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It’s all here for you…

ANNUAL REPORT 2017

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Expanding Your World

Focusing on the future: we will strive to further increase our customers’ satisfaction.

The best service for both individual clients and enterprises - that is what drives TEB Sh. A

with ethical business practice central to that service and our mission. That is why today our

number one asset is the relationship of trust we have built up with customers over time.

Our Values

• Honest and trustworthy

• Leading, pioneering and innovative

• Customer oriented with a strong focus on high quality

• Respectful of society, human rights and the environment

• Transparent

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1. About TEB SH. A

1.1. Corporate Profile

1.2. Our Mission, Vision and Strategy

1.3. Our Core Values

1.4. Shareholder Structure

2. 2017 Overview and 2018 Outlook

2.1. From the Chairman

2.2. From the CEO

3. TEB SH. A in 2017

3.1. TEB Sh. A. in Figures

3.2. Key Financial Indicators

4. Business Units

4.1. Individual Banking

4.2. Card Business

4.3. SME Banking

4.4. Commercial and Corporate Banking

4.5. Trade Finance

4.6. Payment Systems

4.7. Treasury and ALM

4.8. Human Resources

4.9. Organization and Process Development

4.10. Information Technology

4.11. Information Security and Data Protection

5. Management / Corporate Governance

5.1. TEB Sh. A. Organizational Structure

5.2. Board of Directors

5.3. Committees

5.4. Internal Audit

5.5. Risk Management and Operational Risk & Business Continuity

5.6. Compliance

5.7. Internal Control

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1.1. Corporate Profile

Expanding your world…

Focusing on the future: we will strive to further increase our customers' satisfaction.

After ten (10) successful years in Kosovo, TEB SH. A. (TEB) has become one of the

foremost names in the banking sector, earning a well-deserved reputation for excellent

service. Throughout our history, we have systematically pioneered meeting the banking and

financial needs of individuals and businesses by launching numerous „firsts‟ for the Kosovo

market.

In a rapidly changing world, TEB is there to consistently support customers and employees.

This ability is also based on our position as a prominent member of the TEB Group. The

Group was formed through a joint venture between one of the world‟s strongest financial

institutions, BNP Paribas, and one of the most reputable banks in Turkey, Turk Ekonomi

Bankasi.

We aim to be a responsible bank. That is why we pursue a range of socially responsible

activities that contribute to social development. For TEB, corporate social responsibility is a

highly valuable and fundamental tool that complements our economic mission. So, in addition

to providing excellent, innovative and responsible service to our customers, we also undertake

projects that are designed to make a difference in education, culture and sports - all aimed at

positive impacts for the greatest possible number of people in Kosovo.

Value, Service, Excellence…

For TEB, the customer is at the center of everything we do. Our customers are special and

valued. This is expressed in all of the specially-designed products and services that we offer

to different groups of customers, ranging from entrepreneurs to senior citizens and from

employees to students.

We believe the systematic, year-on-year growth in number of customers, our service network,

transaction volumes and our personnel is recognition of our efforts to:

Continually expand the range of non-branch banking products and services and add

functionality to our innovative multi-channel banking network. We offer all manner

of quality-focused banking products and services that people need at different stages

in their lives - all through our extensive and multi-channel delivery network.

Offer optimal financial solutions to private banking customers based on „personalized

service‟.

Outperform the industry in terms of growth in credit cards, growth that is enhanced

continuously by new products and services, as well as through specific card

campaigns organized with another customer group, our merchant members. Through

the segmentation of the card business, we identify specific groups, serving them with

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products such as the She Card for Ladies, the Woman Entrepreneurship Credit Card,

and the Business Card for owners of SMEs.

Maintain our strong position in retail cash management services.

Provide the commercial banking support that is a key driver in the roadmap to future

economic growth in Kosovo. Every year, we reinforce our already strong focus on

supporting TEB‟s hundreds of thousands of commercial and SME customers as they

play an increasingly important role in the economic development process.

Real, Smart, Value…

As a member of two strong international financial groups – TEB A.S., a highly reputable and

premier financial institution in the Turkish banking sector, and BNP Paribas, one of the

Eurozone‟s top banks with an extensive and international network – TEB benefits from

Group experience, solidity and range. This enables us to generate the best outcomes for our

clients.

From these sound foundations, TEB continues to progress by enhancing the quality of its

services and by developing products tailored to customer‟s expectations. In line with rapid

advances in technology, we systematically improve our innovative multi-channel banking

network (such as Internet and Mobile Banking, Call Center, SMS Services, ATMs, POS)

allowing customers to utilize the most suitable distribution channel for their banking

transactions - conveniently, quickly and reliably.

More community commitment…

Since TEB was established in 2008, we have had a pioneering position. As a strong full-

service bank, we have focused on responding to customer demand for financial services. Over

the years, we have been able to put our corporate competencies and vision to work

effectively, producing added value for both customers and shareholders. In 2016, we

continued to pursue our – now expected - balanced and healthy growth, further reinforcing

our position as the country‟s one of the strongest financial institution. This gives us an even

firmer foundation for our future as an important force in Kosovo.

Corporate social responsibility plays a significant role. Our policy is to contribute to

Kosovo‟s social development. We have created a framework of long-term initiatives based on

a range of projects that will create the greatest social benefits. In terms of business support,

we are working through the Women‟s Entrepreneurship Support Program, the Business

Academy and the Business Forum.

Exceeding your expectations…

TEB owes its success to our people who bring our innovative and proactive approach to

customers, work hard to maintain and grow the quality of our services and the assets our

brand name represents. Our goals are to help people and businesses build their future, to

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realize their ambitions and to help them manage their financial risks. We want to be a

financial institution our customers feel comfortable with.

1.2. Our Vision, Mission and Strategy

Our Vision

Our vision is to be the best bank in Kosovo.

Our Mission

To continually create and increase outstanding value for our customers, shareholders,

employees and society.

