BSTDB at 20 · 2020. 7. 2. · BSTDB at 20 Enhancing Support to the Black Sea Region Annual Report 2019 1 Komninon str., 54624, Thessaloniki, Greece T: +30 2310 290400 F: +30 2310

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

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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%


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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.

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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.


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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


RepublicofMoldova

Governor: Mr.IonCHICU,MinisterofFinance


Romania

Governor: Mr.EugenOrlandoTEODOROVICI,MinisterofPublicFinance

AlternateGovernor: Mr.GyorgyATTILA,SecretaryofState,MinistryofPublicFinance

RussianFederation

Governor: Mr.SergeySTORCHAK,DeputyMinisterofFinance


RepublicofTurkey

Governor: Mr.BulentAKSU,DeputyMinisterofTreasury&Finance


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


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


RepublicofMoldova

Director: Ms.ElenaMATVEEVA,Head,PublicDebtDepartment,MinistryofFinance


Romania

Director: Ms.DianaBLINDU,HeadofDivision,GeneralDirectorateforInternationalFinancialRelations,MinistryofPublicFinance

AlternateDirector: Mr.StefanPETRESCU,DeputyDirectorGeneral,GeneralDirectorateforInternationalFinancialRela-tions,ExternalPublicFinance,MinistryofPublicFinance

RussianFederation

Director: Mr.EvgenySTANISLAVOV,Director,DepartmentofEconomicCooperation,MinistryofForeignAffairs


RepublicofTurkey

Director: Mr.KemalCagatayIMIRGI,ActingDirectorGeneral,ForeignEconomicRelations,MinistryofTreasuryand Finance


Ukraine

Director: positionvacant

AlternateDirector: Mr.VitaliyLISOVENKO,GovernmentalEnvoyforPublicDebtManagement,MinistryofFinance

Audit CommitteeAsof31December2019

Ms. Diana BLINDU,DirectorforRomaniaandChairpersonoftheAuditCommitteeMs. Elena MATVEEVA,DirectorfortheRepublicofMoldovaandAuditCommitteememberMr. Arian KRAJA,DirectorfortheRepublicofAlbaniaandAuditCommitteememberMr. Nikoloz GAGUA,DirectorforGeorgiaandAuditCommitteemember


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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


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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.

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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


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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.

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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.


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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.

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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.


15

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)



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%





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%





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)



17

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


19

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)


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



21

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


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.


25

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


27

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


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.



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.


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


47

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

ANNUAL REPORT 2019

48

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


49

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.


51

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


53

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.

ANNUAL REPORT 2019

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55

Financial Statements for the Year Ended31 December 2019

Together with Auditor’s Report

ANNUAL REPORT 2019

56


57

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

ANNUAL REPORT 2019

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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.


59

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

ANNUAL REPORT 2019

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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.


61

STATEMENT OF OTHER COMPREHENSIVE INCOMEFortheyearended31December2019


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)


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62

STATEMENT OF FINANCIAL POSITIONAt31December2019


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



63

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


ANNUAL REPORT 2019

64

STATEMENT OF CASH FLOWSFortheyearended31December2019


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



65

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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66

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:


67


• 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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• 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’.


On31.10.2018theInternationalAccountingStandardsBoard,aspartoftheDisclosureInitiative,issuedamendmentstoIAS1andIAS8toalignthedefinitionof‘material’acrossthestandardsandtoclarifycertainaspectsofthedefinition.


69


Thenewdefinitionstatesthatinformationismaterialifomitting,misstatingorobscuringitcouldreasonablybeexpectedtoinfluencedecisionsthattheprimaryusersofgeneral-purposefinancialstatementsmakeonthebasisofthosefinancialstatements,whichprovidefinancial informationabouta specific reportingentity. Theamendments includeexamplesofcircumstancesthatmayresultinmaterialinformationbeingobscured.TheIASBhasalsoamendedthedefinitionofmaterialintheConceptualFrameworktoalignitwiththereviseddefinitionofmaterialinIAS1andIAS8.


