3,wherealltheimpaireditems,includingnon-performingloans(NPLs),fall.
Financialinstruments,includingequityinstruments,carriedatFVTPLarenotsubjecttoimpairmentrequirementsastheirfairvaluereflectsthecreditoftheseexposures.Additionally,equityinvestmentsmeasuredatFVTOCIarealsonotsubjecttoimpairmentrequirements,butanegativereservebalanceinrelationtothecarryingamountofthatequityinvestment,e.g.representinganimpairmentloss, istoberecognizedasothercomprehensiveincomeandshallnotberecycled(reclassifiedandtransferred)tonetincomeorloss.
TheBankmeasuresimpairmentlossesonanindividualbasis.Similarly,theassessmentfortransferringfinancialassetsbetweenstages1,2and3,arealsomadeonanindividualbasis.TheBankappliesthreemaincomponentstomeasureexpectedcreditlosseswhichareaLGD,PDandEAD.InordertoperformtheECLcalculation,theBankusesMoody’sAnalyticsIFRSImpairmentCalctool.Withthetool,theBankprovidesprobabilitiesofdefaultand lossgivendefaultsandassignsscenariosforpotentialcreditriskdeterioration.Therecanbetransfersofexposurefromonestagetoanother,dependingonwhetherthereisachangeinthecreditriskofthatexposure.Theprobabilityofdefaultisanestimateofthelikelihoodofdefaultoveragiventimehorizon.
TheBankusesinformationobtainedfromtheGlobalEmergingMarkets(GEMs)databaseinordertoassignPDstoitslendingassetclasses.GEMsisanIFI-wideinitiativedesignedtopooldefaultandrecoveryratesexperiencedbyIFIsinemergingmarkets.TreasuryassetclassesderivetheirPDsfromtheassigningratingagency.LGDisanestimateofthelossarisingondefault.TheBankusesinformationobtainedfromtheGEMsdatabasetoassignLGDstoitslendingassetclasses,andtreasuryassetclassesderivetheirLGDsfromtheassigningratingagency.
Calculation of Expected Credit Loss
TheBankrecognizesallowanceforECLsthatreflectchangesincreditqualitysinceinitialrecognitiontofinancialassetsthataremeasuredatACandFVOCI,includingloans,debtsecurities,andloancommitments.NoECLsarerecognizedonequityinvestments.ECLsareaprobability-weightedaverageestimateofcreditlossesthatreflectsthetimevalueofmoney.Uponinitialrecognitionofthefinancialinstrumentsinscopeoftheimpairmentpolicy,theBankrecordsalossallowanceequalto12-monthECL,beingtheECLthatresultsfromdefaulteventsthatarepossiblewithinthenexttwelvemonths.
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Notes to the Financial Statements
Subsequently,forthosefinancial instrumentsthathaveexperiencedasignificant increaseincreditrisk(SICR)sinceinitialrecognition,alossallowanceequaltolifetimeECLisrecognized,arisingfromdefaulteventsthatarepossibleovertheexpectedlifeoftheinstrument.Theexpectedcreditlossesareweightedonthebasisofthreemacroeconomicscenarios(adverse,basicandfavorable).
Classification of Loans into Stages Based on Credit Risk (Staging)
TheBankhasintroducedanumberofcriteriafortheclassificationoffinancialassetsinstages.Thesecriteriaareintendedtocheckwhethertherehasbeenasignificantdeteriorationinthecreditqualityoffinancialassetssinceinception.Essentially,theBankexamines:- Dayspastdue,- Iftherehasbeenasignificantdowngradeofthecreditratingoftheassets,- Qualitativeparametersindicatingachangeincreditquality(e.g.dealingwithfinancialdifficulties),and- Whetherafinancialassetcharacterizedascredit-impaired.
Basic Parameters Used for the Calculation of Expected Credit Loss
Thecalculationofexpectedcredit losses isbasedontheprobabilityofdefault(PD), lossgivendefault(LGD),exposureatdefault(EAD)andotherparameterssuchasthecreditconversionfactor(CCF)andtheprepaymentrate.TheBankhasobtainedfromanexternalproviderasystemofcalculatingexpectedcreditlosses.Thebasicparametershavebeendrawnfromstatisticalmodelsdevelopedincooperationwiththeexternalprovider,utilizingtheexistingriskmanagementinfrastructureandpracticesoftheBankandtheknow-howandexperienceoftheprovider.
PDrepresentstheprobabilitythatadebtorwilldefaultonhisdebtobligationseitheroverthenext12monthsorovertheremainingmaturityofhisdebt.InaccordancewithIFRS9,theBankusesnon-discriminatorypoint-in-timePDsthatadjusttomacroeconomicassumptionsusingtheECL.
EADisdefinedastheestimateoftheexposureintheeventofadefaultofthedebtor.TheEADofafinancialassetrepresentsitsgrosscarryingamountintheeventofadefault.
LGDrepresentstheextentofthelossthattheBankexpectsforexposuresthatareindefaultandisdefinedasthedifferencebetweenthecontractualcashflowsandthosethattheBankexpectstocollect,includingcollateralamounts.LGD,whichisusuallyexpressedasapercentageoftheEAD,variesaccordingtothecategoryofthecounterparty,thecategoryandpriorityoftheclaim,theexistenceofcollateralandothercreditenhancements.
CCF isusedtoconvertcredit linesandotheroff-balancesheetexposures intoEADamounts. It isconsideredasanassumption representing thepercentageofundrawnexposuresexpected tobedisbursedprior to theoccurrenceofthedefaultevent.Theprepaymentrate isanestimateofprematurerepaymentsofafinancialexposurethatexceedscontractualrepaymentsonthebasisoftherepaymentscheduleandisexpressedasapercentageoftheEADineachreportingperiod,resultinginareductionintheEAD.
TheBankhasmadeuseofthreemacroeconomicscenarios(adverse,basicandfavorable)takingintoaccounttherelativechancesofeachofthescenarios.ThebaselinescenarioisthemostlikelyscenarioandisinlinewiththeBank’sinformationforstrategicplanningandbudgetingpurposes.
Significant Increase in Credit Risk
At each reporting date, the Bank assesses whether the credit risk on a financial instrument has increasedsignificantly since initial recognition.Whenmaking theassessment, theBank compares the riskof adefaultoccurringonthefinancialinstrumentasatthereportingdatewiththeriskofadefaultoccurringonthefinancialinstrument as at the date of initial recognition and considers reasonable and supportable information, thatis availablewithout undue cost or effort, that is indicative of significant increases in credit risk since initialrecognition.
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Notes to the Financial Statements
Generally,therewillbeasignificantincreaseincreditriskbeforeafinancialassetbecomescredit-impairedoranactualdefaultoccurs.Theassessmentofsignificantincreaseincreditriskiskeyintransferringanexposurefromstage1tostage2ortostage3andtherespectivechangeintheECLmeasurementfrom12-monthtolifetimeECL.Acombinationofquantitativeandqualitativefactorsstructuredasprimaryandsecondarydriverswillbeconsideredandarealsosupplementedwithbackstopoptions.Thebackstoptriggersautomaticstagetransferseventhoughtheprimaryandsecondaryindicatorsmaynottriggersuchatransfer,unlessthisresultisduetoadataerror,operational issues,ortimingdifferenceinapplyingcashreceivedupto30daystothecustomeraccount.
Credit-impaired
Afinancialassetiscredit-impairedwhenoneormoreeventsthathaveadetrimentalimpactontheestimatedfuturecashflowsofthatfinancialassethaveoccurred.Evidencethatafinancialassetiscredit-impairedincludesobservabledataaboutthefollowingevents:- Significantfinancialdifficultyoftheissuerortheborrower,- Abreachofcontract,suchasadefaultorpastdueevent,- The lender(s)of theborrower, for economicor contractual reasons relating to theborrower’sfinancial
difficulty,havinggrantedtotheborroweraconcession(s)thatthelender(s)wouldnototherwiseconsider,- ItisbecomingprobablethattheborrowerwillenterBankruptcyorotherfinancialreorganization,- Thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancialdifficulties,or,- Thepurchaseororiginationofafinancialassetatadeepdiscountthatreflectstheincurredcreditlosses.
Itmaynotbepossibletoidentifyasinglediscreteevent–instead,thecombinedeffectofseveraleventsmayhavecausedfinancialassetstobecomecredit-impaired.
Definition of Default
Thedefinitionofdefaultusedfordeterminingtheriskofadefaultoccurringshallbeappliedconsistentlytoallfinancialinstrumentsunlessinformationbecomesavailablethatdemonstratesthatanotherdefaultdefinitionismoreappropriateforaparticularfinancialinstrument.TheBank’sdefinitionofdefaultisbasedontheregulatorydefinitionunderArticle178ofthe‘Regulation(EU)No575/2013oftheEuropeanParliamentandoftheCounciloftheEuropeanUnionof26June2013onprudentialrequirementsforcreditbanksandinvestmentfirmsandamendingRegulation(EU)648/2012’(CRR).Adefaultisconsideredtohaveoccurredwheneitherofthefollowingconditionshadtakenplace.
i) Qualitative
UnlikelinesstoPay(UTP)criterion:theBankconsidersthattheobligorisunlikelytopayitscreditobligationstotheBankwithoutrecoursebytheBanktoactionssuchasrealizingsecurity.Belowtherearesomeelementsthataretakenasindicationsofunlikelinesstopay(inlinewithCRR(Article178)).- TheBankputsthecreditobligationonnon-accruedstatus,- TheBank recognizesa specificcreditadjustment resulting fromasignificantperceiveddecline incredit
qualitysubsequenttotheinstitutiontakingontheexposure.- TheBankhasfiledfortheobligor’sBankruptcyorasimilarorderinrespectofanobligor’screditobligation
totheBank,theparentundertakingoranyofitssubsidiaries.- TheobligorhassoughtorhasbeenplacedinBankruptcyorsimilarprotectionwherethiswouldavoidor
delayrepaymentofacreditobligationtotheBank,theparentundertakingoranyofitssubsidiaries.
ii) Quantitative
Pastduecriterion:theexposureispastduemorethan90daysonanycreditobligationtotheBank.
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Notes to the Financial Statements
Impairmentlossesforguaranteesarerecognizedwhileaguaranteeisineffectandtheamountsaredeterminedbasedonthelevelofutilizationoftheguarantee.Themethodologyisconsistenttothatofloancommitments,andsuchlossesareincludedin‘Otherliabilities’.
Interestincomeiscalculatedonthegrosscarryingamountforfinancialassetsinstage1and2.Astheprimarydefinitionforcredit-impairedfinancialassetsmovingtostage3,theBankappliesthedefinitionofdefault,andinterestincomeiscalculatedonthenetcarryingamountforthesefinancialassetsonly.
Iftheamountofimpairmentsubsequentlydecreasesduetoaneventoccurringafterawrite-down,therelease(i.e. reverse) of the impairment is credited to the provision for impairment asset losses. Unwinding of thediscountistreatedasincomeandremainingprovisionisthenreassessed.
3.5.2 Non-financial Assets
Ateachfinancialpositiondate, theBank reviews thecarryingvalueof thenon-financialassetsandassesseswhether there is any indication of impairment. If such indications exist, an analysis is performed to assesswhetherthebookvalueofthespecificassetscanberecovered.Therecoverableamountisthehigheramountbetweenthenetvalueofsale(valueofsalereducedbysaleexpenses)andofthevalueinuse(ascalculatedfromthenetcashflows).Ifthecarryingvalueofanintangibleassetexceedsitsrecoverablevalue,thenanimpairmentlossisrecordedintheincomestatement.
3.5.3 Renegotiated Financial Assets
When necessary, the Bank seeks to restructure a financial asset that may involve extending the paymentarrangements and the agreement of new loan terms and conditions. These are generally renegotiated inresponsetoanadversechangeinthefinancialconditionoftheborrower.
Modificationsoccurwhenthecontractualcashflowsofafinancialassetarerenegotiatedorotherwisemodified.Somemodifications result inderecognitionof theexistingassetand recognitionofanewasset,whileothermodificationsdonot result inderecognition.Modifications that result inderecognitionareconsidered tobesubstantialmodifications.Asignificantorsubstantialchangeisdefinedwhenthecustomerenters intoanewloancontract(i.e.completelynewproductandnewpricing)thathasadifferentinterestratetype,loanamount,termperiod (temporary termextension isexcluded), and/or customer (e.g. fromsingle customer to jointorchangeinoneofthejointcustomernames).
Adistressed restructuring is an indicationofunlikeliness topaywhere this is likely to result in adiminishedfinancialobligationcausedbythematerialforgiveness,orpostponementofeitherprincipal,interestor,whererelevant fees. Distressed restructuring occurs when forbearance measures have been extended towards adebtor.Therefore,thoseforborneexposureswheretheforbearancemeasuresarelikelytoresultinadiminishedfinancialobligationareclassifiedasdefaulted.
Restructuredoperationswillbeconsideredcuredandnormalizedaftertwosuccessfulrepaymentsandcouldthereforebesubjecttoastagemovement.
3.5.4 Write-offs
AccordingtotheIFRS9(B5.4.9),thegrosscarryingamountofafinancialassetmaybedirectlyreducedwhenthereisnoreasonableexpectationofrecoveringthefinancialassetinitsentiretyoraportionofit.Assuch,theBankmayrecordawrite-offofstage3loans.TheBankmayalso,onanad-hocbasis,examinetheneedforanyfurtherwrite-offsofstage2loansifthereisrelevantevidence.
3.5.5 Write-backs
Recoveries(write-backs)ofanasset,orpartthereof,arecreditedtotheincomestatementifpreviouslywrittenoff.
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Notes to the Financial Statements
3.6 Financial Liabilities
TheBankrecognizesafinancialliabilityinitsfinancialstatementsatthetimeofthearisingfromtheitem(thatis,thedaythetransactiontookplace).Financialliabilitiesprimarilyinclude(a)borrowingsand(b)otherliabilities.
3.6.1 Borrowings
Borrowingtransactionswhichareamountsduetofinancialinstitutionsanddebtsevidencebycertificates,arerecognized inthestatementoffinancialpositionatthetimethefundsaretransferredtotheBank.Theyaremeasuredinitiallyatcost,whichcomprisesthefairvalueofthefundstransferred,lessanytransactioncosts.IninstanceswheretheBankusesderivativeinstrumentstohedgethefairvalueofborrowingtransactions,suchborrowingsaresubsequentlycarriedinthestatementoffinancialpositionatfairvaluewheretheACvalueisadjustedtofairvaluebythehedgedrisks,withanychanges invaluerecognized in income.Relevant interestexpensesarereportedintheincomestatementusingtheeffectiveinterestratemethod.
3.6.2 Other Liabilities
OtherliabilitiesthatarenotderivativesordesignatedatFVTPL,arerecordedatAC.Theamountsincludeaccruedfinancechargesonborrowingsandotheraccountspayable.
3.7 Offsetting of Financial Assets and Liabilities
Offsettingof financial assets and liabilities in thefinancial statements is permitted if, andonly if, there is a currentlyenforceablelegalrighttooffsettherecognizedamountsandthereisanintentiontosettleonanetbasis,ortorealizetheassetandsettletheliabilitysimultaneously.
3.8 Derivatives
In theordinarycourseofbusiness, theBankenters intovarious typesof transactions that involvederivativefinancialinstruments.Aderivativefinancialinstrumentisafinancialcontractbetweentwopartieswherepaymentsaredependentuponmovementsinpriceinoneormoreunderlyingfinancialinstruments,referenceratesorindices.
TheBankprimarilymakesuseofderivativesforthebelowstrategicpurposes:- ManyoftheBank’sissuedsecurities,excludingcommercialpaper,areindividuallypairedwithaswaptoconvertthe
issuanceproceedsintothecurrencyandinterestratestructuresoughtbytheBank.- Tomanagethenetinterestraterisksandforeignexchangerisksarisingfromallfinancialassetsandliabilities.- Throughcurrencyswaps,tomanagefundingrequirementsfortheBank’sloanportfolio.
Derivativescanincludeinterestrateandcrosscurrencyswaps,forwardforeignexchangecontracts,interestratefuturecontracts,andoptionsoninterestratesandforeigncurrencies.Suchfinancialinstrumentsareinitiallyrecognizedinthestatementoffinancialpositionatcostandarecarriedasassetswhenfairvalueispositiveandasliabilitieswhenfairvalueisnegative.Changesinfairvalueofderivativesareincludedintheincomestatement.Fairvaluesareobtainedfromquotedmarketprices,totheextentpubliclyavailable,discountedcashflowsandoptionspricingmodelsasappropriate.
IFRS9introducesanewgeneralhedgeaccountingmodel,whichlinkshedgeaccountingtoriskmanagementactivitiesbythebank’smanagement.Accordingtothenewmodel,additionalhedgingstrategiesmaymeetthehedgeaccountingcriteria,newrequirementsapplytotheeffectivenessofhedging,whileterminatinghedgeaccountingwillbepermissibleonlyundercertainconditions.TheInternationalAccountingStandardsBoardwithregardtothemacro-hedgingaccountingiscarryingoutaseparateworkthatisinprogress.Untilsuchworkiscompletedasanaccountingpolicy,theBankwillcontinuetoapplytherequirementsofIAS39forhedgeaccounting.