Our Strategy

In line with our vision and mission, our strategy is to provide an outstanding and efficient

banking experience for all our customers. We achieve this by offering innovative and

practical products and services to achieve continuous and sustainable growth. TEB‟s offering

is always founded on our commitment to being a responsible bank. This is embedded in all

our values and is reflected in our business, the way we develop products and services and

how we deliver on our goals and promises.

1.3. Our Core Values:

Customer-centricity

Our success is based on complete commitment to our customers at all times, earning us the

trust and loyalty of our customer base. We maintain that trust by always placing our

customers at the heart of everything we do. Customer needs and expectations are our drivers

through our fast, proactive approach and response to rapidly-evolving requirements. This

enables us to create and deliver true value as we serve our customers with innovative, above-

expectation, tailored and trend-setting products and services.

Integrity

We have embraced the highest standards of integrity in everything we say and do and we

commit to creating added value for our customers, shareholders and employees by always

doing more than just what is right. We communicate openly and honestly, we invite and

appreciate challenging views aimed at generating better ideas and reaching more appropriate

and balanced decisions.

We generate value for our shareholders through long-term success rather than short-term

gain. So our objective is for our core business to deliver sound and strong operating

profitability and dividends through an entrepreneurial spirit that balances risks and returns

responsibly.

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Innovation

We aspire to innovations that matter. TEB values enthusiasm coupled with intellectual

curiosity in our people as they continuously seek to create products that will facilitate our

customers‟ success and provide suitable solutions to their needs.

Operational Efficiency

We build processes and products that are user-friendly, easy to access and designed to add

value. We strive to ensure that the services offered to our customers are priced in a way that

equates fairly with the actual cost of providing them.

Discipline

We think and act like owners of the Bank, so we protect its resources and focus on shared

rather than individual goals. We are proud of TEB‟s successes and the value we create for our

shareholders and customers. Every one of our 555 employees feel responsible if we fail to

meet customer expectations and we are all accountable for delivering on our promises – there

are no excuses. We strive for operational excellence by getting it right first time.

Competent HR

We seek to strengthen our position as an employer of choice and strive to create a culture that

attracts talented individuals, fosters diverse yet responsible and agile collaborative teamwork,

nurturing and investing in the best talent, and management based on merit and equal

opportunities.

Partnership

We pursue lasting and mutually beneficial customer and employee relationships in which the

value created is shared fairly. We are responsible partners with all our stakeholders and

regulators, and in serving society.

Strong distribution channels

We strive to offer services and support to our customers at their own convenience by

providing diverse distribution channels, including our branch offices, call center, direct sales

and extensive alternative distribution channels.

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1.4. Shareholder’s Structure

The Bank‟s share capital is €24,000,000 based on 2,400,000 issued shares each with a par

value of €10.

Number of shares relates to ordinary shares with no rights, preferences or restrictions attached

to them.

*50%-50% BNP Paribas Fortis Yatırımlar Holding A.Ş.and Çolakoğlu Group Joint Venture.

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2.1. Message from the Chairman

As for the previous years, 2017 was a year where TEB maintained its strategy to support

the real economy of Kosovo through its banking operations and strive to support its

customers with a dedicated high quality service standard which they have been used to.

To our Customers, Business Partners and Shareholders,

We continue to developing resources that serve all our customers in all segments of the

economy with a high standard of financial and corporate responsibility.

TEB, one of the largest players in the Kosovo banking sector, reported in 2017 strong results,

increasing its assets base by 13.1% to reach €486.7 million, expanding its loan portfolio by

11.1% to €365.4 million and growing deposits by 14% to €380.4 million.

To meet the growing needs of our customers, we continued to develop products and services

with easier access to all financial services to individual and corporate clients. TEB objective

is to maintain healthy and profitable growth and revenues, keep a low cost of risk, and a

sustainable leadership position in the banking industry. To achieve this goal, we continued to

grow in all sectors with a specific focus on agriculture, SMEs, individual entrepreneurs as

well as startups. In those areas we have developed a good relationship with international

institutions. TEB has strengthened its leading position in retail banking, and especially in

credit cards.

In term of innovation, the Bank has succeeded to transfer more customers from conventional

banking channel to digital ones. This strategy will be pursued.

TEB is proud to have been recognized through awards by well-known organizations, the

Banker, Euromoney and European Bank for Reconstruction and Development (EBRD), we

owe those awards to our customers, partners and employees with whom we have developed

trust and confidence. We would like to thank all of you for this.

Finally, we would like to thank all our employees and our stakeholders for their dedication

and support during this year.

Jacques Roger Jean Marie Rinino

Chairman of the Board of Directors

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2.2. Message from the CEO

I am delighted to inform you about another exceptional year for TEB. As a result of the

great efforts of the management team and all of our employees, TEB continues to build

on its strength with a leading role with its products and services that add high value in

every phase of economic and business activity.

To our Customers, Business Partners and Stakeholders,

I am very pleased to report that we continued our support of the Kosovo economy throughout

2017 and we further enhanced our expertise and leadership in our priority sectors. We

delivered a healthy growth performance based on sound principles. We achieved a record in

net profit of €13.9 million in 2017 with return on equity of 35.7 per cent compared to 51.1 per

cent in 2016. Total assets at the end of the year were €486.7 million compared to €430.2

million in 2016. The Bank is well capitalized, has a strong deposit base and a well-diversified

client base, all of which we believe makes us well-positioned to take advantage of future

business growth opportunities.

We continued to offer innovations and opportunities that make difference in our customers‟

lives during 2017:

We continued to organize Business Academies through the year in different cities and

municipalities of Kosovo (Peja, Pristina, Gjakova, Ferizaj, and Mitrovica) which are

part of non-financial services that TEB offers to its customers with the aim of

spreading contemporary practices of doing business and capacity building. The

objective of these Academies, as well as those of the past, is to offer to all

participants new opportunities to exchange experiences with prominent professors

and consultants from Turkey,

On the occasion of International Women's Day March 8th, we organized an event to

promote women entrepreneurs, which was followed by networking opportunities

among this community. During the event, some of the businesses funded by TEB

have exposed their products. The businesses were of different domains and diversity

of activities was noted among women entrepreneurs. Furthermore, on April 27th, we

organized “Women in Business” seminar in Prishtina with the European Bank for

Reconstruction and Development (EBRD) and Frankfurt School. On May 30th, TEB

and the European Bank for Reconstruction and Development (EBRD) continue with

the series of non-financial services for women entrepreneurs, second seminar on

“Women in Business” in Gjilan. During the year, they are repeated in Peja, on

September 28th, and in Gjakova, on October 11

th,

We opened a new branch in Ferizaj by redesigning the branch with new technology.