• Amendment to International Financial Reporting Standard 3 “BusinessCombinations”:DefinitionofaBusiness.


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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On 17.12.2015, the International Accounting Standards Board deferred the effective date for the application of theamendmentthathadbeeninitiallydetermined.TheneweffectivedatewillbedeterminedbytheInternationalAccountingStandardsBoardatafuturedateaftertakingintoaccounttheresultsofitsprojectrelatingtotheequitymethod.


• International Financial Reporting Standard 14’Regulatorydeferralaccounts’.


On30.1.2014theInternationalAccountingStandardsBoardissuedIFRS14.Thenewstandard,whichis limited-scope,addressestheaccountingtreatmentandthedisclosuresrequiredforregulatorydeferralaccountsthataremaintainedinaccordancewithlocallegislationwhenanentityprovidesrate-regulatedgoodsorservices.Thescopeofthisstandardislimitedtofirst-timeadoptersthatrecognizedregulatorydeferralaccountsintheirfinancialstatementsinaccordancewiththeirpreviousGAAP.IFRS14permitstheseentitiestocapitalizeexpenditurethatnon-rate-regulatedentitieswouldrecognizeasexpense. TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.

• International Financial Reporting Standard 17 “InsuranceContracts”


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.



71


• Amendment to the International Accounting Standard 1 ’PresentationofFinancialStatements’:Classificationofliabilitiesascurrentornon-current.


On23.1.2020,theInternationalAccountingStandardsBoardissuedamendmentstoIAS1relatingtotheclassificationofliabilitiesascurrentornon-current.

Morespecifically:- Theamendmentsspecifythattheconditionswhichexistattheendofthereportingperiodarethosewhichwill

beusedtodetermineiftheliabilitymustbeclassifiedascurrentornon-current.- Managementexpectationsabouteventsafterthebalancesheetdatemustnotbetakenintoaccount.- Theamendmentsclarifythesituationsthatareconsideredsettlementofaliability.


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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.


73


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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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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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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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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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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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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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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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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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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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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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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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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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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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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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

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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


---

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


---

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


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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


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.


93


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


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


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


95


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


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


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’.


97


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


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


99


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


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.


101


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

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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


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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


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)


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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


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.


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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


18. INTANGIBLE ASSETSIntangibleassetscomprisingcomputersoftwareisanalyzedasfollows:

PresentedinEUR(000) Total

Cost

At31December2017Additions

4,342217


4,55983

At 31 December 2019 4,642

Accumulatedamortization

At31December2017Charges

3,689217


3,906314

At 31 December 2019 4,220

Netbookvalue

At 31 December 2019 422

At31December2018 653

At31December2017 653


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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:


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


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.


111


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.

ANNUAL REPORT 2019

112


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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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.

ANNUAL REPORT 2019

114


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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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.

ANNUAL REPORT 2019

116


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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• 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.


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

118


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.


121

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.

ANNUAL REPORT 2019

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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.


123

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.

ANNUAL REPORT 2019

124

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


125

ANNUAL REPORT 2019

126

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


127

Annex BContact BSTDB

1Komninonstr.54624Thessaloniki·Greece +302310290400I+302310221796,[email protected] I www.bstdb.org

DmitryPankinPresidentOffice:[email protected]

OfficeoftheGeneralCounselMichalisSpanopoulosGeneralCounsel+302310290412mspanopoulos@bstdb.org

PolicyandStrategyGhinea Arminio [email protected]

[email protected]

EvaluationTodor [email protected]

InternalAuditPavlosPavlidesHead [email protected]

Compliance&OperationalRiskManagementOfficeZinonChatziantonoglouHead+302310290421zchatziantonoglou@bstdb.org

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

mailto:[email protected]

http://www.bstdb.org

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