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Notes to the Financial Statements
3.8.1 Hedge accounting
The Bank has chosen to continue to apply the hedge accounting requirements of IAS 39, instead of therequirementsofIFRS9,andhasappliedthisaccountingpolicytoallitshedgingrelationships.
Inordertomanageparticularrisks,theBankapplieshedgeaccountingforderivativetransactionswhichmeetspecifiedcriteriarelativetodebtsecuritiesissuedbytheBank.Avalidhedgerelationshipexistswhenaspecificrelationshipcanbeidentifiedbetweentwoormorefinancialinstrumentsinwhichthechangeinvalueofoneinstrument (thehedging instrument) ishighlynegatively correlated to thechange in valueof theother (thehedgeditem).TheBankonlyapplieshedgeaccountingtreatmenttoindividuallyidentifiedhedgerelationshipsonaone-to-onebasis.
The Bank’s policies on riskmanagement are not to take significant interest rate or foreign exchange risks,andaimswherepossibletomatchassetsandliabilitiesandderivativesthatcanonlybeusedforhedging.ThemajorityoftheBank’slendingactivitiesareatfloatingrateslinkedtoUSDLIBORorEURIBOR.WhenlendingatafixedratetheBankwilloftenuseinterestrateswapstoproducefloatingrateinterestpayments.TheBank’sborrowings,particularlybybondissuance,tendtobefixedrateandsometimesnotinEURorUSDandtheBankwilluseeitherinterestrateswapsorcrosscurrencyinterestrateswapstoproducefloatingrateliabilitiesinUSDorEUR.AlltheBank’sinterestrateorcrosscurrencyswapsareexplicitlytiedtoabalancesheetassetorliability.Typically, thefixed rateon the swapand thematchingassetor liabilityhave the samecharacteristics (term,paymentdatesetc.).Foreignexchangeforwards(pairedpurchasesandsalesofcurrenciesondifferentdates)ofmaturitiestypicallylessthanthreemonthsarenottiedtospecificassetsorliabilities.TheseareundertakentomanagesurplusesandshortfallsinEURandUSDandarenotundertakenforspeculativepurposes.AllderivativesaredocumentedunderanISDAagreementwithaCSAandmarkedtomarketandcollateralizeddaily.
Whenhedgeaccountingisapplied,theBankdesignatesanddocumentstherelationshipbetweenthehedginginstrument and the hedged item aswell as its riskmanagement objective and strategy for undertaking thehedgingtransactionsandthenatureoftheriskbeinghedged.ThisdocumentationincludesadescriptionofhowtheBankwillassessthehedginginstrument’seffectivenessinoffsettingtheexposuretochangesinthehedgeditem’sfairvalueorcashflowsattributabletothehedgedrisk.Hedgeeffectivenessisassessedatinception,evenwhenthetermsofthederivativeandhedgeditemarematched.
Ifthehedginginstrumentexpiresorissold,terminatedorexercised,orwherethehedgenolongermeetsthecriteriaforhedgeaccounting,thehedgerelationshipisdiscontinuedprospectively.Anyfairvalueadjustmentisrecognizedimmediatelyintheincomestatement.AtthefinancialpositiondatetheBankdidnothaveanycashflowhedge.
i) Fair Value Hedge
Changesinthefairvalueofthederivativesthataredesignatedandqualifyasfairvaluehedges,andthatprovetobehighlyeffectiveinrelationtohedgedrisk,areincludedintheincomestatementasfairvaluehedgesunder‘netgainsorlossesatfairvalueonhedgingactivities’,alongwiththecorrespondingchangeinfairvalueofthehedgedassetorliabilitythatisattributabletothatspecifichedgedrisk.
3.8.2 Financial Impact
Before the impactofderivativesandhedgeaccountingadjustments theBankreturnedanet incomeofEUR17,777thousandin2019comparedwithEUR12,775thousandin2018.AfterallowingforderivativeandhedgeaccountingadjustmentstheBank’snetincomefor2019wasEUR13,664thousand(2018:EUR5,176thousand).Allcontractsthatareconsideredderivativesforaccountingpurposesarecarriedatfairvalueinthestatementoffinancialposition.
The TreasuryDepartment, under the guidanceof ALCO, is responsible for the primary usage andmanaginginterestrateandcurrencyrisksintheBank’sstatementoffinancialposition.
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3.9 Financial Guarantees
Issuedfinancialguaranteesareinitiallyrecognizedattheirfairvalue,beingthepremium(fee)receivedandsubsequentlymeasured at the higher of the unamortized balance of the related fees received and deferred, and the expenditurerequiredtosettlethecommitmentatthefinancialpositiondate.Thelatterisrecognizedwhenitisbothprobablethattheguaranteewillrequiretobesettledandthatthesettlementamountcanbereliablyestimated.Financialguaranteesarerecognizedwithinotherfinancialassetsandotherfinancialliabilities.
3.10 Property and Equipment
Property and equipment include leasehold improvements and transportation and other equipment. Property andequipmentareinitiallyrecordedatcost,whichincludesallcoststhatarerequiredtobringanassetintooperatingcondition.Subsequently to initial recognition,propertyandequipmentaremeasuredatcost lessaccumulateddepreciationandaccumulatedimpairmentlosses.
Costsincurredsubsequentlytotheacquisitionofanasset,whichisclassifiedaspropertyandequipmentarecapitalized,onlywhenitisprobablethattheywillresultinfutureeconomicbenefitstotheBankbeyondthoseoriginallyanticipatedfortheasset,otherwisetheyareregardedasexpensesincurred.
AteachreportingdatetheBankassesseswhetherthereisanyindicationthatanitemofpropertyandequipmentmaybeimpaired.Ifanysuchindicationexists,theBankestimatestherecoverableamountoftheasset.Wherethecarryingamountofanassetisgreaterthanitsestimatedrecoverableamount,itiswrittendownimmediatelytoitsrecoverableamount.Gainsandlossesondisposalofpropertyandequipmentaredeterminedbyreferencetotheircarryingamountandaretakenintoaccountindeterminingnetincomeorloss.
Depreciation isprovided towriteoff thecostofeachasset to their residual valuesona straight-linebasisover theirestimatedusefullives.Theannualdepreciationratesappliedwereasfollows:
• Expenditureonleaseholdbuildingsandimprovementsaredepreciatedovertheremainingtermofthelease
• Transportationvehicles
• Furnitureandofficeaccessories
• Personalcomputers
• Officeandtelecommunicationequipment
-
20.0%
20.0%
33.3%
20.0%
3.11 Intangible Assets
Intangibleassetscomprisesoftwareexpendituresandotherintangibleassets.Theseassetsareamortizedonastraight-linebasisoverthebestestimateoftheirusefullives,whichissoftwarefordesktopsofthreeyearsandsoftwareforserversoffiveyears.Ateachreportingdate,managementreviewsintangibleassetsandassesseswhetherthereisanyindicationof impairment. If such indicationsexistananalysis isperformedtoassesswhether thecarryingamountof intangibleassetsisfullyrecoverable.Awrite-downismadeifthecarryingamountexceedstherecoverableamount.
3.12 Right of Use Assets
Right-of-useassetscomprisethoseassetsthattheBank,asthelessee,hascontroloftheunderlyingassetsduringthetermofthelease.ControlisconsideredtoexistiftheBankhas:
- Therighttoobtainsubstantiallyalloftheeconomicbenefitsfromtheuseofanidentifiedasset,and,- Therighttodirecttheuseofthatasset.
TheBankprovidesfortherecognitionofaright-of-useassetandaleaseliabilityuponleasecommencementincasethatthereisacontract,orpartofacontract,thatconveystotheBanktherighttouseanassetforaperiodoftimeinexchangeforaconsideration.MoredetailsareprovidedwithintheleaseaccountingpolicyNote3.20.
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Notes to the Financial Statements
3.13 Taxation
InaccordancewithArticle52oftheEstablishingAgreement,theBank,itsassets,property,incomeanditsoperationsandtransactionsareexemptfromalltaxationandallcustomsdutiesinallmembercountries.
TheBank isalsoexemptfromanyobligationforpayment,withholdingorcollectionofanytaxorduty.Also,notax istobe leviedon salariesoremolumentspaidby theBank toemployees. These taxexemptionsarealso includedandelaborateduponinArticle12oftheHeadquartersAgreementwiththeHellenicGovernment,ratifiedbyGreekLaw2380/No.38/7.3.1996.
3.14 Provisions
TheBank recordsprovisions forpotentialobligationsand riskswhen the followingcircumstancesexist (a) there isanexistinglegalorconstructiveobligationasaresultofpastevents(b)fortheobligationtobesettledanoutflowofresourcesembodyingeconomicbenefitsispossibleand(c)areliableestimateoftheamountoftheobligationcanbemade.
3.15 Share Capital and Dividends
InaccordancewithArticle36oftheEstablishingAgreement,theBoardofGovernorsshalldetermineannuallywhatpartofnetincomeorsurplusoftheBankfromoperationsshallbeallocatedtoreserves,providedthatnopartofthenetincomeorsurplusoftheBankshallbedistributedtomembersbywayofprofituntilthegeneralreservesoftheBankshallhaveattainedthelevelof10%ofthesubscribedcapitalincludingallpaid,unpaidbutpayable,andunpaidbutcallablesharecapital.
3.16 Reserves and Retained Earnings
InaccordancewiththeEstablishingAgreementoftheBankthegeneralreserveiscreatedfromtheprofitsoftheBankformeetinganyunforeseeablerisksorcontingencies.
TherevaluationreserverepresentstheaccumulatedchangeinfairvalueofthosefinancialassetsthataremeasuredatfairvaluethroughothercomprehensiveincomeoftheBank.
TheretainedearningsoftheBankistheaccumulatedundistributedandunallocatednetincomeovertheyears.
3.17 Income and Expense
Interestincomeandexpensearerecognizedintheincomestatementusingtheeffectiveinterestmethod.Theeffectiveinterestrate(EIR)istheratethatexactlydiscountsestimatedfuturecashpaymentsorreceiptsthroughtheexpectedlifeofthefinancialinstrument(or,whereappropriate,ashorterperiod)to:
- Thegrosscarryingamountofthefinancialasset;or- Theamortizedcostofthefinancialliability.
WhencalculatingtheEIRforfinancialinstrumentsotherthanpurchasedororiginatedcredit-impairedassetstheBankestimatesfuturecashflowsconsideringallcontractualtermsofthefinancialinstrument,butnottheECL.Forpurchasedororiginatedcredit-impairedfinancialassets,acredit-adjustedEIRiscalculatedusingestimatedfuturecashflowsincludingtheECL.
ThecalculationoftheEIRincludestransactioncostsandfeespaidorreceivedthatareanintegralpartoftheeffectiveinterest rate.Transactioncosts include incrementalcosts thataredirectlyattributable to theacquisitionor issueofafinancialassetorfinancialliability.
i) Amortized Cost and Goss Carrying Amount
TheACofafinancialassetorfinancialliabilityistheamountatwhichthefinancialassetorfinancialliabilityismeasuredoninitialrecognitionminustheprincipalrepayments,plusorminusthecumulativeamortizationusingtheeffectiveinterestmethodofanydifferencebetweenthatinitialamountandthematurityamountand,forfinancialassets,adjustedforanyECLallowance.
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Thegrosscarryingamountofafinancialasset’ istheACofafinancialassetbeforeadjustingforanyECLallowance.
ii) Calculation of Interest Income and Expense
Interestincomeandexpensearerecognizedintheincomestatementforallinterest-bearinginstrumentsusingthe effective interest rate method. Interest income includes interest on loans and advances to customers,couponsearnedonfixedincomeinvestmentsecuritiesandaccrueddiscountandpremiumontreasurybillsandotherinstruments.
Feesanddirectcostsrelatingtoaloanoriginationoracquiringaninvestmentsecurity,financingorrestructuringandtoloancommitmentsaredeferredandamortizedtointerestincomeoverthelifeoftheinstrumentusingtheeffectiveinterestratemethod.
Onceafinancialassetoragroupofsimilarfinancialassetshasbeenwrittendownasaresultofanimpairmentloss, interest income is recognized using the rate of interest used to discount the future cash flows for thepurposeofmeasuringtheimpairmentloss.
TheEIRofafinancialassetorfinancialliabilityiscalculatedoninitialrecognitionofafinancialassetorafinancialliability.Incalculatinginterestincomeandexpense,theEIRisappliedtothegrosscarryingamountoftheasset(whentheassetisnotcredit-impaired)ortotheACoftheliability.TheEIRisrevisedasaresultofperiodicre-estimationofcashflowsoffloatingrateinstrumentstoreflectmovementsinmarketratesofinterest.TheEIRisalsorevisedforfairvaluehedgeadjustmentsatthedateamortizationofthehedgeadjustmentbegins.
However,forfinancialassetsthathavebecomecredit-impairedsubsequenttoinitialrecognition,interestincomeiscalculatedbyapplyingtheeffectiveinterestratetotheamortizedcostofthefinancialasset.Iftheassetisnolongercredit-impaired,thenthecalculationofinterestincomerevertstothegrossbasis.
Forfinancialassetsthatwerecredit-impairedoninitialrecognition,interestincomeiscalculatedbyapplyingthecredit-adjustedEIRtotheACofthefinancialasset.Thecalculationofinterestincomedoesnotreverttoagrossbasis,evenifthecreditriskofthefinancialassetimproves.
iii) Fees and Commissions
Feeandcommission incomeandexpensethatare integraltotheEIRonafinancialassetorfinancial liabilityare included in the EIR. Other fee and commission income – including account servicing fees, investmentmanagementfees,salescommission,placementfeesandsyndicationfees–isrecognizedastherelatedservicesareperformed.Ifaloancommitmentisnotexpectedtoresultinthedraw-downofaloan,thentherelatedloancommitmentfeeisrecognizedonastraight-linebasisoverthecommitmentperiod.
AcontractwithacustomerthatresultsinarecognizedfinancialinstrumentintheBank’sfinancialstatementsmaybepartiallyinthescopeofIFRS9andpartiallyinthescopeofIFRS15.Ifthisisthecase,thentheBankfirstappliesIFRS9toseparateandmeasurethepartofthecontractthatisinthescopeofIFRS9andthenappliesIFRS15totheresidual. Fee and commission income from contractswith customers under the scope of IFRS 15 ismeasured basedontheconsiderationspecified inacontractwithacustomer.TheBankrecognizes revenuewhen it transferscontroloveraservicetoacustomer.TheadoptionofIFRS15hadnoimpactontheBank’sfinancialstatementsastheexecutionandcompletionofthetransactionrequestedbyacustomerisdoneatpointintime,andthisisconsistentwiththeBank’sexistingaccountingpolicy.
Otherfeeandcommissionexpensesrelatemainlytotransactionandservicefees,whichareexpensedastheservicesarereceived.
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Notes to the Financial Statements
3.18 Staff Retirement and Termination Benefits
TheBankhasestablishedapensionplan,wherethefund’sassetsareheldseparatelyfromtheBank’sownassets,forallitseligibleemployees,consistingofthreepillars:
a. Thefirstpillarisadefinedpost-employmentbenefitschemefinancedentirelybytheBank.Thescheme’sfundinglevelandtheBank’scontributionsaredeterminedonthebasisofactuarialvaluationsperformedbyqualified,independentactuariesonanannualbasisattheendofeachAnnualReportingperiod.Theactuarialvaluationusestheprojectedunitcreditmethodandanumberoffinancialanddemographicassumptions.Themostsignificantassumptionsincludeage,yearsofserviceorcompensation,lifeexpectancy,thediscountrate,expectedsalaryincreasesandpensionrates.Theactuarial liabilityisthepresentvalueofthedefinedbenefitobligationasatthereportingdateminusthefairvalueoftheplanassets.TheBankisundertheobligationtomaintaintheschemefullyfunded,andtothiseffect,hasalwaysliquidatedanypastservicedeficitoverthecourseoftheyearfollowingtherelevantactuarialvaluation.
Actuarial and asset gains or losses are recognized in ‘Other comprehensive income’, andnet gains or losses areincludedinremeasurementswhereanychangeintheeffectoftheassetceiling,excludingthoseamountsthathavebeenalreadyincludedinpersonnelexpenses,arealsoincluded.
b. The secondpillar is adefinedpost-employment contribution scheme towhichboth theemployeeand theBankcontributeequallyatarateof0-12%ofbasicsalary.TheBankhasnoobligationtopayfurthercontributioniftheemployeediscontinuestheircontribution. Eachemployeedetermineshis/hercontributionrateandthemodeofinvestmentofthecontributions.
c. Thethirdpillarisadefinedcontributionschemefundedentirelybyeachemployee,upto40%ofbasicsalaryandisrecordedintheBank’sfinancialstatements.
Asanalternative,staffareentitledtoretirementbenefitsfromtheGreekStateSocialInsuranceFund(EFKA),whichisadefinedcontributionscheme.
Currentservicecostsinrespectofboththepensionplan(a)and(b)andEFKAarerecognizedasanexpenseintheperiodwhichtheyrelateandareincludedin‘Personnelexpenses’.
TheBankmayofferterminationbenefitstoemployeesthatareseparatedbasedontheBank’sseparationpolicy.Thesebenefits,includingindemnitiesandanyrelatedretirementbenefits,arerecognizedinincomeasanexpenseinthesameperiodtheyareincurred.