By considering the importance of the investment in digital banking as being the

driver to increase customer acquisition, cross-selling and satisfaction, we have

inaugurated the start of operations of the new branch in the town of Ferizaj, thus

continuing the expansions of new units to serve customers. With the new branch,

customers can perform services 24 hours a day through ATM terminals within the

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facility, allowing them to withdraw or deposit money, as well as providing means of

access to online services through alternative channels such as E-banking and

TebMobile.

We again have supported the Kosovo basketball and football national teams this year.

Following the support provided during Eurobasket 2017 qualifications, the Bank has

also decided to support the KBF in their pre-qualification phase for the 2019

Basketball World Cup in China.

We are extremely pleased that TEB Sh. A has been recognized as best bank in

Kosovo once more in 2017 by prestigious publications, such as The Banker-Financial

Times and Euromoney. In addition to these, projects of TEB for women

entrepreneurship have gained high rating from EBRD (European Bank for

Reconstruction and Development - EBRD). At the EBRD annual meeting (European

Bank for Reconstruction and Development) held in Cyprus, TEB has been awarded

with the “Gender Award”. This award comes following the active joint programs

between TEB and EBRD for women in business. All these awards are external

industry acknowledgements of our Bank and its achievements. In this regard, I would

like to use this special opportunity to thank all our staff for their contribution in

Bank‟s overall performance which has resulted in all those prestigious rewards.

Besides, in the period ahead, I can remark that we will continue to diversify our services that

address consumer needs and expectations, while at the same time, increasing the number of

active customers; and additionally we will continue o support Kosovo‟s growth with its key

focus on creating value. Our greatest resources in this quest are three-fold: the dedicated

efforts of our staff, comprised of the best professionals in the sector; the continuous support

of our shareholders; and our strong synergy with all our stakeholders. I would like to take this

opportunity to offer my sincere gratitude to all our invaluable employees, shareholders, and

stakeholders.

I am looking forward to sharing the results and delight of many other accomplishments with

all of you in the coming year, with the backing of the deep-seated banking experience and the

business culture of our shareholder BNP Paribas.

Orcun Ozdemir

Managing Director

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3.1. TEB in Figures

2017 2016 Increase/

(Decrease) Percentage

Balance Sheet Indicators

Total Assets

488,519

429,255 59,264 13.8%

Total Loans (Gross)

376,511

352,695 23,816 6.8%

Deposits 381,091

334,467 46,624 13.9%

Shareholders' Equity 87,989

71,324 16,665 23.4%

NPL / Total Loans 2.5% 6.2% -3.7% -59.7%

Loans / Total Assets 77.1% 82.2% -5.1% -6.2%

NPL Coverage Ratio 61.8% 94.2% -32.5% -34.5%

Income Statement Indicators

Net Interest Income 27,596

29,037 (1,441) -5.0%

Net Non-Interest Income 6,816 6,629 187 2.8%

Cost / Income Ratio 55.3% 48.4% 6.9% 14.3%

Net Banking Income 35,264

36,037 (773) -2.1%

Net Profit for the Year 16,639 18,333 (1,694) -9.2%

Profitability Ratios

Return on Equity 24.0% 35.7% -11.7% -32.8%

Return on Assets 3.4% 4.3% -0.9% -20.3%

Net Interest / Average Interest Earning Assets 7.3% 8.3% -1.0% -12.2%

Solvency & Liquidity Ratios

Capital Adequacy Ratio 21.1% 19.7% 1.41% 7.2%

Liquid Assets / Total Assets 22.1% 19.5% 2.6% 13.5%

Risk Weighted Assets 423,017 388,459 34,558 8.90%

Other Indicators

Branches 27 26 1 3.8%

Employees 593 580 13 2.2%

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3.2. KEY FINANCIAL INDICATORS

The fruits of continuous prudent portfolio management, well balanced risk and growth

strategy and enduring customer satisfaction resulted in exceptional profit figures, steady loan

portfolio growth and further market share increase in 2017.

At year-end 2017, the Bank‟s total assets reached €488.519 million, increasing by €59.3

million or 13.8% compared to 2016, keeping the bank‟s asset size at the targeted level. The

gross loan portfolio increased to €376.511 million, an increase of 6.8% or a volume increase

of €23.8 million on the previous year‟s. Gross loans now comprise 77.1% of total Bank assets

in TEB‟s balance sheet.

The Non-Performing Loan (NPL) ratio (loans over 90 days in arrears) at the end of 2017 was

2.5% compared to 6.1% in 2016, a decrease of 367 basis points. Total customers‟ deposits at

the end of 2017 reached €381.1 million, an increase of €46.6 million or +13.9% compared to

the end of 2016.

Shareholders‟ equity increased from €71.3 million in 2016 to €87.9 million in 2017, due to

increased retained earnings during the year. Altogether this represents a 23.4% increase in

shareholders‟ equity compared to 2016.

Income statement indicators also show slight decrease in performance compared to the

previous year. Net interest income reached €27.6 million, a decrease of €1.4 million or -5.0%

compared to 2016. Net non-interest income amounted to €6.8 million, an increase of

€0.2million or a 2.8% increase in comparison with 2016.

The cost-to-income ratio in 2017 increased further to 55.3% from 48.4% in 2016. Net

banking income at year-end was €35.3 million compared to the €36.0 million realized in

2016.

The Bank ended the year with €16.6 million profit after tax compared to €18.3 million in

2016 or decrease of 9.2%.

In terms of profitability indicators, at the end of 2017 the Bank generated a Return on Equity

(ROE) yield of 24.0% compared to 35.7% in 2016, while Return on Assets (ROA) stood at

3.4% compared to 4.3% in the previous year. The Net Interest over Average Interest Earning

Assets ratio was 7.3% compared to 8.3% in the previous year. As for bank capital

management at the end of 2017, the Bank‟s Capital Adequacy Ratio (CAR) was 21.01%,

exceeding the Central Bank of Kosovo (CBK) minimum requirement of 12%, and up from

19.7% at the end of 2016 due to increased retained earnings during the year.

The Liquid Assets to Total Assets ratio stood at 22.1% at the end of 2017 compared to 19.5%

in 2016, while Risk Weighted Assets (RWA) reached €423.0 million, up from €388.5 million

in the previous year following growth in the loan portfolio during 2017.

In 2017, the Bank has opened one branch, increasing the total number to 27 (2017: 27) while

the number of employees increased to 593 compared to 580 at the end of 2016.

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4.1. Individual Banking

In 2017 TEB SH.A has strengthened its position as the leading actor in Kosovo Banking

Sector and Retail Banking‟s customer groups in all products area

During 2017 Retail Division has shown a significant increase in Loan Outstanding in amount

of €17 million or 13.8% net growth in comparison with year 2016. The biggest effort in loan

development has come from different campaigns (50 campaigns) which were advertised

massively during 2017. As a result of loan campaigns and system improvements, we were

able to increase our market share to 21% with a €17 million net increase in loans with a

consistently low risk in NPL.

In terms of deposits, the year 2017 has been one of the most successful years of Retail

Banking. Net increase in deposits was €31 million or 13.7% net growth in comparison with

year 2016.

The bank can offer all products that are important in making customer finances simpler and

more secure and in finding solutions together with the customer. Production tasks and

solutions are becoming digital and we believe there is a need for advice and a sense of

security in financial choices among all customer groups of this business line.

In 2017 we have paid much more attention to ensure the right activity in all functions in all

channels. Our business has a strong standing among our customers and shows a good trend in

customer satisfaction.

We achieved a lending growth of 13.8% per cent. What distinguishes last year's growth from

more normal years is that a higher proportion of the growth is down to new customers. Some

competitors' decision to close offices in parts of our region gave us an opportunity to bring in

good, solid customers with good risk profiles – and we took that opportunity. The increased

activity has also been devoted to enhancing product coverage across our 300,000 retail

customers. A good trend in product sales and across all channels was noted in 2017.

In addition to following the industry‟s norms and requirements on good advisory practices,

we must, as a bank contribute knowledge and insight that continuously improve the quality

and relevance of advisory content to our customers. Our strongest part is our ability to meet

an ever larger part of our customers‟ needs for financial services in an industry in which many

actors focus on selling individual products.

We believe that maintaining a strong local presence with relations to our customers gives the

bank a business advantage. On a general level we will develop a splendid digital bank staffed

by competent customer advisers in many, but cost-effective, locations across our region.

Customer acquisition is one effect, but we also see that it has provided and will continue to

provide us with even stronger advantages in terms of developing product coverage, long-

lasting customer relationships, positive margins, ensuring a better basis for delivering services

and relevant initiatives and achieving higher customer satisfaction.

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Year 2017 has been the focus of the recent development of alternative distribution channels.

ATM has been the main focus where we have added many extra functions that have improved

customer service and as a result we have managed to reduce branch transactions.

Significant developments have also occurred in the product of TEB Mobile and E banking

where are added many new features and as a result we have managed to increase transaction

through these channels.

What’s next?

Expectations for 2018 are ambitious. Our 2018 budget is expected to be focused on loans,

deposits, cross sell and digital banking, based upon the principle of growth and meeting the

medium and long-term objectives.

It is worth noting that Retail Banking in 2018 will bring innovation to the banking market

with new and innovative products and services. One of them is Merchant Loan and SMS

Loan, which are the digital platforms and facilitate the way of applying for a loan, which

directly affects the quality of customer service.

Green Loan is one of the new products that will be launched in the first quarter of 2018. We

will be the only bank in the market that will enable customers to apply for a green loan. Green

loan is specifically designed to encourage individuals to make more energy – saving

improvements on their homes by granting them with up to 20 % of their investments.

The result, in the future as at present, will be that we acquire many, and appropriate,

customers, strengthen cross-sales and synergies with other parts of the group, enhance

product coverage, deliver one service expectations, enjoy high customer satisfaction – and by

this means to achieve best profitability.

4.2. Card Business

With over 9,000 new cards approved during 2017, StarCard remains the most used and

preferred credit card in the market. Our position as the customer‟s first choice gives us an

even greater responsibility to be wherever our customers are and to listen actively to their

needs. Unrivalled competence, expertise, active listening and implementation capabilities

have once again proved to be the key to another notable year for our card business. By

blending customer needs and new technological developments, we have continued to

introduce new products, expanded services and new utilization channels so that our customers

can bank at their convenience, wherever they are and without the limitations imposed by

traditional banking hours.

There are more than 300 card campaigns organized by TEB where half of them are organized

in corporation with our merchants which allows us to create strong relationship with

merchants and bring the best offers to our clients. There are various campaigns organized,

extra bonuses, shifting, extra installments and premium prizes like a brand new Harley

Davidson, just to name a few.

We have distributed over 500,000€ in bonus points on cards or as bonuses in other forms.

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In 2017, Kosovo‟s market had an increase of 3.3% in total POS Turnover, while 72% of the

total increase has been contributed by TEB POS terminal network. This significant

development shows the commitment of our bank on POS network expansion and activation of

card users with various bonus driven campaigns. Also there have been investments on POS

Terminals, replacing the old models with new contactless function, maintaining the leadership

on POS numbers in Kosovo market with over 4,000 POS covering more than 2,000

merchants.