3.19 Related Parties
Relatedpartiesincludeentities,whichtheBankhastheabilitytoexercisesignificantinfluenceinmakingfinancialandoperationaldecisions.Relatedparitiesincludekeymanagementpersonnel,andclosefamilymembersofkeymanagementpersonnel.
3.20 Leases – the Bank as a Lessee
On1January2019theBankadoptedIFRS16,‘Leases’.Thisstandardhasestablishedtheprinciplesfortherecognition,measurement and presentation of leases, and provides a single lessee accounting model that is required at thecommencementdateofthelease.Theobjectiveistoreportinformationthat(a)faithfullyrepresentsleasetransactionsand(b)providesabasisfortheamount,timinganduncertaintyofcashflowsarisingfromleases.TheBankasalesseeisrequiredtorecognizeright-of-useassets(representingtheBank’srighttousetheunderlyingleasedassets)andaleaseliability(representingtheBank’sobligationtomakeleasepayments),inthestatementoffinancialposition.
TheBankapplied thepracticalexpedient in IFRS16 tocontracts thatwere identifiedas leases inorder todeterminewhetheranarrangementcontainsalease,ontransitiontocontractsthatwerepreviouslyidentifiedasleasesunderIAS17andIFRIC4.Consequently,theBank’sleasesareonlyforofficespace;itdoesnotleaseland,corporatevehicles,ortechnicalorITequipment,nordoesithaveanysale-and-leasebacktransactions.
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Notes to the Financial Statements
TheBankelectedtoapplythemodifiedretrospectivetransitionapproach,withoutrestatementofcomparativefigures.Underthisapproach,theBankwasabletochooseonaleasebyleasebasistomeasuretheright-of-useassetatthesameamountastheleaseliability.
TheBank’s leases for right-of-useassetsare initially recognizedandmeasuredatacost similar toothernon-financialassets,andtheleaseliabilityisinitiallyrecognizedandmeasuredatthepresentvalueoffutureleasepaymentsthatarenotpaidatthatdatesimilarlytootherfinancialliabilities.Theleasepaymentscanbediscountedusingtheinterestrateimplicitinthelease,ifsuchisavailable,oralternativelytheBank’sincrementalborrowingrate.TheBankwillapplythismeasurement–exceptforthosewithleasetermof12monthsorless,makinguseoftheshot-termleasesandleasesoflowvalue,exemptionsunderthisstandard.
Regardingsubsequentmeasurement,theBankactingasalessee,hasappliedthecostmodelforthemeasurementofthe right-of-useasset;where thisasset ismeasuredatcost, lessanyaccumulateddepreciationandanyaccumulatedimpairmentlosses,andadjustedfortheremeasurementoftheleaseliability.Theleaseliabilityismeasuredbyincreasingthecarryingamount to reflectany intereston it and that is separately recognizedasanexpense; the lease liability’scarryingamountisreducedtoreflecttheleasepaymentsmade.Incaseofanyreassessments(e.g.achangeinfutureleasepaymentsresultingfromachangeinanindexorrateusedtodeterminethosepayments)orleasemodifications(e.g.achangeintheleaseterm,leaseconditionsoranypenalty)specified,thecarryingamountoftheleaseliabilitywillberemeasuredtoreflectrevisedleasepayments.
4. USE OF ESTIMATESThe preparation of financial statements involves Management in critical judgements, estimates and assumptionsthataffect thereportedamountsofassetsand liabilities, incomeandexpense in theBank’sfinancial statementsandaccompanyingnotes.TheBankbelievesthatthecriticaljudgments,estimatesandassumptionsusedinthepreparationoftheitsfinancialstatementsareappropriategiventhefactualcircumstancesasofthedateofpreparation.Themostsignificantareas,forwhichcriticaljudgments,estimatesandassumptionsarerequiredinapplyingtheBank’saccountingpolicies,arethefollowing:
a. Provisionsfortheimpairmentofloanoperations.Managementisrequiredtoexercisejudgmentinmakingassumptionsand estimateswhen calculating loan impairment provisions on both individually and collectively assessed loans.Themethodology and assumptions used are reviewed regularly by theBank to reduce any differences betweenlossestimatesandactual lossexperience.TheestimationmethodsusedbytheBank’sManagementforcollectiveimpairmentallowances,includetheuseofstatisticalanalysesofhistoricalinformation,supplementedwithsignificantjudgment,toassesswhethercurrenteconomicandcreditconditionsaresuchthattheactuallevelofincurredlossesislikelytobegreaterorlessthanhistoricalexperience.IndeterminingtheprovisionamountstheBanktakesintoconsiderationPDandLGDfactorsextractedfromtheGEMsdatabase.
For loans that are individually assessedwhich have a lifetime ECL and that are credit-impaired, the impairmentallowanceresultsfromtheimpairmenttestthatisconductedonthebasisofobjectiveevidenceobtainedthroughariskassetreviewprocess.An impairmenttest includesprojectedcash in-flowsandout-flows,availablefordebtserviceuntilmaturity,whicharediscountedattheEIRtoreachanetpresentvalueforaparticularoperation,lessanycollateralthatcanberealized.
Provisionsforimpairmentofinvestmentsecuritiesisassessedcollectively,usingthesamemethodologyasloans.
b. InreachingestimatesoffairvalueinstrumentsthejudgmentofManagementneedstobeexercised.ThejudgmentofManagement is required in determining the category towhich certain instruments should be allocated. Thisspecificallyariseswhenthevaluationisdeterminedbyanumberofparameterssomeofwhichareobservablewhileothersarenot.TheBankprovidesasensitivityanalysisoftheimpactuponthelevel3financialinstrumentsofusingareasonablypossiblealternativefortheunobservableparameter.
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Notes to the Financial Statements
c. Staffretirementbenefits.TheBankhasestablishedapensionplanforitsstaffwhichisdescribedin‘Staffretirementandterminationbenefits’accountingpolicyandisdetailedunderstaffretirementplaninNote‘Employeebenefits’.The present value of retirement benefit obligations is sensitive to the actuarial and financial assumptions used,includingthediscountrateapplied.Attheendofeachyear,theBankdeterminestheappropriatediscountrateandotherassumptions tobeused todetermine thepresentvalueofestimated futurepensionobligations,basedoninterestratesofsuitablelong-termbondsandontheEURcurrency.
5. RISK MANAGEMENTTheBank’sactivitiesaresubject toavarietyof risks, someofwhicharenotwithin theBank’scontrol: includingrisksrelatingtochangesininterestrates,foreignexchangerates,declinesinliquidityanddeteriorationinthecreditqualityofitsloanportfolio.TheBankmonitorsandmanagesthematuritiesofitsloans,itsinterestrateandexchangerateexposure,itsliquiditypositionandthecreditqualityofeachindividualloanandequityinvestmentinordertominimizetheeffectsofchangesinthemrelativetotheBank’sprofitabilityandliquidityposition.TheBoDhasapprovedriskmanagementpoliciesandguidelinesthataredelegatedtotheManagementoftheBankfortheidentificationandmeasurementofrisk,aswellasbeingsubjecttorisklimitsandcontrols.
TomanageriskstheBankhasestablishedanAssetandLiabilityCommittee(ALCO),aCreditCommitteethatimplementstheBank’screditandlendingpolicies,theOfficeoftheGeneralCounsel,theDepartmentofRiskManagementandtheDepartmentofFinancialAnalysis,whichtogetherareresponsiblefordevising,implementingandmonitoringtheBank’sriskmanagementpolicies,includingfinancial,creditandmarketrisks.
TheALCOisresponsibleformonitoringandmanagingtheBank’soverallassetandliabilitypositioninaccordancewiththeBank’streasurypolicies.ItmonitorsandmanagestheBank’sliquidityposition,maturitygaps, interestincomeandexpenseandtheconditionoftheinternationalfinancialmarketsandisresponsibleforassigningmarketrisklimits.TheALCOconsistsofmembersoftheBank’sManagementandamemberoftheDepartmentofTreasurythathasregularmonthlymeetings.
TheCreditCommitteeisresponsiblewithrespecttocreditmatters.Itskeyresponsibilitiesinclude:approvaloflendingoperations for submission to theBoD forfinalapproval,establishing specificparameters (e.g.policies, limits, targets,guidelines) for operational decisionmaking, approval of changes to the manuals that prescribe how operations areto be analyzed, approved, administered and monitored and approval of any amendments, restructuring and otheroperationrelated matters. The Credit Committee consists of members of the Bank’s Management, and has regularmeetingsasrequiredtomonitorandmanageoverallriskconcentrationbyreferencetoborrowerandindustryexposureandcriticallyreviewseachindividualloanandequityinvestmentproposalsmadebythelendingbusinessareas.AmajorfunctionoftheCreditCommitteeistominimizethecreditriskpresentedbyeachindividualloanandequityinvestmentproposal,andtheoverallportfolioriskoftheBank.
Onceanoperationisapprovedanddisbursed,itisthenmonitoredtoensurethoroughandregularevaluationsofitscreditquality.OperationsaremonitoredaccordingtoaschedulecoordinatedbytheDepartmentofProjectImplementationandMonitoring,withinputsfromtheoriginatingoperationteamsregardingtheavailabilityoffinancialdata.MonitoringreportsarecompletedbytheBank’sDepartmentofProjectImplementationandMonitoringbasedonfinancialanalysispreparedbytheDepartmentofFinancialAnalysis.Riskassetreviews,basedonthepreviouslymentionedmonitoringreports,areperformedbytheDepartmentofRiskManagement,andmayresultinadowngradeorupgradeofanoperation’sstatusand,ifasignificantdeteriorationisnoted,triggeranimpairmenttest.
Should an operation display signs of weakness during the regularmonitoring and/or through risk asset reviews, animpairmenttestisimmediatelycarriedoutbytheDepartmentofRiskManagementandappropriateremedialactionsaretaken,asrequired.Thesemeasuresinclude,butarenotlimitedto,adetailedassessmentofthefinancialandoperationalperformanceoftheoperation,additionalduediligence,stoppingdisbursementofanyundisbursedamounts,preparationofremedialstrategiesandcarryingoutfurtherimpairmenttests.Besides,inadditiontoregularsitevisitscarriedoutbytheoperationsteams,suchavisitcanbeconductedbytheDepartmentofProjectImplementationandMonitoringand,whenappropriate,accompaniedbytheDepartmentofFinancialAnalysis.
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Notes to the Financial Statements
FortheBankaconservativeapproachtorisktakingtogetherwitheffectiveriskmanagement,arecriticaltotheBank’scontinuingoperations.TheapplicationofsoundBankingprinciplesintheBank’screditprocessseekstoensurethatthesignificantcreditrisksareproperlyidentifiedandmanagedwhileotherrisksresultingfromitsactivitiesaremitigatedtotheextentpossible.
Importantly,theBankisrecognizedasaninternationalfinancialinstitution,andassuchcanexpecttobenefitfromthepreferredcreditorstatuscustomarilyandhistoricallyaffordedtosuchinstitutions.Thispreferredcreditorstatusservestoprovideanadditionallayerofcomfortagainsttherisksofnonpaymentonsovereigndebtorbyprivatesectorborrowersasaresultoflocallawscreatingadelayorfreezeonforeigncurrencyexchanges.TheBankisexposedtothefollowingrisksdiscussedbelow.
Financial Risk
TheBank’sexposuretofinancialriskisthroughitsfinancialassetsandfinancialliabilitiesincludinganyreceivablesfromthesefinancialassets.ThekeyaspectsoftheBank’sfinancialriskare(i)creditrisk(ii)liquidityriskand(iii)marketrisk.
a) Credit Risk
TheBankissubjecttocreditrisk,whichistheriskthatcustomersorcounterpartieswillbeunabletomeettheirobligationsastheyfalldue.CreditriskarisesprincipallyfromtheBank’slendingactivitiesaswellasotheractivitieswheretheBankis exposed to counterparty default risk. Regular reviews by the departments of RiskManagement, Financial AnalysisandProject ImplementationandMonitoringareconductedofallexposureswithinthe lendingportfolios, typicallyonasemi-annualbasis,thoughexposuresthatareperceivedtobemorevulnerabletopossibledefaultarereviewedmorefrequently.
Ateachreviewthereis/are(i)anassessmentofwhethertherehasbeenanychangeintheriskprofileoftheexposure(ii)recommendationsofactionstomitigateriskand(iii)reconfirmingoradjustingtheriskratings,andforequityinvestments,reviewingoffairvalue.Whererelevant,theleveloftheexpectedcreditlossisevaluatedandreconfirmedoradjusted.Responsibilityforoperationsconsideredtobeinjeopardymaybetransferredfromtheoriginallendingdepartmenttoacorporaterecoveryteaminordertomosteffectivelymanagetherestructuringandrecoveryprocess.
ForcreditrisksincurredbytheBank’sTreasuryinitsinvestmentandhedgingactivities,theBoDhasapprovedpoliciesandguidelinesforthedeterminationofcounterpartyandinvestmentexposurelimitsinbonds,thatincludesMemberStatebonds,andeurocommercialpaper.TheBank’sRiskManagementDepartmentassignsandmonitorsthesecounterpartyandissuercreditrisk limits.TreasurycreditrisksarealsoreviewedonaregularbasisbytheBank’sAssetandLiabilityCommittee.
Thetablebelowsummarizesthemaximumexposuretocreditriskandindicatestheworst-casescenario,withouttakingintoconsiderationcollateral,othercreditenhancementsorprovisionsofimpairment.
PresentedinEUR(000)
At31December
2019
At31December
2018
CashandduefromfinancialinstitutionsDebtinvestmentsecuritiesDerivativefinancialinstrumentsLoansOther assets
82,621420,591
3,1281,820,941
35,853
48,598395,979
6621,330,695
29,541
On-balance-sheetUndrawn commitments
2,363,134353,496
1,805,475252,801
Total 2,716,630 2,058,276
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Notes to the Financial Statements
a1. Analysis by Rating Agency
ThetablesbelowprovideananalysisoffinancialinvestmentsinaccordancewiththeirMoody’sratingasfollows.
2019
PresentedinEUR(000)Aaa–Aa3
A1–A3
Baa1–Ba3 Unrated Total
AnalysisbyMoody’srating
CashandbankbalancesDebtinvestmentsecuritiesEquityinvestments
82,621177,917
-
-50,213
-
-192,461
-
--
30,386
82,621420,591
30,386
At 31 December 260,538 50,213 192,461 30,386 533,598
Of which issued by
Corporates/GovernmentsCashdepositsatbanks
177,91782,621
50,213-
192,461-
30,386-
450,97782,621
At 31 December 260,538 50,213 192,461 30,386 533,598
Ofwhichclassifiedas
FairvaluethroughprofitorlossFairvaluethroughothercomprehensiveincomeAmortizedcost
-177,91782,621
-50,213
-
-192,461-
79829,588
-
798450,179
82,621
At 31 December 260,538 50,213 192,461 30,386 533,598
2018
PresentedinEUR(000)Aaa–Aa3
A1–A3
Baa1–Ba3 Unrated Total
AnalysisbyMoody’srating
CashandbankbalancesDebtinvestmentsecuritiesEquityinvestments
48,59821,813
-
-105,979
-
-268,187
-
--
27,655
48,598395,979
27,655
At 31 December 70,411 105,979 268,187 27,655 472,232
Of which issued by
Corporates/GovernmentsCashdepositsatbanks
21,81348,598
105,979-
268,187-
27,655-
423,63448,598
At 31 December 70,411 105,979 268,187 27,655 472,232
Ofwhichclassifiedas
FairvaluethroughprofitorlossFairvaluethroughothercomprehensiveincomeAmortizedcost
-21,81348,598
-105,979
-
-218,84849,339
1,01526,640
-
1,015373,280
97,937
At 31 December 70,411 105,979 268,187 27,655 472,232
ANNUAL REPORT 2019
90
Notes to the Financial Statements
a2. Credit Risk Analysis
ThetablesbelowprovideananalysisoftheBank’s internalexpectedcredit lossratingscalefrom1(lowestrisk)to15(highestrisk)andhowitcorrespondstotheexternalratingsofMoody’screditratingservice.
Riskrating Internalriskratingcategory Externalratingequivalent Grade of investment
1123,4,56,7,89,10,1112,13,1415
ExcellentVerystrongStrongGoodFairWeakSpecialattentionExpectedloss
AaaAa1–Aa3A1–A3Baa1–Baa3Ba1–Ba3B1–B3Caa1–Caa3Ca–C
InvestmentInvestmentInvestmentInvestmentInvestmentInvestmentClassifiedClassified
a3. Credit Risk in Loans Portfolio
ThetableprovidesanoverviewoftheexposureamountandallowanceforcreditlossesbyfinancialassetclassbrokendownintostagesasperIFRS9requirements,includingmovementsofnon-performing.Internally,loansthatarewithinthe12-monthECLarecategorizedasstandard.