While our total POS turnover had an increase of 5.6% compare to 2016 maintaining the

leadership in market with 42% of market share in Kosovo. Since TEB POS terminal network

acquired MasterCard, “not on us payments” (cards not issued by TEB) increased by 64%

from 2016 in TEB POS, making our POS most desirable from our merchants and abroad

clients.

Fast & Secure is what we aim with our cards. With MasterCard Contactless transactions are

done within 5 seconds. Contactless payments up to 15€ are done pin less, while above 15€ up

to 100€ pin is required on contactless transactions. This function makes the clients use their

cards even on small amounts and saves their time.

Security of cards is one of our biggest priorities therefore regular investments are being made

on the infrastructure of our network. This is managed by our highly vigilant real-time

monitoring team. We believe the security of transactions is one of our undoubted successes,

as attempted fraudulent transactions using our cards and in our network remains well under

sector trends.

Visa 3D Secure makes online purchases and payments safe and fast with our debit or credit

cards.

As technology becomes even more sophisticated, card fraud around the world is proliferating

at a dynamic pace. TEB has invested heavily in advanced security for our infrastructure

network. We believe the security of transactions is one of our undoubted successes, as

attempted fraudulent transactions using our cards and in our network remains well under

sector trends.

TEB Bank Sh. A., one of the leading and innovative financial institutions in the banking

sector, which provides special attention to its clients, introduces something new for all bank

clients. In order to facilitate customer service, MasterCard are accepted at TEB Bank‟s POS

terminals and ATMs. During 2017 TEB increased the number of ATM deposits. Covering

each branch with ATM deposit and main locations for offsite ATM, such as shopping malls,

city center.

With the dynamism of life and global trends, the speed of payment service delivery represents

a challenge to all, while in order to improve quality TEB Sh. A introduced the Contactless

payment system. Apart from this, our clients can pay with MasterCard at TEB Bank‟s POS

terminals with the new Contactless method. The main goal of TEB Bank continues to be the

improvement of the level of services to its clients, and it believes strongly in the value of the

services that it continues to expand in order to make clients more satisfied with these services,

but also offering services of the most advanced levels in the banking market. We care so that

our clients receive the most professional service they deserve, because we believe in the

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values of innovative and indispensable services in the banking sector.

Believing in the value of services with transparency, we provide these services with

maximum correctness for our customers, because we try to follow the newest trends in the

banking sector.

With a growing customer base, the need to guarantee better services is a priority. So we have

expanded our direct sales team and its activities. We are now even closer to customers and

able to respond faster and even more reliably to their needs. The direct sales team is also

available to provide information on special offers to which the customer may be entitled. It

also advises on new products and services made available by the Bank to clients and which

we think may be of interest and benefit to them. Throughout the year and in partnership with

merchants, the Bank initiated numerous personalized campaigns, offering various

propositions that feature additional installment plans, discounts, grace periods, and bonus

products.

What’s next?

As the e-commerce business keeps growing in Kosovo, we are developing an e-commerce

platform that will be unique in our market. Our platform will allow StarCard users to

purchase online with up to 24 installments without commission, for the first time in our

market or region. As the leaders in card business and with the unique e-commerce platform,

we are aiming to being the best option for merchants and clients for domestic online

purchases.

TEB is constantly following and investing on the newest card business features that are

trending globally. This is allowing us to maintain the leadership in our market and be the best

option for customers and merchants.

4.3. SME BANKING

As an important segment for Kosovo‟s economy in terms of generating employment and

introducing new ideas in the market, the SME segment once again drew the interest of the

commercial banks in the banking sector. In this situation, the SME segment in TEB invested

in its sales activities and operations in order to generate a healthy growth, effective NPL

management and expansion of its relations with its client base.

In this regard, 2017 was another successful year for SME in TEB as the segment managed to

increase its loan portfolio for €9.5 million or 8.5% and its deposit portfolio for €9.5 million or

14.8%. These numbers demonstrate the commitment of the bank to the SME sector and the

positive response of the market on TEB's concept and business model. Simultaneously,

positive results were achieved in the NPL management as it decreased from 9.7% to 4.1%

(write off included).

In order to achieve these results, several strategies and approaches were employed. The

strategies and approaches ranged from organizational changes, new partnerships, new

approaches in campaigns and added focus on client needs. Thus as one of the main

developments, the department was re-organized in regional basis as different branches were

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grouped in two main regions. The idea behind this re-organization was that a higher

efficiency will emerge as the communication with branches will concentrate and on the other

side the sales insight and activities will be more focused. The results of the change were

positive as both regions realized growth.

Through the Agro department the bank was also very active in crediting and developing the

Agrobusinesses. This segment is especially important for balancing the economic

development as it provides opportunities to inhabitants in rural areas to utilize the land and

create value for themselves and the society. TEB tried to capitalize on the sectors strategic

importance for the country and through its know-how and sales activities managed to

generate growth and increase market share. In this regard, the government subventions in the

forms of grants played an important role as €1.6 million of loans were issued to finance grant

receivers and their projects. The department was also active in designing tailored campaigns

such as seasonal campaigns and campaigns with clients that were attractive for the market and

supported different investment activities of the clients. In this regard the department managed

to realize a growth of €2.7 million and on the same time managed to decrease the NPL from

5.9% to 4.8%.

A very significant support for the increased crediting in the SME segment was the guarantee

facility that we had with Kosova Credit Guarantee Fund. At the end of 2016 the bank signed

an agreement for a limit of €5.0 million guarantee that would be utilized for overcoming

collateral challenges of the SME clients and increases the access to capital. The guarantee

facility proved to be a very valuable tool as in total 240 loans were disbursed through it in a

total amount of €10.2 million The crediting activity through the guarantee facility is in line

with the departments strategy of increasing the access to capital for fast growing SME‟s that

would contribute to increased employment and higher competitiveness in the market.

The increased crediting activity was also supported from improved operational processes in

loan proposals. The bank aims to achieve a simple and efficient process where each request

and interaction of the client with the bank will be processed as swiftly as possible. This will

contribute to better quality of service, higher efficiency within the bank and capitalization on

commercial opportunities on the client‟s side.

On the activities related with non-financial services, the bank during 2017 continued to

contribute to the enhancement of management capacities of the SME companies by sharing

best practices through its programs. Thus, the bank organized 5 “Business Academies” that

focus on challenges and opportunities arising from globalization, the importance of strategic

planning and growth management. Simultaneously, the bank was active in promoting the

women entrepreneurship program as in partnership with EBRD it organized 10 Women in

Business” events where through a tailored content it continued to empower women to engage

in business activities. As a result of its continuous investments and advancement in the

“Women Entrepreneurship” program, the bank was recognized with the “Gender Award”

from EBRD in the annual meeting held in Cyprus. The program was also recognized from the

Global Banking Alliance for women association who invited the bank to share its program as

a best practice in the annual meeting of its members which was held in London. These

recognitions make us very proud and provide additional incentive on continuing with program

advancements and new programs of this nature.

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In aspiring to extend and advance its alternative delivery channel, the bank focused a lot on

promoting the different features and services of its E-banking channel. The platform offers a

very user friendly experience on a wide range of functionality that both saves time and bank

expenses for the client. In this regard, one of the services that was highly promoted and

received positively from the market was the salary processing through Business E-Banking.

Through this feature, the bank was able to further enhance its cash management services and

contribute to the service quality towards its clients. The business e-banking and alternative

delivery channels will remain a focus for the bank in the coming year, as well as, more

features will be added that will improve the costumer experience of our clients.

As a novelty, the launch of Business M-Banking is expected to increase the value of the

relationship with our bank as several services such as money transfer, tax and custom

payments will be available. A special focus will be dedicated to the acquisition of - cash

management of SME businesses as the bank will target their turnover and salary payments

through specially designed campaigns. We are very confident that our multiple strength

places the bank in a favorable position to capitalize the opportunities in the SME market and

grow sustainably.

What’s next?

The achievements and positive results of 2017 both in terms of numbers and business

development encourage us to continue with the same ambitions 2018. The bank will continue

to offer solutions and access to finance to SME‟s with the aim of capitalizing on their

dynamism and new ideas for the market.

4.4. Commercial and Corporate Banking

Through its close relationships with clients and solution-oriented approach, TEB SH. A. is a

highly visible player in the commercial and corporate segment. At TEB, we recognize that

this particular client segment is the most complex in terms of needs and as such we have

developed a strategy of tailor-made solutions and advanced cash management services to

provide our clients with a value added system that also benefits the Bank. As in previous

years, our strategy in 2017 focused on growing our market share and profitability. The latter

proved challenging as the market dictated a significant drop in interest rates whereas the

limited number of clients in this segment demanded a proactive approach from the Bank. The

department achieved a €6.3 million growth in loans, or an increase of 9.1% compared to the

previous year. The market values the Bank‟s quality offering in services, such as transfers,

POS payments and other transactions. We continued to provide advanced cash management

solutions, such as an expanded POS network, differentiated business-related debit and credit

cards, and state-of-the art business e-banking with many features and options. Expanding

alternative delivery channels and enhancing cash management solutions is an important

strategic approach for the coming years as the business market is seeking more efficient and

broader partnerships. One of the most innovative payment channels in the market which we

have launched during 2017 is invoice payments through SMS.

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One of the Bank's special priorities in 2017 was enhanced efficiency in operations. We have

invested considerable time and effort in promoting the vast range of options and the multiple

benefits business e-banking has to offer. This initiative proved quite successful as many

clients adopted e-banking for their day-to-day banking needs. As a result, 71% of total

national transfer transactions were conducted using e-banking, while increasing for

approximately 4% international transfers using the same channel to 70% of total international

transfer transactions conducted using e-banking. This shift in customer behavior represents a

significant achievement for the department as it also reduces the workload in branches and

enables branch teams to spend more time on advisory and support for customers. In

strengthening the relationship with clients, the Bank continued offering non-financial services

in the form of business advisory to corporate clients. This shows that the scope of cooperation

with corporate clients is constrained only by creativity and imagination as the opportunities

are endless.

What’s next?

We are committed to increase our cooperation with the corporate segment and we have a

clear idea on how to achieve this objective. We will continue to launch new cash management

products in 2018 to ease life of our corporate clients and also achieve efficiency improvement

through our operations. As a bank, we will continue to rely on innovation and customized

solutions to achieve a higher share of our corporate clients‟ business and increase our market

share and profitability. At the same time, we will be actively targeting projects in the

production and export sector as they are seen as strategic for further corporate growth and

also for the overall growth of the economy. We will continue to be aware of our

responsibilities in a growing economy.

4.5. Trade Finance

TEB SH. A. understands that international business in a globalized world is a challenge -

success demands extensive professional knowledge and an effective network. TEB has both.

During 2017, we continued to support our customers by creating and adapting trade finance

solutions for their business needs. Moreover, we worked consistently on expanding our

networks, strengthening relationships with other banks, and further enhancing our high

standards of professionalism and competence. Supported by the BNP Paribas and TEB A.Ş.

global presence and expertise in international trade, we are continually broadening our

geographic cover and product range.

Trade Finance products for documentary operations include import and export letters of

credit, discount on letters of credit, national and international guarantees, stand-by letters of

credit and collections. The agreement signed in 2011 with the International Finance

Corporation‟s (IFC) trade facility program has provided us with a great opportunity and even

more flexibility in responding to demand related to confirmed letters of credit and counter

guarantees. During the reporting year, we also further expanded our relationships with new

correspondent banks.

21

TEB SH. A. has maintained consistent support for its clients and it aims to always be the most

reliable and preferred business partner in Kosovo, by continuing to share professionalism and

expertise in trade finance products to its clients and also providing innovative solutions.

What’s next?

In the coming year, we will continue to support our clients by providing a safe bridge to new

opportunities. Professionalism and expertise will be our guidelines as we see these as

differentiators in a fast-moving world. We are also aiming to add new international trade

products to our range in 2018.