PresentedinEUR(000)
Internalriskratingcategory
12-monthECL
LifetimeECLnot
credit impaired
LifetimeECLcreditimpaired Total
Provisions for impairment
12-monthECL
LifetimeECLnot
credit impaired
LifetimeECL
creditimpaired Total
ExcellentVerystrongStrongGoodFairWeakSpecialattentionExpectedloss
---
6,751645,612807,56325,073
-
-----
214,98657,304
-
------
50,898-
---
6,751645,612
1,022,549133,275
-
---1
6802,118
92-
-----
4,6181,368
-
------
34,437-
---1
6806,736
35,897-
At 31 December 2019 1,484,999 272,290 50,898 1,808,187 2,891 5,986 34,437 43,314
PresentedinEUR(000)
Internalriskratingcategory
12-monthECL
LifetimeECLnot
credit impaired
LifetimeECLcreditimpaired Total
Provisions for impairment
12-monthECL
LifetimeECLnot
credit impaired
LifetimeECL
creditimpaired Total
ExcellentVerystrongStrongGoodFairWeakSpecialattentionExpectedloss
---
8,442669,613372,775
--
----
44,020139,82242,009
-
------
41,737-
---
8,442713,633512,597
83,746-
---1
1,4612,058
--
----
8911,9851,398
-
------
26,981-
---1
2,3524,043
28,379-
At 31 December 2018 1,050,830 225,851 41,737 1,318,418 3,520 4,274 26,981 34,775
BLACK SEA TRADE AND DEVELOPMENT BANK
91
Notes to the Financial Statements
PresentedinEUR(000) At31December2019 At31December2018
At1JanuaryClassifiedasnon-performingWrite-off
---
9,164-
(9,164)
At end of year - -
a4. Credit Risk by Country and Sector
TheBankusesinternationalbestpracticesforlendingactivitiesinordertodiversifyriskbycountryandbysector,whilealsopreservingtheneedsoftheBank’sMemberStatesinaccordancewiththeBank’smandatetopromoteeconomicdevelopmentintheBlackSeaRegion.
Theconcentrationofcreditriskinlendingportfoliosispresentedbelow,alsoincludingtheundrawnamounts.TheBankisgenerallywelldiversifiedbycountryandbysector.
At31December
2019
At31December
2018
PresentedinEUR(000)Outstanding
balanceUndrawn
commitmentsOutstanding
balanceUndrawn
commitments
Concentrationbyinstrument
LoansEquityinvestmentsGuarantees
1,820,94130,386
-
335,9597,9059,632
1,330,69527,655
-
233,0998,680
11,022
At end of year 1,851,327 353,496 1,358,350 252,801
Concentrationbycountry
AlbaniaArmeniaAzerbaijanBulgariaGeorgiaGreeceMoldovaRomaniaRussiaTurkeyUkraine
40,13692,731
121,519116,447116,119386,89838,022
136,841217,662420,399164,553
67387387
32,38628,71212,50318,555
68456,367
134,22969,219
37,62991,73053,867
153,265113,856202,14638,909
172,322128,113306,21860,295
87431
6,54432,41820,8022,9532,1817,707
59,94070,32249,416
At end of year 1,851,327 353,496 1,358,350 252,801
Concentrationbysector
ConsumerdiscretionaryConsumerstaplesEnergyFinancialinstitutionsHealthcareIndustrialsInformationtechnologyMaterialsRealestateTelecomservicesUtilities
59,67189,200
228,050612,04991,060
269,7584,129
123,2313,480
-370,699
41,21428,856
-38,74326,138
102,000-
55,91932,000
-28,626
13,634103,029155,586537,03775,021
182,1675,734
110,2002,617
16,665156,660
30,247118
-85,10942,177
--
33,98732,000
-29,163
At end of year 1,851,327 353,496 1,358,350 252,801
ANNUAL REPORT 2019
92
Notes to the Financial Statements
TheBankisrestrictedtooperatinginits11MemberStatesandindividualcountrylimitsaresetasamaximumat30%ofplannedcommitments.ThislimitiscalculatedonthebasisoftheBoDapprovedoperations,minusrepaymentsandcancellations. Individualoperationsare further constrainedby theSingleObligor Limit andbymonitoringof SectoralExposure.
a5. Collateral and Credit Enhancements
TheBankmitigatescreditriskbyholdingcollateralandothercreditenhancementsagainstexposuretocustomersandcounterpartieswhereitbelievessuchsecurityisnecessary.TheBankdefinessecurityasmechanisms,proceduresandassetsnegotiatedintransactionsthataremeanttoprotectitagainstlossincaseofnon-performance.Securityincludes,butisnotlimitedto,materialassets,financialinstruments,guarantees,covenantsandcomfortletters.
• Loansandadvances.TheBoDapprovedguidelinesfortakingsecurityunderlendingoperationssetthelevelsandtypesofcollateralandothercreditenhancementsrecommendedforagivenriskprofile.
ThemaintypesofcollateralthatmaybeobtainedbytheBankare:mortgagesonpropertiesandequipment,pledgesofequitysharesand investment instruments,assignmentof rightsoncertaincontracts,cashorblockeddepositsandotherthirdpartyguarantees.Ifnecessary,theBankreassessesthevalueofcollateralinordertodetermineifadditionalcollateral isneededtobeprovidedby theborrower.On31December2019thesecuredportfoliowas57.2%(2018:52.4%)oftheoutstandingloansbalance.
• Otherfinancialinstruments.Collateralheldassecurityforfinancialassetsotherthanloansandadvancesisdeterminedbythenatureoftheinstrument.BondsandeurocommercialpaperheldbytheBankasinvestmentsecuritiesaregenerallyunsecured.TheBankmayholdcashorgovernmentsecuritiesascollateralagainstitsderivativecontractcounterparties.On31December2019theBankhadpledgedcashcollateralinanamountofEUR1,350thousand(2018:EUR22,810thousand).
• Forloansthatarecredit-impairedatthereportingdatetheBankhascollateralheldassecurityanamountofEUR38,864thousandtomitigatecreditrisk.ThetypesofcollateralwithapproximatevaluesarerealestateEUR21,782thousand,machineryandequipmentEUR6,175thousand,andpledgedsharesEUR10,907thousand.
b) Liquidity Risk
LiquidityriskarisesinthegeneralfundingoftheBank’sfinancingandinvestmentactivitiesandinthemanagementofpositions.ItconcernstheabilityoftheBanktofulfillitsfinancialobligationsastheybecomedueandisameasureoftheextenttowhichtheBankmayrequirefundstomeetthoseobligations.Itinvolvesboththeriskofunexpectedincreasesinthecostoffundingtheportfolioofassetsatappropriatematuritiesandratesandtheriskofbeingunabletoliquidateapositioninatimelymanneronreasonableterms.
TheBank’sliquiditypolicyaimstobalancethetermandcurrencystructureoftheBank’sassetsandliabilities.Liquiditymanagementisconcentratedonthetimingofcashin-flowsandout-flows,aswellastheadequacyofavailablecashandliquidsecurities.TheBankmaintainsliquidassetsatprudentiallevelstoensurethatcashcanquicklybemadeavailabletohonorallitsobligations,evenunderadverseconditions,theBankhasaccesstothefundsnecessarytosatisfycustomerneeds,maturingliabilitiesanditsownworkingcapitalrequirements.Forthis,theBankestimatesandrelatesallexpectedcashflowsfromassetsandliabilities.
TheBanktakes intoconsideration,totheextentfeasible, theguidancedocuments issuedbytheBaselCommitteeonBankingSupervision.TheBanksetslimitstocontrol itsliquidityriskexposureandvulnerabilitiesandregularlyreviewssuch limits.The limit framework includesalsomeasuresensuring that inaperiodofmarket stress,available liquidityexceedsliquidityneedsandthattheBankcancontinuetooperate.
TheBank’scommitmenttomaintainingastrongliquiditypositionisestablishedinpoliciesapprovedbytheBoD. TheliquiditypolicyrequiresthattheBankmaintainitsliquiditypositionataminimumof50%ofthefollowing12months’netcashrequirement,includingcommitted,undisbursedprojectandtradefinanceloans.
BLACK SEA TRADE AND DEVELOPMENT BANK
93
Notes to the Financial Statements
TheBank’sliquiditypositionismonitoredregularly,andtheALCOisprimarilyresponsibleforthemanagementofliquidityriskandtheliquidityprofileoftheBank.TheBank’sliquidassetsaremaintainedinshort-termandnegotiablesecuritiesthatprimarilyare:(i)cashandbankbalances(ii)shorttermdepositswithinvestmentgraderatedcounterparties(iii)Euro-denominatedcommercialpaperissuedbyinvestmentgradepartiesand(iv)investmentgradebonds.
Thetablebelowpresentsthecashflowspayableonfinancialliabilitiesplacedintorelevantmaturitygroups,basedontheremainingperiodfromthefinancialpositiondatetothecontractualmaturitydate.ItindicatestheearliestmaturitydatesthattheBank’scounterpartieshavetheabilitytodemandrepayment.
Thefiguresrepresentundiscountedcashflows,andincludeestimatedinterestamounts,andthereforedonotmatchtothestatementoffinancialposition.
PresentedinEUR(000)Up to
1month
From 1monthto3months
From 3monthsto
1year
From 1yearto5years
Over 5years Total
BorrowingsDerivativefinancialinstrumentsPayablesandaccruedinterest
6,603--
39,4436,552
13,785
136,427-
7,536
1,421,627--
19,769--
1,623,8696,552
21,321
Financial Liabilities at 31 December 2019 6,603 59,780 143,963 1,421,627 19,769 1,651,742
BorrowingsDerivativefinancialinstrumentsPayablesandaccruedinterest
18,240--
24,10724,16412,002
232,861-
3,971
754,250--
27,958--
1,057,41624,16415,973
Financial Liabilities at 31 December 2018 18,240 60,273 236,832 754,250 27,958 1,097,553
FortheBank’sfinancialassets,themajoritymaturefromoneyearandovertakingintoconsiderationthelatestpossiblerepaymentdate.
c) Market Risk
Marketriskistheriskthatchangesinforeignexchangerates,interestratesormarketpricesoffinancialinstrumentsmayresult in lossestotheBank.Marketriskarisesonsuch instrumentsthatarevaluedatcurrentmarketprices(marktomarketbasis)orthosevaluedatcostplusanyaccruedinterest(accrualsbasis).
TheBankfundsitsoperationsbyusingtheBank’sownsharecapitalandbyborrowingintheinternationalcapitalmarkets.TheBankaimstomatch,whereverpossible,thecurrencies,tenorsandinterestratecharacteristicsofitsborrowingswiththoseofitslendingportfolios.Whennecessary,theBankusesderivativeinstrumentstoreduceitsexposuretoexchangerateandinterestraterisks.
TheBoardhasapprovedriskmanagementpoliciesandlimitswithinwhichexposuretomarketriskismonitored,measuredandcontrolled.TheALCOmonitorsandmanagestheseriskswhiletheassetandliabilityfunctionwithintheDepartmentofTreasuryhasprimaryresponsibilityforensuringcompliancewiththesepoliciesandlimits.
ANNUAL REPORT 2019
94
Notes to the Financial Statements
c1. Foreign Exchange Risk
TheBank’sriskmanagementpoliciesseektominimizecurrencyexposuresoranyunanticipatedchanges,favorableorunfavorable, in foreign exchange rates that could affect the income statement, by requiringnet liabilities in anyonecurrency to bematched closelywith net assets in the same currency. The Bankwill not take discretionary currencypositions.This isachievedprimarilybyholdingor lending theproceedsof theBank’sborrowings in thecurrencies inwhichtheywereborrowed.
TheBankregularlymonitors itsassetsandliabilities inordertoensuretheBanktakesnosignificantforeignexchangerisksand,afterswapactivities,adjuststhenetassetcurrencycompositiontotheBank’sfunctionalcurrencytomaintainamatchedforeignexchangeposition.Asamatterofpolicy,theBankaimstokeepforeignexchangeexposureasclosetozeroaspossible,withexceptionstothispracticerequiringapprovalfromtheALCO.ForlocalcurrencytransactionstheBankmatchestheoperation’scurrencywithborrowingsinthesamecurrency,assuchthereisnomaterialexposure.ThetablesbelowprovideacurrencybreakdownoftheBank’sassetsandliabilities,showingthattheeffectofanycurrencyfluctuationsonthenetexposureisminimal.
PresentedinEUR(000) Euro USD Swiss franc Other Total
AssetsCashandbankbalancesDebtinvestmentsecuritiesImpairmentlossesondebtinvestmentsecuritiesDerivativesfinancialinstrumentsLoans Deferred incomeImpairmentlossesonloansEquityinvestments Other assets
73,948149,277
(765)3,128
1,069,985(2,541)
(36,476)12,46319,509
7,776271,314
--
590,485(4,854)(2,417)17,69112,965
--------
156
897---
160,471(775)
(4,421)232
3,223
82,621420,591
(765)3,128
1,820,941(8,170)
(43,314)30,38635,853
Total
Liabilities BorrowingsDerivativefinancialinstrumentsPayablesandaccruedinterest
1,288,528
96,4776,552
10,612
892,960
1,029,024-
7,911
156
184,366-
44
159,627
175,288-
2,754
2,341,271
1,485,1556,552
21,321
Total
Netfinancialinstruments
Derivativefinancialinstruments
113,641
1,174,887
(351,342)
1,036,935
(143,975)
152,023
184,410
(184,254)
184,264
178,042
(18,415)
18,820
1,513,028
828,243
3,765
Currency balance at 31 December 2019 823,545 8,048 10 405 832,008
PresentedinEUR(000) Euro USD Swiss franc Other Total
AssetsCashandbankbalancesDebtinvestmentsecuritiesImpairmentlossesondebtinvestmentsecuritiesDerivativesfinancialinstrumentsLoans Deferred incomeImpairmentlossesonloansEquityinvestments Other assets
46,266165,120
(103)662
744,3651,454
(13,342)12,98815,095
1,691230,859
(541)-
466,721(3,483)
(17,263)14,66712,732
--------
141
641---
119,609(1,023)(4,170)
-1,573
48,598395,979
(644)662
1,330,695(3,052)
(34,775)27,65529,541
Total
Liabilities BorrowingsDerivativefinancialinstrumentsPayablesandaccruedinterest
972,505
126,79424,1646,134
705,383
595,473-
8,595
141
88,860-
51
116,630
142,903-
1,193
1,794,659
954,03024,16415,973
Total
Netfinancialinstruments
Derivativefinancialinstruments
157,092
815,413
11,376
604,068
101,315
(103,351)
88,911
(88,770)
88,739
144,096
(27,466)
22,568
994,167
800,492
19,332
Currency balance at 31 December 2018 826,789 (2,036) (31) (4,898) 819,824
BLACK SEA TRADE AND DEVELOPMENT BANK
95
Notes to the Financial Statements
c2. Interest Rate Risk
Interestrateriskistheriskthatthevalueofafinancialinstrumentwillfluctuate,favorablyorunfavorably,duetochangesinmarketinterestrates.Thelengthoftimeforwhichtherateofinterestisdeterminedonafinancialinstrumentindicatestowhatextentitisexposedtothatinterestraterisk.
TheBank’s interest rateriskmanagementactivitiesaimtoenhanceprofitability,by limitingtheeffectonassetvaluesofadverse interestratemovements inorderto increasenet interest incomebymanaging interestrateexposure.ThemajorityoftheBank’sloanportfolioisvariableinterestrateandtheBankhasapolicyaimedatminimizinginterestratemismatchesbetweenitsassetsandliabilitiesthatseekstoensurethattheinterestratepaymentperiodsforitsliabilitiesarematchedascloselyaspossibletointerestratepaymentperiodsfortheBank’sassets.Asamatterofpolicy,theBankdoesnottakediscretionaryinterestratepositions.
ThetablesbelowprovideinformationontheextentoftheBank’sinterestrateexposurebasedeitheronthecontractualmaturitydateofthefinancialinstrumentsor,inthecaseofinstrumentsthatre-pricetoamarketrateofinterestbeforematurity,thenextre-pricingdateasatthefinancialpositiondate.
Interest bearing
Non-interest bearing TotalPresentedinEUR(000)
Upto1month
From 1 month to 3
months
From 3 months to
1 year
From 1 year to5 years
Assets Cash and bank balances Debt investment securities Derivative financial instruments Loans Equity investments Other assets
82,617153,278
-274,438
--
-55,000
-412,265
--
-29,085
-648,712
--
-183,228
-485,526
--
4-
3,128-
30,38635,853
82,621420,591
3,1281,820,941
30,38635,853
Total
Liabilities Borrowings Derivative financial instruments Payables and accrued interest
510,333
189,828--
467,265
294,970--
677,797
153,646--
668,754
846,711--
69,371
-6,552
21,321
2,393,520
1,485,1556,552
21,321
Total
Derivative financial instruments
Interest rate risk at 31 December 2019
189,828
(3,854)
316,651
294,970
(129,074)
43,221
153,646
(652,087)
(127,936)
846,711
785,015
607,058
27,873
-
41,498
1,513,028
-
880,492
Interest bearingNon-
interest bearing TotalPresentedinEUR(000)
Upto1month
From1monthto3
months
From3months to
1year
From1year to5years
AssetsCashandbankbalancesDebtinvestmentsecuritiesDerivativefinancialinstrumentsLoansEquityinvestments Other assets
48,58172,407
-200,385
--
-45,000
-273,619
--
-76,451
-617,183
--
-202,121
-239,508
--
17-
662-
27,65529,541
48,598395,979
6621,330,695
27,65529,541
TotalLiabilities BorrowingsDerivativefinancialinstrumentsPayablesandaccruedinterest
321,373
36,698--
318,619
185,835--
693,634
207,952--
441,629
523,545--
57,875
-24,16415,973
1,833,130
954,03024,16415,973
Total
Derivativefinancialinstruments
Interest rate risk at 31 December 2018
36,698
1,250
285,925
185,835
(109,698)
23,086
207,952
(310,072)
175,610
523,545
418,520
336,604
40,137
-
17,738
994,167
-
838,963
ANNUAL REPORT 2019
96
Notes to the Financial Statements
c3. Sensitivity Analysis
Currency Risk Sensitivity
TheBankismarginallysensitivetoexchangeratefluctuationsoftheUSdollarandtheEuro.TheBank’spaid-in capital is held in Euro and theBank’s loanportfolio is typically denominatedbetween50%USdollar and50%Euro.Inaddition,theBank’sadministrativeexpensesaredenominatedinEuro,anditsincomeistypicallydenominatedbetween50%USdollarand50%Euro.TheBankhasaddressedthissensitivitytocurrencyriskbyincreasingitspercentageofloansdenominatedinEuro,andthereforeincreasingitsEurodenominatedincome.