4.6. Payment Systems

TEB pioneered the Direct Debiting System (DDS), a unique product in the Kosovo market

that is designed to support B2B commercial cooperation. Its core function is to improve our

business customers‟ financial liquidity by offering complete management of receivables and

payables. It is considered the most effective cash-flow management system as it is supported

by cutting-edge technology and interfaces to facilitate complete and automatic invoice

payment processing. This allows customers to authorize us to automatically debit (withdraw)

funds directly from their bank account to make various monthly payments to different public

and private companies. Only an authorization form (signed by the customer) is needed and

the related transaction will be performed automatically. DDS customers are provided with a

dedicated credit line that facilitates payments to suppliers and guarantees that invoice

payment terms are fully respected. The next logical step was the introduction of DDS

discounting that guarantees receivables. By applying DDS discounting, the customer

consolidates finances and benefits from early collection of receivables. Our ultra-modern

online e-banking service employs the most advanced security systems and gives access to

secure, convenient and time-saving banking services 24/7. Our customers can transfer funds

electronically to beneficiaries worldwide and process national payments, including utility and

other regular debits, such energy, water and telephone). Moreover, customers can also make

their Tax Administration of Kosovo (TAK) payments automatically using e-banking. The

RTGS – Real Time Gross Settlement System project was completed successfully in July 2016

and all national payments including the high value payments are now processed in real time.

Today, rapid and safe international money transfers are of paramount importance for

customers with cross-border ambitions. That is why we provide a service that is the easiest,

fastest and most reliable way to make international payments. Through our extensive network

of over 50 foreign correspondent relationships and 10 placement banks, outgoing

international payments can be executed to foreign beneficiaries worldwide. As a member of

SWIFT, the world‟s largest payments network, our customers enjoy a clear advantage,

especially in international outgoing payments. International incoming payments can be

managed using the same system. This means we are able to offer market-leading payment

services, also through highly efficient internal operations and the continual expansion of our

global network.

In 2017, we again received an award the high quality of our International Outgoing Payments

from KBC Bank NV, Belgium. We achieved the extraordinary rate of 98% STP. The award

recognized transactions in 2016.

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4.7. Treasury & ALM (Asset and Liability Management)

TEB Sh. A. Treasury & ALM department is responsible for effectively managing the cash

flow, liquidity and balance sheet risks of the bank according to limits that are set by the

international and national regulators. Department‟s role is crucial to ensure the continuity of

the bank‟s daily operations and being in line with the identified risk levels that require

constant fine tuning with the developments and the expectations in the markets and the

economy.

It is extremely important that the bank has the required level of liquidity in all active

currencies to be in the service of its customers and meet with all of its obligations with the

minimum possible cost. This is being done by effective daily cash flow, medium and long

term liquidity management by using the department‟s exclusive access to national and

international capital and money markets.

Interest rate gaps and FX risks of the balance sheet that are inherent due to nature of the

business are also being managed by the department by using various on and off balance sheet

hedging instruments.

Treasury & ALM has a very strong risk awareness in conducting its businesses that is in line

with the prudent approach of TEB Sh. A. In order to do this the department tries to maintain

optimal funding mix with consistent liquidity and interest rate gap management in accordance

with the balance sheet targets, business strategies and economic expectations. Moreover, in

terms of risk management, Treasury& ALM manages the assets and liabilities by

continuously analyzing potential risks and market opportunities within the framework of rules

established by the Central Bank of Kosovo, the Board of Directors and the Asset and Liability

Committee (ALCO).

FTP desk within the department performs the Fund Transfer Pricing function for the Bank‟s

business units to guide and achieve in their business targets while protecting the profitability

and centralizes the interest rate risk.

The Treasury Marketing desk serves customers in all segments with an extensive range of

products that include foreign exchange transactions, forward foreign exchange transactions,

foreign currency swap transactions, government bonds and bills.

The department enjoys the strong support of its both French and Turkish parent companies in

controlling its risks and performing its duties.

What’s next?

Kosovo economy continues to outperform many other countries in the region, GDP growth in

2018 is expected to be around 4% and inflation as 1.8%. Banks are well capitalized and NPL

ratios are the lowest in the region. These are causing for an increase in competition among the

financial institutions and system is growing even faster than GDP.

23

Political risks remain high worldwide and major economies are showing signs of heating up

and central banks are preparing to take preventive actions. New liquidity conditions will

eventually put more pressure on costs. New regulatory rules in line with the international

standards are reshaping the way that the market functions more strictly.

Although these are indicating for a tougher 2018, contribution of production in Kosovar

growth is rising, remittances are getting stronger, all economic indicators are performing in

line with the IMF requirements. Government is planning to invest heavily to reduce the

infrastructure gap. After the recent political improvements visa liberalization with the EU is

expected to be finalized this year. IMF, World Bank, EBRD strongly supports the

development and observing new interests from international names to move in to country.

Despite the harder market conditions, Kosovo will remain as a growing economy and

continue to enjoy liquidity inflow while we will remain supporting the economy by ensuring

the strength of our liquidity and solvency with our strict risk management and compliance

principles together with utmost respect on national and international laws.

4.8. Human Resources

Human Resources Policy

Employees are TEB Sh. A.‟s most important asset, as with their efforts help the bank to

achieve its strategic objectives. The Human Resources Department strives to:

o Having friendly working environment, open door policy, ensuring a synergy among

teams with the aim of crating best working environment for our employees.

o Recruit and retain dynamic employees that are willing and ready to adapt to our

dynamic working culture, who are good team members and have potential to grow.

o Training and development of employees with our in-house and external programs as

well as continuous training programs of BNP Paribas, so employees are informed about

bank policies, procedures, processes, new products and services and are continuously

updated with group requirements.

o Contributing to the development of our best performers while organizing development

programs, with the aim of creating management pool for bank‟s future needs, and

making employees aware of their importance for the bank.

o Providing equal opportunities to each person during recruitment, transfer, advancement

or development plans, on merit basis.