Interest Rate Sensitivity
TheBank’sinterestratesensitivityanalysiscomprisestwoelements.Firstly,thereisthedifferentialbetweentheinterestratetheBankearnsonitsassetsandthecostofborrowingtofundtheseassets.ForthiselementtheBankdoes,ascloselyaspossible,matchinterestrateperiods,thusminimizingoreveneliminatingsensitivity.Secondly,thereistheabsoluterateearnedonassetsthatarefundedbytheBank’smember’sequityresources.Themajority of the Bank’smember’s equity resources are currently invested in the Bank’s loan portfolio atfloatingrates;therefore,subjectingearningsonmember’sequityresourcestominordegreeoffluctuation.
Thetablebelowdetailsthere-pricinggapbycurrency.AparallelupwardordownwardshiftintheEURandUSDcurvesof50basispointswouldhavegeneratedthemaximumlossorgainrespectively.
PresentedinEUR(000)
At31December
2019
At31December
2018
EuroUnitedstatesdollar
1,124,000128,000
936,000191,000
Totalre-pricinggap 1,25,b/n00 1,127,000
Shift of 50 basis points in the EUR curve 6,259 5,637
c4. Equity Price Risk
TheBankhasasmallequityinvestmentsportfolioandassuchdoesnothavesignificantmarketriskexposureconcerningforeignexchangeorequitypriceriskonthisportfolio.At31December2019theBank’sequityinvestmentsareclassifiedatFVTOCI,exceptforone,whichareprimarilyunlisted.
TheBanktakesalong-termapproachofitsequityinvestmentsandhasnointentionofexitingtoany,thereforeacceptstheshort-termvolatilitiesinvaluefromexchangerateandpricerisk.TheBankexpectstheeffectonnetincometobeoflittletonoimpact.
AdditionalsensitivityinformationfortheBank’sequityinvestmentshasbeenincludedunder‘fairvaluehierarchy’laterinthissectionandinNote‘Equityinvestments’.
BLACK SEA TRADE AND DEVELOPMENT BANK
97
Notes to the Financial Statements
Operational Risk
Likeallfinancialinstitutions,theBankisexposedtooperationalrisksarisingfromitssystemsandprocesses.Operationalrisksincludetherisksoflossesresultingfrominadequateorfailedinternalprocesses,people,systems,legal,andfromexternaleventswhichcouldhaveanegativefinancialoradversereputationalimpact.TheBankhasalowtoleranceforlossesarisingfromtheoperationalriskstheBankisexposedto.
TheOfficeofComplianceandOperationalRiskManagement(CORMO)hasoversightonoperationalriskactivitiesacrosstheBank.TheBank’soperationalriskframeworkisanetworkofprocesses,procedures,reportsandresponsibilitiesthatareusedtoidentify,manageandmonitortheoperationalrisksoftheBank.Theseincludecommittees,workinggroups,day-to-daypracticessuchasthecollectionandanalysisofkeyrisks,riskoflossincidentsandbothstrategicandworkculturalpractices.ThisprovidesastructuredapproachtomanagingoperationalriskandseekstoapplyconsistentstandardsandtechniquesforevaluatingrisksacrosstheBank.TheBankhasacomprehensivesetofpoliciesandproceduresthatindicatehowoperationalrisksshouldbemanagedthroughouttheBank.
The sources of operational risk emerge in various ways, including business interruptions, inappropriate behavior ofemployees(includingfraud),failuretocomplywithapplicablelawsandregulationsorfailureofvendorstoperforminaccordancewith their contractualarrangements.Theseevents could result infinancial losses,aswell as reputationaldamagestotheBank.TheBank’soperationalriskmanagementfocusesonproactivemeasurestomitigatetheoperationalrisk.
WhereanyincidentmayoccurtheBanksystematicallycollects,analysesandreportsdataonthatincidenttoensuretheBankunderstandsthereasonsitoccurredandhowcontrolscanbeimprovedtoreduceorbetteravoidtheriskofanyfutureincident.
TheBank’sriskandcontrolassessmentsarecomprehensive,primarilybottom-up,ofthekeyoperationalrisks ineachbusinessarea.TheyarebasedonBank-wideoperationalriskdefinitions,thatclassifyrisksunderastandardizedapproach,cover the inherentrisksofeachbusinessareaandcontrol function,provideanevaluationof theeffectivenessof thecontrols inplacetomitigatetheserisks,determinetheresidualriskratingsandrequireadecisiontoeitheracceptorremediateanyremainingrisk.
Concerningcybercrime,whichisariskoflossordamagetotheBank’sbusinessareasandcustomersasaresultofactionscommitted or facilitated through the use of networked information systems, the Bank’s Department of InformationTechnologies(IT)andinformationsecuritypoliciesandproceduresensurethatallserversandcomputershaveuptodateantivirussoftware.Backupsaremaderegularlyandregularaccesscontrolchecks,systempenetrationandvulnerabilitytestsalongwithdisasterrecoverytestsareperformed.TheBank’santi-cyberattackcontrolsarecheckedandalignedwithindustrybestpracticebytheITDepartment.
TheBankproducesregularlymanagementinformationreportscoveringthekeyinputsandoutputsofoperationalrisk.Thesereportsareusedtomonitoroutcomesagainstagreedtargetsandtolerancelevels.TheBankutilizestheBank’sITsystemsandotherinformationtoolstoensureoperationalrisksareidentifiedandmanagedproperly.
Overall,theBankiscommittedtofollowthebestpracticesandmarketstandardsintheareaofaccountability,transparencyandbusinessethics.DuediligenceoncustomersandcounterpartiestakeintoconsiderationtheAnti-FraudCorruptionandMonetaryLaunderingPolicyandKnow-YourCustomerProcedures.TheBankalsohasacontingencyandbusinesscontinuityplans,andadisasterrecoveryoff-sitewhichaimstoensurethecontinuityofitsoperationsandprotecttheinterestsofallthekeystakeholdersoftheBank,namely,themembercountries,bondholdersandothercreditorsaswellasemployeesandtheirfamilies,intheeventofanydisturbanceinofficelocations.
ANNUAL REPORT 2019
98
Notes to the Financial Statements
Financial Assets and Liabilities
ThetablesbelowidentifytheBank’sfinancialassetsandfinancialliabilitiesinaccordancewiththeircategories.Thefairvalueofthefinancialassetsandfinancialliabilitiesisdisclosedasequaltothecarryingvalue,plusaccruedinterest,asallbearavariableinterestrateandaregivenatmarkettermsandconditions.
At31December
2019
PresentedinEUR(000)
Fairvaluethrough
profitorloss
Fairvaluethrough
OCIAmortized
costCarryingamount
AssetsCashandbankbalancesDebtinvestmentsecuritiesLoans Deferred incomeImpairmentlossesonloansEquityinvestments Other assets
--
12,754--
798-
-420,591
---
29,588-
82,621-
1,808,187(8,170)
(43,314)-
35,853
82,621420,591
1,820,941(8,170)
(43,314)30,38635,853
Total financial assets
Liabilities BorrowingsPayablesandaccruedinterest
13,552
--
450,179
--
1,875,177
1,485,15521,321
2,338,908
1,485,15521,321
Total financial liabilities - - 1,506,476 1,506,476
At31December
2018
PresentedinEUR(000)
Fairvaluethrough
profitorloss
FairvalueThrough
OCIAmortized
costCarryingamount
AssetsCashandbankbalancesDebtinvestmentsecuritiesLoans Deferred incomeImpairmentlossesonloansEquityinvestments Other assets
--
12,277--
1,015-
-346,640
---
26,640-
48,59849,339
1,318,418(3,052)
(34,775)-
29,541
48,598395,979
1,330,695(3,052)
(34,775)27,65529,541
Total financial assets
Liabilities BorrowingsPayablesandaccruedinterest
13,292
--
373,280
--
1,408,069
954,03015,973
1,794,641
954,03015,973
Total financial liabilities - - 970,003 970,003
BLACK SEA TRADE AND DEVELOPMENT BANK
99
Notes to the Financial Statements
Fair Value Hierarchy
Forthoseabovefinancialinstrumentsmeasuredatfairvalue,theBankusesthefollowinghierarchyfordetermininganddisclosingthefairvalueoffinancialinstrumentsbyvaluationtechnique:
• Level1:Quotedmarketpricesinactivemarketsforidenticalassetsorliabilities,
• Level2:Othertechniquesforwhichallinputsthathaveasignificanteffectontherecordedfair valueareobservable,eitherdirectlyorindirectly,and,
• Level3:Techniqueswhichuseinputsthathaveasignificanteffectontherecordedfairvalue thatarenotbasedonobservablemarketdata.
ThetablesbelowidentifytheBank’sfinancialinstrumentsmeasuredatfairvalue.
PresentedinEUR(000) Level1 Level2 Level3Carryingamount
Derivativefinancialinstruments–assetsFairvaluethroughprofitorloss:LoansEquityinvestmentsFairvaluethroughothercomprehensiveincome:DebtinvestmentsecuritiesEquityinvestmentsDerivativefinancialinstruments–liabilities
-
--
420,591--
3,128
12,754-
(6,552)
-
-798
29,588-
3,128
12,754798
420,59129,588(6,552)
At 31 December 2019 420,591 9,330 30,386 460,307
Therehavebeennotransfersbetweenlevel1andlevel2duringtheyear.Forlevel1marketpricesareusedwhereasforlevel2thevaluationtechniquesusedarebrokerquotesandobservablemarketdata.Forlevel3thevaluationtechniqueusedisthenetassetvalue(‘NAV’),andequitycalculationsbasedonEBITDAandmarketdata.
PresentedinEUR(000) Level1 Level2 Level3Carryingamount
Derivativefinancialinstruments–assetsFairvaluethroughprofitorloss:LoansEquityinvestmentsFairvaluethroughothercomprehensiveincome:DebtinvestmentsecuritiesEquityinvestmentsDerivativefinancialinstruments–liabilities
-
--
346,640--
662
12,277-
(24,164)
-
-1,015
26,640-
662
12,2771,015
346,64026,640
(24,164)
At 31 December 2018 346,640 (11,225) 27,655 363,070
ANNUAL REPORT 2019
100
Notes to the Financial Statements
Fair Value Measurement in Level 3
ThetableprovidesareconciliationofthefairvaluesoftheBank’slevel3financialassetsofthefairvaluehierarchy.
PresentedinEUR(000)
At31December
2019
At31December
2018
At1JanuaryTotalgainsor(losses)recognizedintheincomestatementTotalgainsor(losses)recognizedinothercomprehensiveincomePurchases,sales,issuesandsettlements
27,656(217)4,219
(1,272)
31,361(585)713
(3,834)
At end of year 30,386 27,655
Sensitivity Analysis for Level 3
Thetablebelowindicatesapossibleimpactonnetincomeforthelevel3financialinstrumentscarriedatfairvalueatthefinancialpositiondate,onanestimated5%increaseordecreaseinnetassetsvalueoftheequityinvestmentsbasedontheBank’sparticipation.
PresentedinEUR(000)Carryingamount
Favorablechange
Unfavorablechange
Equityinvestments 30,386 1,519 (1,519)
Capital Management
AttheinceptionoftheBank,initialauthorizedsharecapitalwasSDR1billion,whichwasfullysubscribedbytheMemberStates. InDecember2007 theBoGapproved an increaseof theBank’s authorized share capital to SDR3billion andauthorizedtheofferingofSDR1billiontotheexistingMemberStatesforsubscription,withtheobjectiveofincreasingsubscribedcapital toa totalofSDR2billion.The increaseallowstheBankto implement itsoperationalstrategy toasubstantialdegree.TheBankdoesnothaveanyotherclassesofcapital.
InOctober2008theabovenewsharesintheamountofSDR1billionthatwereofferedforsubscriptiontotheBank’sMemberStateswerefullysubscribedandallocated.Accordingly,theBank’spaid-insharecapitalwasdoubledfromSDR300milliontoSDR600million.TheremainingSDR1billionofauthorizedsharecapitalhasnotyetbeenallocated.
PursuanttoResolution131oftheBoGunanimouslyadoptedthefirstamendmenttotheEstablishingAgreement,whichbecameeffectiveon21June2013.Asofthiseffectivedate,andasperResolution131oftheBoG,theunitofaccountoftheBankbecametheEURandalloftheBank’sauthorizedsharecapitalwasredenominatedfromSDRtoEUR.TheconversionrateappliedwasSDRtoEURfixedat1:1.15.
ThesharecapitalusageoftheBankisguidedbystatutoryandfinancialpolicyparameters.Article15oftheEstablishingAgreementlimitsthetotalamountofoutstandingloans,equityinvestmentsandguaranteesmadeforordinaryoperationsto150%oftheBank’sunimpairedsubscribedcapital,reservesandsurpluses,establishinga1.5:1 institutionalgearingratio.Additionally,disbursedequityinvestmentsshallnotatanytimeexceedanamountcorrespondingtotheBank’stotalunimpairedpaid-incapital,surplusesandgeneralreserve.
Atthe36thmeetingoftheBoDin2008,theoperationalgearingratiowassetat100%oftheBank’sunimpairedpaid-upcapital,reservesandsurpluses,andtheusableportionofthecallablecapital.ThislimitonthetotalamountofoperationswhichincludesallcallablecapitalisapproximatelyEUR2.45billion.
BLACK SEA TRADE AND DEVELOPMENT BANK
101
Notes to the Financial Statements
TheBankpreservesanactivelymanagedcapitalstocktoprudentlycoverrisksinitsactivities.Asamultilateralfinancialinstitution,theBankisnotsubjecttoregulatorycapitalrequirements.However,theBankusesstandardsproposedbytheBaselIICapitalAccordasabenchmarkforitsriskmanagementandcapitalframework.PursuanttoArticle5oftheEstablishingAgreement,theBoGshallat intervalsofnotmorethanfiveyearsreviewthecapitalstockoftheBank.Insubstance,theprimaryobjectiveoftheBank’scapitalmanagement istoensureadequatesharecapital isavailabletosupporttheBank’soperations.
6. OPERATING SEGMENTSTheBank is amultilateral financial institution,which in accordancewith the EstablishingAgreement, is dedicated toacceleratingdevelopmentandpromotingco-operationamongtheBank’sshareholdercountries.TheBankoperatesinaspecificgeographicalareaandtheprimaryreportingformatforbusinesssegmentsarethelendingandtreasuryoperations.Lendingactivitiesrepresentinvestmentsinprojectssuchasloans,equityinvestmentsandguarantees.Treasuryactivitiesincluderaisingdebtfinance,investingsurplusliquidity,andmanagingtheBank’sforeignexchange,liquidityandinterestraterisks.
PresentedinEUR(000)
2019 2018
Lending Treasury Total Lending Treasury Total
Income statement
Interest incomeNet fees and commissionsOtherincome(expense)
82,707947272
11,26220
119
93,969967391
70,1291,652569
8,588-
29
78,7171,652598
TotalsegmentrevenuesLess:interestexpenseLess:netinterestexpenseonderivativesForeignexchangeLess:personnelandotheradmin.expensesLess:depreciationandamortization
83,926(52,762)
--
(19,474)(563)
11,401(512)
(4,113)(1,067)(1,471)
(9)
95,327(53,274)(4,113)(1,067)
(20,945)(572)
72,350(37,513)
--
(19,283)(442)
8,617(461)
(7,599)(1,352)(1,439)
(11)
80,967(37,974)(7,599)(1,352)
(20,722)(453)
Segment income before impairmentLess:impairment/fairvalue(losses)
11,127(1,581)
4,229(111)
15,356(1,692)
15,112(7,323)
(2,245)(368)
12,867(7,691)
Net income for the year 9,546 4,118 13,664 7,789 (2,613) 5,176
PresentedinEUR(000)
31December2019 31December2018
Lending Treasury Total Lending Treasury Total
Financial position
Segment assets 1,837,862 505,575 2,343,437 1,351,172 444,595 1,795,767
At end of year 2,343,437 1,795,767
SegmentliabilitiesMembers’equity
1,506,476-
6,552-
1,513,028830,409
970,003-
24,164-
994,167801,600
At end of year 2,343,437 1,795,767
ANNUAL REPORT 2019
102
Notes to the Financial Statements
7. INTEREST AND SIMILAR INCOMEInterestandsimilarincomeareanalyzedasfollows:
PresentedinEUR(000)
Yearto31December
2019
Yearto31December
2018
FromloansandadvancesFromplacementswithfinancialinstitutionsFrominvestmentsecuritiesatamortizedcostFrominvestmentsecuritiesatfairvaluethroughOCI
82,70741-
11,221
70,12912651
8,411
Interest and similar income 93,969 78,717
8. INTEREST AND SIMILAR ExPENSEInterestandsimilarexpenseareanalyzedasfollows:
PresentedinEUR(000)
Yearto31December
2019
Yearto31December
2018
From borrowed fundsFrom issued debtFromamortizedissuanceandarrangementcostsFrom other charges
7,77043,6911,301512
6,43529,6191,459461
Interest and similar expense 53,274 37,974
9. NET FEES AND COMMISSIONSNetfeesandcommissionsareanalyzedasfollows:
PresentedinEUR(000)
Yearto31December
2019
Yearto31December
2018
Guarantee feesManagement feesAppraisalfeesAdministrationfeesArrangement feesSurveillancefeesPrepayment/cancellationfeesOther fees
3564083026-
572070
27637119536
13254
48999
Net Fees and commissions 967 1,652
BLACK SEA TRADE AND DEVELOPMENT BANK
103
Notes to the Financial Statements
10. PERSONNEL AND ADMINISTRATIVE ExPENSESAdministrativeexpensesareanalyzedasfollows:
PresentedinEUR(000)Yearto
31December2019Yearto
31December2018
SalariesandbenefitsStaffretirementplans
12,8192,939
12,6723,280
Personnel expenses 15,758 15,952
ProfessionalfeesandrelatedexpensesUtilitiesandmaintenanceOtheradministrative
1,3281,6062,253
1,0941,4742,202
Administrative expenses 5,187 4,770
Theaveragenumberofstaffemployedduringtheyearwas112(2018:111).Thenumberofstaffasof31December2019was113(2018:110).FurtheranalysisofthestaffretirementplanispresentedintheNote‘Employeebenefits’.
11. IMPAIRMENT LOSSES ON LOANSLoansthataremeasuredatamortizedcostarestatednetofprovisionsforimpairment,whichincludesalsotheirrelatedprovisionsforimpairmentonundrawncommitments.Asummaryofthemovementsinprovisionsforimpairmentisasfollows:
PresentedinEUR(000) Stage1 Stage2 Stage3 Total
At31December2017ChargeReleaseAgainstwrite-offsForeignexchangeadjustments
1,4533,284
(1,656)-
439
1,0883,239
(2,608)-
2,555
45,4557,221
(3,188)(20,586)(1,921)
47,99613,744(7,452)
(20,586)1,073
At31December2018ChargeReleaseUponinitialrecognitionForeignexchangeadjustments
3,520-
(4)-
(625)
4,2741,423(691)
-980
26,9811,573(460)6,181162
34,7752,996
(1,155)6,181517
At 31 December 2019 2,891 5,986 34,437 43,314
Ateachreportingdate,theBankrecognizeslossallowancesbasedoneither12-monthECLorlifetimeECL,dependingonwhethertherehasbeenasignificantmovementincreditriskofthefinancialinstrumentsinceitsinitialrecognition.
TotalimpairmentlossesonloanshaveincreasedbyanamountofEUR8,539thousandcomparedtothepreviousyear.AnamountofEUR1,083thousandhasincreasedforstages1and2,primarilyduetotheincreaseintheBank’sloanportfolio.TheremainingamountofEUR7,456thousandwasduetothedeteriorationofafewloansinstage3toreducingtheircarryingamountandthepurchaseofaloanatdeepdiscount.
Staging Criteria 12-month ECL (Stage 1)
As IFRS9doesnotdistinguishbetween individuallysignificantornot individuallysignificantfinancial instruments,theBankmeasurespotentialcreditlossesforallnon-impairedoperations(Stage1andStage2)onanindividualoperationbasisbasedontheassetclass.TheirPDandLGDaremultipliedbygeneralmarketscenariosassignedwithintheMoody’sAnalyticsIFRSlmpairmentCalctool.Provisionsfor impairmentinStage1arethereforeaffectedbythespecificsofanyparticularoperationtogetherwithgeneralmarketscenarios.Theyaremeanttoprotectagainstpotentialrisksthatareconsidered present, orwithin a 12-month horizon, and derived from potentially adverse developments in operatingconditionsbeyondthecontrolofindividualborrowers.
ANNUAL REPORT 2019
104
Notes to the Financial Statements
Staging Criteria Lifetime ECL (Stages 2 and 3)
Whenanoperationdeterioratessubstantiallyincreditquality,itentersstage2andanexpectedcreditlosscalculationisperformedonaLifetimeExpectedCreditLoss(LECL)basis.stage2operationsarethosethathaveexperiencedanoverallcreditqualitydowngradebutarestillperforming.Theyarenotconsideredcredit-impaired.
Stage3operationshaveobjectiveevidenceofimpairmentthatimmediatelyimpactstheECL.
Revolving Facilities and Undrawn Commitments
RevolvingcreditfacilitieshavenofixedtermandtheycanbecancelledatthediscretionoftheBankatanypointintime.Thesefacilitiesaresubjectto,ataminimum,anannualcreditreview.Inthisregard,thedateofthelatestcreditreviewprovidestherelevantdatetoassessifthereisanyincreaseincreditrisk,asatthatpointintime.TheBankmayamendthetermsandconditionsoftheexposure.
TheestimateoftheECLsonirrevocableloancommitmentsisconsistentwithitsexpectationsofdrawdownsonthatloancommitment.Therefore,theBankconsidered(i)theexpectedportionoftheloancommitmentthatwillbedrawndownwithin12monthsofthereportingdatewhenestimating12-monthexpectedcreditlossesand(ii)theexpectedportionoftheloancommitmentthatwillbedrawndownovertheexpectedlifeofthereportingdatewhenestimatinglifetimeexpectedcreditlosses.At31December2019theamountofexpectedcreditlosseswasEUR311thousand(2018:EUR376thousand).
12. DEBT INVESTMENT SECURITIESDebtinvestmentsecuritiesareanalyzedasfollows:
PresentedinEUR(000)At
31December2019At
31December2018
BondsCommercialpapers
217,674202,917
282,311113,668
DebtinvestmentsecuritiesLess:impairmentlosses
420,591(765)
395,979(644)
Debt investment securities net of impairment 419,826 395,335
Ateachreportingdate,theBankrecognizeslossallowancesbasedoneither12-monthECLorLECL.Alldebtinvestmentsecuritiesarerecognizedonlyona12-monthECLastherehasbeennosignificantmovementintheircreditrisksincetheirinitialrecognition.
13. DERIVATIVE FINANCIAL INSTRUMENTSThetablebelowshowstheBank’soutstandingforwardforeignexchangecontracts.Thefirstcolumnshowsthesumofnotionalamounts,whichistheamountofaderivative’snominalvalue,andisthebasisuponwhichchangesinthevaluearemeasured.Thesecondcolumnshowsthemarketvalueofthenotionalamountsandalsothenetvaluationattributabletofairvaluehedges.
At31December2019 At31December2018
PresentedinEUR(000)Notionalamount
Fairvalue
Notionalamount
Fairvalue
Assets Liabilities Assets Liabilities
Currency swap purchasesCurrencyswapsalesDesignatedfairvaluehedges
57,000(56,840)
-
57,000(56,525)
2,653
--
(6,552)
33,012(33,569)
-
--
662
33,019(33,569)(23,614)
Derivative financial instruments 160 3,128 (6,552) (557) 662 (24,164)
BLACK SEA TRADE AND DEVELOPMENT BANK
105
Notes to the Financial Statements
The above derivative financial instrument contracts with financial counterparties have been documented underInternationalSwapsandDerivativeAssociation(ISDA)MasterAgreementswithCreditSupportAnnexes(CSAs).PursuanttosucharrangementstheBankiseligibletooffsetassetsandliabilitiesintheeventofacounterpartydefaultoccurrence.
TheBank’shedgeaccountingisbasedonaclearlydocumentedrelationshipbetweentheitemhedgedandthehedginginstrument,havingaone-on-onerelationship,whichisdocumentedatthetimeahedgetransactionisenteredinto.ThisrelationshipariseswithinthecontextoftheBank’sborrowingactivitiesinwhichtheBank’sissuedbondsarecombinedwithswapstoachievefloating-ratedebtinacurrencysoughtbytheBank.
14. LOANSTheBankoffersarangeof loanfacilitiesdirectedto investmentsforbothprojectandtradefinancing,andtailoredtomeetanindividualoperation’srequirements.Loansmaybedenominatedinanyconvertiblecurrency,oracombinationofconvertiblecurrenciesinwhichtheBankisabletofunditself.
PresentedinEUR(000)
At31December
2019
At31December
2018
Loansatamortizedcost:At1JanuaryDisbursementsLess:repaymentsWrite-offsForeignexchangemovements
1,318,418871,130
(381,756)-
395
1,132,359572,966
(377,988)(20,586)11,667
Outstanding disbursementsLess:deferredincomeLess:impairmentlosses
Loansatfairvalue:Outstanding disbursementsFairvalueadjustment
1,808,187(8,170)
(43,314)
14,939(2,185)
1,318,418(3,052)
(34,775)
14,939(2,662)
Loans net of impairment 1,769,457 1,292,868
Asof31December2019theprincipalamountofoutstandingdisbursementswasEUR1,823,126thousand(2018:EUR1,333,357thousand). Thecarryingamountofloanswithrespecttotheirrelatedstagesandallowanceforimpairmentisanalyzedasfollows:
PresentedinEUR(000)
At31December
2019
At31December
2018
Stage1Less:deferredincomeLess:allowanceforimpairment
1,484,999(8,170)(2,891)
1,050,830(3,052)(3,520)
Carrying amount
Stage2Less:allowanceforimpairment
1,473,938
272,290(5,986)
1,044,258
225,851(4,274)
Carrying amount
Stage3Less:allowanceforimpairment
266,304
50,898(34,437)
221,577
41,737(26,981)
Carrying amount
Fairvaluethroughprofitorloss
16,461
12,754
14,756
12,277
Carrying amount 1,769,457 1,292,868
ANNUAL REPORT 2019
106
Notes to the Financial Statements
InterestisgenerallybasedonLiborforUSDloansandEuriborforEURloansplusamargin.Marginsaredependentontheriskcategoryofeachloanandtypicallyrangefrom1.5%to8.0%.Thefairvalueoftheloanportfolioisapproximatelyequaltocarryingvalueplusaccruedinterestasallloansbearavariableinterestrateandaregivenatmarkettermsandconditions.FurtheranalysisoftheloanportfolioispresentedinNote‘Riskmanagement’.
15. EQUITY INVESTMENTSAprimaryfocusoftheBankistofacilitateaccesstofundingforthosesmallandmedium-sizeenterpriseswiththepotentialforpositiveeconomicdevelopmental impact.Withthisobjective inmind,theBank, togetherwithanumberofotherinstitutionshasinvestedintheentitiesasdetailedbelow.
At31December
2019
At31December
2018
PresentedinEUR(000)%of
Investment CostFair
Value CostFair
value
BalkanAccessionFund 9.09 - 798 - 1,015
Atfairvaluethroughprofitorloss
SEAF Caucasus Growth FundAccessBank,AzerbaijanA-ParkKaluga,Russia Emerging Europe Accession FundRusalADMCeecatRecoveryFundEuropeanVirginFundTeamnetInternationalNatfoodEOSHellenicRenaissanceFund
21.390.06
19.9910.140.015.37
21.058.33
37.982.53
-
5,423792
1,7142,204
44,2857,6735,599
-498
798
4,270232785
5,524185
4,96613,236
--
390
-
5,48814,7591,7142,303
44,9888,2645,599
-47
1,015
4,289-
3405,981123
5,65210,255
---
Atfairvaluethroughothercomprehensiveincome 28,192 29,588 43,166 26,640
Equity investments at fair value 28,192 30,386 43,166 27,655
Thevaluationofsuchinvestments,whichareunlisted,hasbeenestimatedusingthemostrecentmanagementaccountsorthelatestauditedaccountsasof31December2019,asManagementconsidersthattheseprovidethebestavailableestimateoftheinvestments’fairvalue.ThetechniquesappliedtoperformthesevaluationsincludeequitycalculationsbasedonEBITDAandmarketdata.
DuringtheyeartheBankhadrealizedanetincomeofEUR237thousandfromitsinvestmentintheBalkanAccessionFund.
Ondisposalorexitofanequityinvestmentforthoseatfairvaluethroughothercomprehensiveincome,thecumulativegainorlossisrealizedwithacorrespondingreversaloftheunrealizedgainorlossthatwasrecordedpriortotheexitfromthatinvestment,andisnotrecycledtotheincomestatement.
Asof31December2019theBankhasacommittedamountofEUR7,905thousandtowardsfurtherparticipationintheaboveentities.FurtheranalysisoftheequityinvestmentportfolioispresentedintheNote‘Riskmanagement’.
Asof31December2019theBankhasfewequityinvestmentswhereitholdsslightlymorethan20percentoftheinvesteesharecapital,butdoesnotexertsignificantinfluence,hencetheinvestmentisnotaccountedforasaninvestmentinanassociateunderIAS28.
BLACK SEA TRADE AND DEVELOPMENT BANK
107
Notes to the Financial Statements
16. OTHER ASSETSOtherassetsareanalyzedasfollows:
PresentedinEUR(000)
At31December
2019
At31December
2018
Accrued interestAdvancesandprepaidexpensesOther prepaymentsGuarantee deposits
24,3346,165187
5,167
20,1695,690187
3,495
Other assets 35,853 29,541
17. PROPERTY AND EQUIPMENTPropertyandequipmentareanalyzedasfollows:
PresentedinEUR(000)Buildings
(leasehold) Vehicle
Furniture andoffice
accessories
Computers andofficeequipment Total
Cost
At31December2017AdditionsDisposals
85026-
106--
55054
(11)
1,722111(28)
3,228191(39)
At31December2018AdditionsDisposals
8766-
10644-
59333
(23)
1,805213
(243)
3,380296
(266)
At 31 December 2019 882 150 603 1,775 3,410
Accumulateddepreciation
At31December2017ChargesDisposals
79739-
3421-
49131
(11)
1,405146(28)
2,727237(39)
At31December2018ChargesDisposals
83623-
5523-
51133
(23)
1,523183
(243)
2,925262
(266)
At 31 December 2019 859 78 521 1,463 2,921
Netbookvalue
At 31 December 2019 23 72 82 312 489
At31December2018 40 51 82 282 455
At31December2017 53 72 59 317 501
ANNUAL REPORT 2019
108
Notes to the Financial Statements
18. INTANGIBLE ASSETSIntangibleassetscomprisingcomputersoftwareisanalyzedasfollows:
PresentedinEUR(000) Total
Cost
At31December2017Additions
4,342217
At31December2018Additions
4,55983
At 31 December 2019 4,642
Accumulatedamortization
At31December2017Charges
3,689217
At31December2018Additions
3,906314
At 31 December 2019 4,220
Netbookvalue
At 31 December 2019 422
At31December2018 653
At31December2017 653
BLACK SEA TRADE AND DEVELOPMENT BANK
109
Notes to the Financial Statements
19. BORROWINGSBorrowing facilities and bond issues, arranged as at the financial position date, are analyzed below. In addition tomediumorlong-termborrowingsandbondissuance,theBankutilizesshort-termfinancingintheformofECPissuanceorborrowingsfromcommercialbanksforcashmanagementpurposes.At31December2019theBankhadissueddebtsecuritiesintheamountofEUR1,238,718thousand.
At31December2019
At31December2018
PresentedinEUR(000)Amount
usedAmount
arrangedAmount
usedAmount
arranged
EuroUnitedStatesdollarSwiss francRomanianleiAzerbaijanmanatGeorgianlariArmenian dram
96,4771,029,024184,36682,0235,415
84,1253,725
146,4771,118,039184,36682,0235,415
84,1253,725
126,794595,47388,86056,227
-83,0593,617
146,794595,47388,86056,227
-83,0593,617
Total 1,485,155 1,624,170 954,030 974,030
TheinterestrateonborrowingsfallswithinanapproximaterangeofEuribororUSDLiborofplus0to375basispoints.Thereisnocollateralagainsttheaboveborrowedfunds.Thefairvalueoftheborrowingsisapproximatelyequaltotheircarryingvalue.
20. PAYABLES AND ACCRUED INTERESTPayablesandaccruedinterestareanalyzedasfollows:
PresentedinEUR(000)At
31December2019At
31December2018
Accrued interestSocialinsurancefund(EFKA)contributionsPensionplanobligationSuppliersandotheraccruedexpensesOther
11,6523
7,5361,012
59
10,4954
3,9711,444
59
Payables and accrued interest 20,262 15,973
21. LEASE LIABILITYThe Bank has entered into a lease contract only for its Headquarters premises,which includes renewal options andperiodicescalationclauses.Therearenoothercommitmentsatendofyeararisingfromnon-cancellableleasecontract.Onadoptionof IFRS16 the impact in the statementoffinancialpositionof the recognitionof right-of-useassetandcorrespondingleaseliability,togetherwiththemovementfor2019,isanalyzedasfollows:
PresentedinEUR(000) Total
Operatingleasecommitmentat31December2018Discounting(weightedaverageincrementalborrowingrate)
1,931-
LeaseliabilityduetoinitialapplicationofIFRS16at1January2019PrepaymentofrentalInterestexpenseontheleaseliabilityLeasepaymentsrecognizedinotheradministrativeexpenses
1,931(196)
-(676)
Lease liability 31 December 2019 1,059
ANNUAL REPORT 2019
110
Notes to the Financial Statements
IFRS16indicatesthatatthecommencementdate,thelessee(theBank)willdiscounttheleasepaymentusing(a)theinterestrateimplicitintheleaseor(b)thelessee’sincrementalborrowingrateiftheinterestrateimplicitintheleasecannotbedetermined.Theincrementalborrowingrateistherateofinterestthatalesseewouldhavetopaytoborrowthefundstoobtain(i)anassetofasimilarvaluetotheunderlyingasset(ii)overasimilarterm(iii)withsimilarsecurity(iv)inasimilareconomicenvironment.AstheBankhasonlyoneleasearrangementthatisnearingmaturity,Managementconcludedthatanyadjustmentoranysubsequentinterestdoesnothaveamaterialimpactonthefinancialstatements.
TheBankpresents right-of-useassets separatelyaspropertyandequipment, and the lease liability separatelywithinpayablesandaccruedinterest,inthestatementoffinancialposition.Consequently,theBankrecognizesleasepaymentsandinterest,ifanyontheleaseliabilityonastraight-linebasisovertheperiodoftheleaseterm,similarlytoanybenefitsreceivedorthatarereceivable,intheincomestatement.Whenaleaseisterminatedbeforetheleaseperiodhasexpired,anypayments required tobemade to the lessor,bywayofpenalty, are recognizedas anexpense in theperiod theterminationtakesplace.
22. SHARE CAPITALFrom the Bank’s inception, and in accordance with Article 4 of the Establishing Agreement, the Bank denominatedits authorized share capital in the SpecialDrawingRight (SDR) asdefinedby the InternationalMonetary Fund (IMF).Resolution 131 of the BoGunanimously adopted the requisite amendments to paragraph 1 of Article 4 andArticles23and24of theEstablishingAgreement, toexpressly includeamongtheexclusivepowersof theBoGthechangeoftheunitof accountof theBank, and the redenominationof all capital stockof theBank. Theseamendments to theEstablishingAgreementbecameeffectiveon21June2013(the‘effectivedate’).InaccordancewithsuchResolution131oftheBoGasoftheeffectivedatetheunitofaccountoftheBankbecametheEURandtheauthorizedcapitalstockoftheBankwasredenominated intothreebillionfourhundredandfiftymillionEUR(3,450,000,000),divided intothreemillion(3,000,000)shareshavingaparvalueofonethousandandonehundredandfiftyEUR(1,150)each,inclusiveofallsubscribedandunallocatedshares.Accordingly,asoftheeffectivedate,alloutstandingsharecapitalcommitmentsofparticipatingmembersinrespectoftheirsubscribedshareswereconvertedintoEUR.
TheauthorizedcapitalstockoftheBankmaybeincreasedatsuchtimeandundersuchtermsasmayseemadvisable.
TheBank’scapitalstockisdividedintopaid-inshares(fullypaidandpayableininstallments)andcallableshares.Paymentforthepaid-insharessubscribedtobymemberswasmadeoveraperiodofyears inaccordancewithArticle6oftheEstablishingAgreementfortheinitialcapitalraisingpurposeoftheBank,andasdeterminedinadvancebytheBankforcapitalincreases(intheonlycapitalincreaseoftheBanksofar,thestructureofpaymentsspecifiedwassimilartotheoneinArticle6).ThesameArticlestatesthatpaymentoftheamountsubscribedtoinrespectofthecallablesharesissubjecttocallonlyasandwhenrequiredbytheBanktomeetitsobligations.
Under Article 37 of the Establishing Agreement anymembermaywithdraw from the Bank by transmitting a noticeinwritingto theBankat itsheadquarters.Withdrawalbyamembershallbecomeeffectiveand itsmembershipshallceaseonthedatespecifiedinitsnotice,butinnoeventlessthansixmonthsaftersuchnoticeisreceivedbytheBank.However,atanytimebeforethewithdrawalbecomesfinallyeffective,themembermaynotifytheBankinwritingofthecancellationofitsnoticeofintentiontowithdraw.UnderArticle39oftheEstablishingAgreementafterthedateonwhichamemberceasesmembership,itistoremainliableforitsdirectobligationstotheBank,andalsoremainresponsibleforitscontingentliabilitiestotheBank,incurredasofthatdate.Nomemberhaseverwithdrawnitsmembership,norhasanyeverindicatedtotheBankitmightdoso.WereamembertowithdrawfromtheBank,atthetimeamemberceasesmembership,theBankshallarrangefortherepurchaseofsuchamember’ssharesbytheBankaspartofthesettlementofaccountswithsuchamember,andbeabletoimposeconditionsandsetdatespursuanttothesameArticle39oftheEstablishingAgreement.Anyamountduetothememberforitssharesshallbewithheldsolongasthemember,includingitscentralbankoranyofitsagencies,hasoutstandingobligationstotheBank,whichmay,attheoptionoftheBank,beappliedtoanysuchliabilityasitmatures.
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Notes to the Financial Statements
If lossesaresustainedbytheBankonanyguaranteesor loanswhichwereoutstandingonthedatewhenamemberceasedmembershipandtheamountofsuchlossesexceedstheamountofthereservesprovidedagainstlossesonthedate,thememberconcernedshallrepay,upondemand,theamountbywhichtherepurchasepriceofitsshareswouldhavebeenreducedifthelosseshadbeentakenintoaccountwhentherepurchasepricewasdetermined.
UnderArticle42oftheEstablishingAgreementintheeventofterminationoftheoperationsoftheBank,theliabilityofmembersfortheunpaidportionofthesubscribedcapitaloftheBankshallcontinueuntilallclaimsofcreditors,includingallcontingentclaims,havebeendischarged.
AllparticipatingmembershadfullysubscribedtotheinitialauthorizedsharecapitalinaccordancewithArticle5oftheEstablishingAgreement.Subsequently,atthesixthannualmeetingoftheBoardofGovernorsheldon6June2004threeMemberStates,Armenia,GeorgiaandMoldovarequesteda50%reductionoftheirportionofsubscribedcapital,from2%to1%oftheinitialauthorizedcapitalandtheBoGapprovedtheirrequest.On5October2008thenewsharespursuanttothecapitalincreaseoftheBankwereofferedinthesamestructureastheinitialauthorizedsharecapital,intheamountofEUR1.15billion,andwerefullysubscribedbytheMemberStates.Furthermore,Azerbaijanalsosubscribedtothe3%oftheinitialauthorizedsharecapitalthatremainedunallocated,aftertheabove-mentionedparticipationreduction,whileRomaniasubscribedbothtotheirallocationofnewsharesandtothosethatwouldhavebeenallocatedtoGeorgiahaditchosentoparticipateinthecapitalincrease.ThissubscriptionprocessfollowedadecisiontakenbytheBoGinDecember2007totripletheBank’sauthorizedcapitaltoEUR3.45billionandtodoublethesubscribedcapitaltoEUR2.3billion,whileleavingauthorizedcapitalofEUR1.15billionunallocated.OnOctober2011theBoGapprovedtherequestfromMoldovafora50%reductionofitsportionofsubscribedcapital,from1%to0.5%,andthoseshareswerereleasedtounallocatedsharecapital.
Theabovesharecapitalisanalyzedasfollows:
PresentedinEUR(000)
At31December
2019
At31December
2018
AuthorizedsharecapitalLess:unallocatedsharecapital*
3,450,000(1,161,500)
3,450,000(1,161,500)
SubscribedsharecapitalLess:sharesnotyetcalledLess:sharespayablethatarepastdue
2,288,500(1,601,950)
-
2,288,500(1,601,950)
(1,428)
Paid-upsharecapitalAdvanceagainstfuturecall
686,550-
685,122-
Paid-in share capital 686,550 685,122
*SharesavailabletoneworexistingMemberStates.
Initial Capital
Inaccordancewithparagraph2underArticle5oftheEstablishingAgreement,theinitiallyauthorizedcapitalstockwassubscribedbyandissuedtoeachmemberasfollows:10%(EUR115million)fullypaidand20%(EUR230million)payablebypromissorynotesorotherobligationswhichwerenotnegotiableandnon-interestbearingineightequalsuccessiveannualinstallmentsintheyears1998to2005.
Capital Increase
ThecapitalincreaseofEUR1.15billionisdividedintoEUR345millionpaidincapitalandEUR805millioncallablecapital.PursuanttotheBoardofGovernorsdecisioninOctober2008,theEUR345millionpaidinportionisdividedinto10%(EUR115million)fullypaidsharesin2010and20%(EUR230million)payablesharesbypromissorynotesorotherobligationissuedbymembers ineightequalsuccessiveannual installments in theyears2011to2018.AsofOctober2011, thecapitalincreasewasreducedbyEUR11.5millionofthesubscribedsharecapital,duetoanapprovedreductionbytheBoGinparticipationbyMoldova.
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Notes to the Financial Statements
Theinitialandcapitalincreasethatwasissuedisanalyzedasfollows:
PresentedinEUR(000)
At31December2019
Initialcapital Capitalincrease Total
AuthorizedsharecapitalLess:unallocatedsharecapital
1,150,000(34,500)
2,300,000(1,127,000)
3,450,000(1,161,500)
SubscribedsharecapitalLess:sharesnotyetcalled
1,115,500(780,850)
1,173,000(821,100)
2,288,500(1,601,950)
Paid-upsharecapitalAdvanceagainstfuturecall
334,65040
351,900(40)
686,550-
Paid-in share capital 334,690 351,860 686,550
Statement of Subscriptions
Astatementofcapitalsubscriptions illustratingthenumberofsharesandtheamountsubscribedbyeachmember isshownbelow, including their respectivecallable,payableand theamountpaid.Thecapital subscriptionstatusat thecurrentfinancialpositiondateisanalyzedasfollows:
Subscribed Callable Payable Paid
Member Shares PresentedinEUR(000)
AlbaniaArmeniaAzerbaijanBulgariaGeorgiaGreeceMoldovaRomaniaRussianFed.TurkeyUkraine
40,00020,000
100,000270,00010,000
330,00010,000
280,000330,000330,000270,000
46,00023,000
115,000310,50011,500
379,50011,500
322,000379,500379,500310,500
32,20016,10080,500
217,3508,050
265,6508,050
225,400265,650265,650217,350
-----------
13,8006,900
34,50093,1503,450
113,8503,450
96,600113,850113,85093,150
Total 1,990,000 2,288,500 1,601,950 - 686,550
23. RESERVESReservesareanalyzedasfollows:
PresentedinEUR(000) General
Other comprehensive
income Other Total
At31December2017Gains(losses)onrevaluationofinvestmentsRemeasurementsofdefinedbenefitschemeTransferred from retained earnings
60,875--
5,176
(24,158)(8,216)
--
(3,134)-
2,414-
33,583(8,216)2,4145,176
At31December2018Gains(losses)onrevaluationofinvestmentsRemeasurementsofdefinedbenefitschemeTransferred from retained earnings
66,051--
7,335
(32,374)16,737
--
(720)-
(3,020)-
32,95716,737(3,020)7,335
At 31 December 2019 73,386 (15,637) (3,740) 54,009
TheBank’sgeneral reserve ismaintained formeetinganyunforeseeable risksor contingencies thatdonotqualifyasprovisionsforimpairmentandisnormallybuilt-upfromthosereleasedimpairmentchargesduringtheyear.
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Notes to the Financial Statements
24. CASH AND CASH EQUIVALENTSCashandcashequivalentsareanalyzedasfollows:
PresentedinEUR(000)
At31December
2019
At31December
2018
Cash on hand
Investmentsmaturingupto1month:CashdepositsatbanksAtfairvaluethroughothercomprehensiveincomeportfolioInvestmentmaturingfrom1monthto3months:Atfairvaluethroughothercomprehensiveincomeportfolio
4
82,617147,917
55,000
17
48,58178,655
45,000
Cash and cash equivalents 285,538 172,253
ThecommercialpapersheldintheBank’sportfoliowereshorttermratedataminimumofA2byStandardandPoor’sorP2byMoody’sratingagencies,inaccordancewiththeBank’sinternalfinancialpolicies.
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Notes to the Financial Statements
25. EMPLOYEE BENEFITSUnder the Defined Benefit Scheme
If separatedatorafter thenormal retirementage (60yearsold),a staffmemberwillbeentitled toa full immediatepensionequalto1%ofhisannualpensionablesalary(i.e.averageofthetwobestoutofthelastfiveyears)multipliedbyhis/heryearsofserviceattheBank.Ifseparatedatoraftertheearlyretirementage(55yearsold),asstaffmemberwillbeentitledtoareducedimmediatepension,ordeferredpensionpayablefromanymonthuntilthestaffmember’snormalretirementage.Ifseparatedbeforetheearlyretirementage,astaffmemberwillbeentitledtoadeferredpensionpayablefromanymonthbetweenthestaffmember’searlyandnormalretirementage.Uponseparationatanyage,astaffmemberwillhaveachoicebetweentheappropriatetypeofpensionandalumpsumterminationbenefit.
Aqualifiedactuaryperformsanactuarialvaluationofthisschemeateachendofyearusingtheprojectedunitmethod,which is rolled forward to the following year accounts. Themost recent valuationdatewas31December2019. Thepresentvalueofthedefinedbenefitobligationandcurrentservicecostwascalculatedusingtheprojectedunitcreditmethod.
PresentedinEUR(000)
At31December
2019
At31December
2018
Amountsrecognizedinthestatementoffinancialposition
PresentvalueofthedefinedbenefitobligationsFairvalueofplanassets
30,736(23,200)
24,445(20,474)
Net liability at end of the year 7,536 3,971
Amounts recognized in the income statement
Service costNetinterestonthenetdefinedbenefitliability/(asset)Administrationexpense
1,7527049
2,0958148
Total included in personnel expenses 1,871 2,224
Remeasurementsrecognizedinothercomprehensiveincome
At31DecemberLiabilitygain(loss)duetochangesinassumptionsLiabilityexperiencesgain(loss)arisingduringtheyearReturnonplanassetsexcludingincomestatementamounts
(4,307)(4,745)(296)2,021
(6,721)4,167(359)
(1,394)
TotalamountrecognizedinOCIduringtheyear (3,020) 2,414
Cumulative in other comprehensive income (expense) (7,327) (4,307)
Principalactuarialassumptionsused
Discount rateExpectedreturnonplanassetsFuturesalaryincreaseFuture pension increaseAverageremainingworkinglifeofemployees
1.22%1.22%1.50%1.50%
11years
2.04%2.04%1.50%1.50%
11years
ThediscountratearisesfromtheyieldcurvesthatusedatafromdoubleA-rated iBoxxbondindicesproducedbytheInternationalIndexCompany.
TheexpectedreturnonassetsasperprovisionoftherevisedIAS19,hasbeensetequaltothediscountrateassumption,i.e.at1.22%pa.
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Notes to the Financial Statements
Thefollowingtablepresentsthemajorcategoriesandreconciliationoftheplanassets(theFund):
PresentedinEUR(000)
At31December
2019
At31December
2018
Majorcategoriesofplanassets
Cash instrumentsFixedinterestEquitiesOther
17%43%36%4%
16%47%33%4%
Reconciliationofplanassets
Marketvalueat1JanuaryExpectedreturnContributionspaidBenefitpensionsandlumpsumpaidtopensionersExpensesAssetgain(loss)
20,474426
1,326(999)(48)
2,021
21,879401
1,070(1,434)
(48)(1,394)
Fair value of plan assets 23,200 20,474
Theactualinvestmentreturnonassetsofthefundfortheyearwas12.4%.Theexpectedreturnonplanassetshasbeenbasedonassetstructureallowedbythefundaswellastheyieldofhigh-qualitycorporatebonds.TheBankestimateofcontributionstobepaidin2020willnotmateriallydifferfromthosepaidinthecurrentyear.
Thefundingstatusatyearendandattheendofthelastfouryearswasasfollows:
PresentedinEUR(000) 2019 2018 2017 2016 2015
DefinedbenefitobligationsPlanassets
30,736(23,200)
24,445(20,474)
27,111(21,879)
25,021(20,373)
19,879(18,696)
Plandeficit(surplus) 7,536 3,971 5,232 4,648 1,183
Net experience adjustments on planliabilities (assets) 296 359 (419) 4,032 (1,822)
Sensitivity analysis
Reasonablepossiblechangesatthefinancialpositiondatetooneoftherelevantactuarialassumptions,holdingotherassumptionsconstant,wouldhaveaffectedthedefinedbenefitobligationbytheamountsshownbelow.
At31December
2019
At31December
2018
PresentedinEUR(000) Increase Decrease Increase Decrease
Discountrate(1%movement)Futuresalarygrowth(1%movement)
(3,573)1,872
3,573(1,872)
(3,041)1,843
3,041(1,843)
Althoughtheanalysisdoesnottakeaccountofthefulldistributionofcashflowsexpectedundertheplan,itdoesprovideanapproximationofthesensitivityoftheassumptionsshownundertheDefinedBenefitScheme.
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Notes to the Financial Statements
Under the Defined Contribution Scheme
Uponseparation,a staffmemberwillbeentitled to receive in cash the fullbalance standing to thecreditofhis/herindividualaccount for thesecondandthirdpillars.Thepensionexpenseunder thisschemewasEUR1,050thousand(2018:EUR1,027thousand)andisincludedin‘Personnelexpenses’.
Under the Greek State Social Insurance Fund
Thepensionexpenseofstaffthat isalternativelyentitledtoretirementbenefitsfromthis fundwasEUR18thousand(2018:EUR29thousand)andisincludedin‘Personnelexpense’.
26. RELATED PARTIESTheBankhasthefollowingrelatedparties.
Key Management Personnel
Keymanagementpersonnelcomprise:thePresident,VicePresidentsandSecretaryGeneral.Theyareentitledtoastaffcompensationpackagethatincludesasalary,medicalinsurancecover,participationintheBank’sretirementschemesandareeligibletoreceiveothershort-termbenefits.TheamountspaidtokeymanagementpersonnelduringtheyearwereEUR1,783thousand(2018:EUR1,600thousand).Keymanagementpersonnelmayreceivepost-employmentbenefits,otherlong-termbenefitsandterminationbenefits,butdonotreceiveanyshare-basedpayments.
ThemembersoftheBoDarenotpersonneloftheBankanddonotreceiveanyfixedtermsalariesnoranystaffbenefits.ThegovernmentsoftheMemberStatesarenotrelatedparties.
Special Funds
SpecialfundsareestablishedinaccordancewithArticle16oftheEstablishingAgreementandareadministeredunderthetermsofrulesandregulationsadoptedbytheBank.SpecialFundsareauditedonanannualbasisandtheirassetsandfundbalancesarenotincludedintheBank’sstatementoffinancialposition.During2019theBankadministeredonespecialfund.Extractsfromtheauditedfinancialstatementsareincludedunderthe‘Summaryofspecialfunds’.
27. EVENTS AFTER THE REPORTING PERIODCovid-19pandemicwasannouncedbytheWorldHealthOrganization(WHO)inMarch2020andisexpectedtonegativelyimpacttheeconomiesofthecountriesthattheBankworkswith.FollowingWHOannouncementaswellasthemeasurestakenbytherespectivegovernmentsasaresponse,theBankhasproceededwiththefollowing:
• The Bank has activated the internal Pandemic Response Plan, andmost staff havemoved to ‘remote working’,whichwillbeextendedfurther,accordingtohowthesituationunfoldsinthehostcountry.Intermsofitseverydayoperations,theBankhastakenallrequisitestepstoensurebusinesscontinuity,thesafetyofitsstaff,andtocomplywiththeemergencymeasuresimposedbythehostcountry.
• TheBankmonitorscountrybycountrymeasurestakenbyeachgovernmentandtheirimpactonitsloanportfolio.Itwillmaintaincontactswithclientsandwewillcontinuewithpreparationofprojects,butmainfocuswillbetheoutstandingloanportfoliowhichiscarefullyanalyzedandregularlyreviewedinlightoftheveryrapiddevelopments.It is not expected to have a significant impact on the operations’ credit standing althoughmonitoring may betemporarilyhamperedbytravelrestrictions,ifthesewouldremaininplaceforanextendedperiodoftime.
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Notes to the Financial Statements
• TheBankcloselymonitorsitsliquiditypositionandispreparedtoextendshorttermmeasuresasrequiredinorderto safeguard its interests and maintain key ratios at comfortable levels. By extending the slowdown in projectdevelopment,theBankwillnotundertakenewcommitmentstemporarilyandtheirlevelsshouldremainsteady,oreventemporarilydeclineasaresult.
• Moreover, the Bank will monitor developments in the financial markets for assessing impact on its investmentportfolioaswellasforsuitablefundingopportunities.
Overall, it istooearlytoassesshowtheviruspandemicwillaffecttheregiontheBankoperatesin,andforhowlong,however,theBankhasarobustmechanismandprocess inplacetofollowupdevelopmentsandadjust itsoperationsaccordinglyinordertoensureeffectiveandefficientmanagementofthisdifficultsituation.Nonetheless,theeffectontheBank’sfinancialpositionandresultscannotcurrentlybeestimated.
28. SUMMARY OF SPECIAL FUNDSWith the Hellenic Government
TheTechnicalCooperationSpecialFund’sobjectiveistocontributetotheeconomicdevelopmentoftheBlackSeaRegion’smembercountries.Thefundextendstechnicalassistancegrantsforpreparationofhigh-qualityprojectdocumentationincludingBusinessPlans,feasibilitystudiesandfinancialreportingmethodsandstandards.Themovementinthefundisshownbelow.
PresentedinEUR(000)At
31December2019At
31December2018
Statement of movements
BalancebroughtforwardNetincome(loss)fortheyearLess:disbursements
8--
8--
Balance of available funds 8 8
Financialposition
Placementswithotherfinancialinstitutions 8 8
Total Assets 8 8
Unallocatedfundbalance 8 8
Total Liabilities and Contributor Resources 8 8
ANNUAL REPORT 2019
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BLACK SEA TRADE AND DEVELOPMENT BANK
119
Independent Auditor’s Report
ANNUAL REPORT 2019
120
DeloitteCertifiedPublicAccountantsS.A. 3aFragkokklisias&Granikoustr.Ma-rousiAthensGR151-25Greece Tel:+302106781100 www.deloitte.gr
INDEPENDENT AUDITOR’S REPORT
TotheBoardofDirectorsandGovernorsofBlackSeaTradeandDevelopmentBank
Report on the Audit of the Financial Statements
Opinion
WehaveauditedthefinancialstatementsofBlackSeaTradeandDevelopmentBank,whichcomprisesthestatementoffinancialpositionasat31December2019,andthestatementofcomprehensiveincome,statementofchangesinequityandstatementofcashflows for theyear thenended,andnotes to thefinancial statements, includinga summaryofsignificantaccountingpolicies.
Inouropinion,theaccompanyingfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheBankasat31December2019,anditsfinancialperformanceanditscashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards(IFRSs).
Basis for Opinion
WeconductedourauditinaccordancewithInternationalStandardsonAuditing(ISAs).OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor’sResponsibilitiesfortheAuditoftheFinancialStatementssectionofourreport.WeareindependentoftheBankinaccordancewiththeInternationalEthicsStandardsBoardforAccountants’CodeofEthics forProfessionalAccountants (IESBACode) togetherwith theethical requirements thatare relevant toourauditof thefinancial statements inGreece,andwehave fulfilledourotherethical responsibilities inaccordancewith these requirementsand the IESBACode.Webelieve that theauditevidencewehaveobtained is sufficientandappropriatetoprovideabasisforouropinion.
Key Audit Matters
Keyauditmattersare thosematters that, inourprofessional judgment,wereofmostsignificance inourauditof thefinancial statementsof thecurrentperiod.Thesematterswereaddressed in thecontextofourauditof thefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.
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Key audit matter How the matter was addressed in our audit
Expected Credit Loss on Loans at amortized cost
Loansatamortizedcostamountedto€1,808millionas at 31 December 2019 (€ 1,318 million as at 31December2018)andloss impairmentto€43million(€35millionas at 31December2018) aspresentedontheStatementofFinancialPosition.Thechargefortheperiodfor impairment losseson loansamountedto€1.8millionfortheyearended31December2019(€6.3millionfortheyearended31December2018).
The Bank establishes allowances for impairment onloans at amortized cost, for expected credit losses(ECL)onbothanindividualandcollectivebasis.
The estimation of ECL on loans at amortized cost isconsidered a key audit matter as it involves criticalManagement judgement and accounting estimateswithhighlevelofsubjectivityandcomplexity.
The most significant Management judgements andaccountingestimatesrelateto:• The criteria used for the staging assessment of
loansatamortizedcost.• Thedeterminationofcreditriskparameters,such
asLossGivenDefault(LGD),ProbabilityofDefault(PD) and the Exposure at Default (EAD) and thedatausedtobuildandrunthecreditriskmodelstocalculateECL.
• TheuseofamodelforECLcalculation.
Management provided further information aboutprinciples and accounting policies for determiningthe allowance for impairment on loans at amortizedcost, themanagement of credit risk and the reviewof impairment innotes4,11and14 to thefinancialstatements.
Based on our risk assessment and following a risk-based approach, we have evaluated the impairmentmethodologies applied and assumptions made byManagementinrelationtothiskeyauditmatter,whichincluded,interalia,thefollowingauditprocedures:• We assessed the design and implementation of
internal controls relevant to the ECL, includingcontrols relevant to the determination ofsignificant credit risk parameters, inputs appliedinto the impairment calculation engine, ECLresultsandrelevantdisclosures.
• With the support of our credit and modellingspecialists,wetestedtheappropriatenessof thecriteria (significant increase in credit risk, dayspastdue)usedforstagingassessmentofloansatamortizedcost.Wefurtherperformedsubstantiveproceduresandonasamplebasiswetestedthetimelyidentificationofexposureswithsignificantincreaseincreditriskandtimelyidentificationofcreditimpairedexposures.
• With the support of our credit and modellingspecialists, we assessed the appropriatenessof the credit risk models used by performingrecalculationsonasamplebasisandbychallengingrelevant Management significant assumptions.Aspartofoursubstantiveprocedures,wetestedaccuracyandcompletenessofcriticaldatausedinECLcalculation.
• We assessed the completeness and accuracy ofdisclosures in accordancewith the provisions oftherelevantaccountingstandards.
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Key audit matter How the matter was addressed in our audit
Information Technology General Controls and controls over financial reporting
The Bank’s financial reporting processes is highlydependent on Information Technology (IT) systemssupporting automated accounting reconciliationproceduresandcalculations,thusleadingtoacomplexIT environment pervasive in nature and in which a significantnumberoftransactionsareprocesseddaily.
This is a key audit matter since it is important thatcontrols over access security, cyber risks, systemchange, data-center and network operations aredesignedandoperateeffectively toensure completeandaccuratefinancialrecords/information.
Managementhasdevelopedasystemefficiencyplanincludingaspectssuchasaccess,changemanagement,data-center and network controls in applications,databasesandoperatingsystemsinresponsetotheserisks,asdescribedindetailinnote‘OperationalRisks’.
Based on our risk assessment, we have tested thedesign and operating effectiveness of InformationTechnology General Computer Controls (ITGCs)relevantforfinancialreporting.
Ourassessmentincludedtheevaluationofuseraccessover applications, operating systems and databases,IT operations as well as the process followed overchangesmadetoapplicationsystems/programsatalllayers.
Our IT audit procedures were performed with the supportof ITspecialistsand included,amongothers,testingof:•Useraccessprovisioningandde-provisioningprocess.•Privilegedaccesstoapplications,operatingsystemsanddatabases.•Periodicreviewofuseraccessrights.•Changemanagementprocess.•Data-centerandnetworkoperations.
Other Matters
Fortheopinionontheprioryear’sfinancialstatements,whosedataarepresentedforcomparativepurposes,referenceshouldbemadetotheauditors’reportissuedbyotherauditorson19April2019.
Other Information
Managementisresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualReport,butdoesnot include thefinancial statementsandourauditor’s report thereon.TheAnnualReport isexpectedtobemadeavailabletousafterthedateofthisauditor’sreport.
Our opinion on the financial statements does not cover the other information andwewill not express any form ofassuranceconclusionthereon.
Inconnectionwithourauditof thefinancialstatements,ourresponsibility is toreadtheother information identifiedabovewhenitbecomesavailableand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.
Whenwe read theAnnual Report, ifwe conclude that there is amaterialmisstatement therein,we are required tocommunicatethemattertothosechargedwithgovernance.
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Responsibilities of Management and Those Charged with Governance for the Financial Statements
ManagementisresponsibleforthepreparationandfairpresentationofthefinancialstatementsinaccordancewithIFRSs,andforsuchinternalcontrolasmanagementdeterminesisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Inpreparingthefinancialstatements,managementisresponsibleforassessingtheBank’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessmanagementeitherintendstoliquidatetheBankortoceaseoperations,orhasnorealisticalternativebuttodoso.
ThosechargedwithgovernanceareresponsibleforoverseeingtheBank’sfinancialreportingprocess.
Auditor’s Responsibilities for the Audit of the Financial Statements
Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherdue to fraudorerror, and to issueanauditor’s report that includesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAswillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.
Aspartof anaudit in accordancewith ISAs,weexerciseprofessional judgmentandmaintainprofessional skepticismthroughouttheaudit.Wealso:
• Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.
• Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheBank’sinternalcontrol.
• Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebymanagement.
• Concludeontheappropriatenessofmanagement’suseofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheBank’sabilitytocontinueasagoingconcern.Ifweconcludethatamaterialuncertaintyexists, we are required to draw attention in our auditor’s report to the related disclosures in the financialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditor’sreport.However,futureeventsorconditionsmaycausetheBanktoceasetocontinueasagoingconcern.
• Evaluatetheoverallpresentation,structureandcontentofthefinancialstatements,includingthedisclosures,andwhetherthefinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.
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Wecommunicatewiththosechargedwithgovernanceregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.
Wealsoprovidethosechargedwithgovernancewithastatementthatwehavecompliedwithrelevantethicalrequirementsregarding independence, and to communicatewith themall relationshipsandothermatters thatmay reasonablybethoughttobearonourindependence,andwhereapplicable,relatedsafeguards.
Fromthematterscommunicatedwiththosechargedwithgovernance,wedeterminethosemattersthatwereofmostsignificanceintheauditofthefinancialstatementsofthecurrentperiodandarethereforethekeyauditmatters.Wedescribethesemattersinourauditor’sreportunlesslaworregulationprecludespublicdisclosureaboutthematterorwhen,inextremelyrarecircumstances,wedeterminethatamattershouldnotbecommunicatedinourreportbecausetheadverseconsequencesofdoingsowouldreasonablybeexpectedtooutweighthepublicinterestbenefitsofsuchcommunication.
Theengagementpartnerontheauditresultinginthisindependentauditor’sreportisDespinaXenaki.
Athens,7May2020
TheCertifiedPublicAccountant
DespinaXenakiReg.NoSOEL:14161DeloitteCertifiedPublicAccountantsSA3aFragkokklisias&Granikoustr.,GR151-25Marousi,Athens,GreeceReg.NoSOEL:E120
BLACK SEA TRADE AND DEVELOPMENT BANK
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ANNUAL REPORT 2019
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Annex AOrganizational Chart
Asof31December2019
General Counsel
Evalua�on
Internal Audit
Compliance and Opera�onal Risk
Policy and Strategy
Special Advisor to the President
Board of Governors
Board of Directors
President
Vice President Banking
Vice President Opera�ons
Vice President Finance
Secretary General
Financial Ins�tu�ons I
Project Implementa�on
& Monitoring
Accoun�ng, Planning &
Budget
BoD-BoG Communica�ons
Financial Ins�tu�ons II Procurement
Risk Management
Human Resources
Energy and Infrastructure
Corporate Recovery
ControllersExternal
Rela�ons & Communica�ons
General Industries I
Environment TreasuryAdministra�ve
Services
General Industries II
Financial Analysis
ALMInforma�on Technologies
Senior Advisor to the Management
Commi�ee
Audit Commi�ee
Office of the
BLACK SEA TRADE AND DEVELOPMENT BANK
127
Annex BContact BSTDB
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DmitryPankinPresidentOffice:[email protected]
OfficeoftheGeneralCounselMichalisSpanopoulosGeneralCounsel+302310290412mspanopoulos@bstdb.org
PolicyandStrategyGhinea Arminio [email protected]
EvaluationTodor [email protected]
InternalAuditPavlosPavlidesHead [email protected]
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Hasan DemirhanVicePresidentBankingOffice:[email protected]
FinancialInstitutionsTsvetkaKarnevaActingDirector+302310290535tkarneva@bstdb.org
Energy & InfrastructureRomanMatkiwskyDirector [email protected]
GeneralIndustries,Transport and Tourism [email protected]
GeneralIndustries,Transport and Tourism IIOrhan [email protected]
IvayloMoskovskiVicePresidentOperationsOffice:[email protected]
ProjectImplementation& MonitoringAlexanderMostovoyDirector+302310290430amostovoy@bstdb.org
FinancialAnalysisFaidonChatzakisDirector+302310290434fchatzakis@bstdb.org
Environment andSocialSustainabilityMirceaCojocaruHead+302310290585mcojocaru@bstdb.org
ValeriyPiatnytskyiVicePresidentFinanceOffice:[email protected]
TreasuryChristopher [email protected]
RiskManagementGeorge [email protected]
Accounting,Planning&BudgetNikolasPapavramidesDirector+302310290449npapavramides@bstdb.org
ControllersGeorgeta [email protected]
AristotelisSpiliotisSecretaryGeneralOffice:[email protected]
HumanResourcesEduardKatmazowskiDirector+302310290405ekatmazowski@bstdb.org
InformationTechnologiesChristos [email protected]
ExternalRelations&CommunicationsValeryAksenovDirector [email protected]
AdministrativeServicesKostisZevgaridisDirector+302310290488kzevgaridis@bstdb.org
BSTDB at 20
Enhancing Support to the
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Annual Report2019
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