Bank had a successful growth on 2017 in the region thanks to the contribution of its young,

devoted, energetic employees.

The main focus of the Human Resources policy is therefore internal mobility, continuous

development of employees‟ skills and knowledge, as well as continued promotion of all forms

of diversity.

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Career Progression and Development

At year-end 2017, the full TEB team had 598 employees. Total 113 banking and financial

services professionals were recruited during the year. In terms of geographical and functional

mobility, 259 TEB people were promoted or given new challenges during 2017. While

opening new positions we always gave a chance for change to our employees. 90 employees

more were able to take up new challenges in different locations, and 7 existing employees

were promoted to manager title.

TEB Sh. A. gives opportunities for employment and during employment offers equal

opportunity for their development and future career plan.

Information about vacant positions is published besides externally, always also internally,

with the aim that our employees are informed first about possibilities they have to apply in

new positions or new location where the vacant position is, and as a chance for them to learn

about career opportunities to show interest for.

During 2017 different internship programs were launched, where we strived to find the best

students in the market and give them a chance to do an internship in our bank. Internship

training programs were organized with the aim of offering students‟ knowledge about bank in

practice, and while doing on-job training enriching their knowledge about bank products,

services and processes. After the training period, the interns were given tasks and were

engaged in daily duties, while being informed that if they show good performance they have a

chance to be considered for future vacant positions. Those programs were very beneficial for

the bank as well, as continuously we had potential candidates in our recruitment pool, and

already a feedback for their engagement in practice as very valuable information to be

considered.

The aim of the bank is to give a chance to best performers to be considered for managerial

positions. Due to that, continuously during last four years we organized Assessment Center

Program, and through it created the pool of potential managers to be considered for future

bank needs. Total 65 employees attended this program during last four years, among which

23 have been promoted to managerial position; 14 of them appointed Branch Managers while

9 Managers in Head Office. The program continued with two Modules of Development

Programs for all participants of Assessment Center Program. The Assessment

Center/Development programs were highly appreciated programs by the employees that

attending it, it even changed their way of thinking and understanding management topics

better, and increased their motivation and confidence while knowing they will be potential for

future manager positions opened, and made them aware that the bank is acknowledging their

performance, and believes they can and do have potential to offer even more for the bank.

During 2017, continuous training programs were organized, both in-house and externally;

held by our management as well as by very well-known training companies. There were 128

training events with 5,941 participation training days during 2017. 91% of these trainings

were conducted internally with internal trainers. 15 candidates were out of country trained in

external trainings, and 68 candidates were trained in external local trainings. Furthermore,

continuously our staff visited TEB AS in Turkey for exchange of experience.

Special focus was given to mandatory Compliance trainings and all active employees where

at least once trained in this topic in classroom. Moreover, on 2017 was also emphasized for

25

refreshment training on Customer Satisfaction and Services for Front Office staff in all

categories: Business, Retail and Operations, and, as well, preparations for New Entry

Programme for interns to be launched on 2018. As per group requirements also all e-learning

trainings and quizzes in BNP Paribas platform My Development were assigned and followed

by HR to ensure completion on given deadline.

Also the in-house platform e-campus was used during 2017 for necessary trainings foreseen

for staff, in order that they are aware of standards, changes and requirements of the institution

in different topics for: Information Security, Operational Risk and Compliance.

Employee Benefits

Besides competitive salaries for the market, our employees are offered different opportunities

for additional benefits based on their achievements. Sales Premium schemes are applicable, as

incentive scheme for the best ones to be rewarded. Also throughout the year special

campaigns are launched and employees got a chance for reward either monetary or materially

for reaching the campaign targets. While applying those schemes we enhance the competitive

spirit and differentiate on merit bases employee benefits.

Social Activities

We do care for our employees‟ happiness and their motivation. Besides working synergy, we

care that they have social activities to enhance their relations and think about how to arrange

working environment to be friendlier. Due to that, management also created Staff Welfare

Committee that was held in regular basis during 2017. Ideas for events to organize that would

increase staff motivation were shared in those meeting, and the action topics decided were

followed.

During 2017 those new activities/events were organized by HR:

Coffee time with Executives - each month one Executive member had a morning

coffee with selected employees. The aim of this event was that employees feel more

close to management and that management hears their concerns as well. Executive

members on those events shared their career way and challenges faced. Those events

were considered very valuable for employees, as they felt the open door policy with

management, and could share any concerns they have, as well as management got

very good feedback for any possible difficulties employees stated and followed

finding a solution for their concerns.

Managers‟ rotations - during 2017 HR organized each month a number of managers

to visit different branches. The aim of those visits was that managers that normally

have office job to do, to visit branches while spending a day with branch staff, in

order to understand their daily work, their concerns and challenges they face, while

also offering them your support from your field of expertise.

Halloween party- organized for children of our employees. This event was appraised

as one of the most cheerful events organized. This event was held at a place with

playground, presents and mascots, where children had fun while playing among

themselves. While seeing their children happy, employees were having fun too.

26

Happy Fridays - With the aim of staff socializing among themselves, a Happy Hour

event was held in bank's restaurant with music. Such event will be held time after

time.

Bank announced on 2017 the program “Employee of the Month”. The purpose of the

Employee of the Month Program was to recognize employees who have served TEB

Sh. A. in an exceptional manner by exemplifying outstanding service through his or

her work and exhibiting a positive and supportive attitude. Proposals for nominees

are discussed and analyzed in Staff Welfare Committee, where the decision for the

winner is taken. Employee chosen as employee of the month is announced to TEB

All Users, certificate is given to employees and a symbolic gift to remember this

event.

Other activities were organized throughout the year 2017 as well:

Different parties:

o Party in the nature

o Barbeque party

o Travel/ party in different places, including out of country , in Albania

Hiking – recreational walk

Football tournament held in Prishtina where the winning team was awarded to travel

in Turkey to attend the Tournament organized by TEB AS.

Employee Survey

During 2017, we organized the Staff Satisfaction Survey. The results of this survey showed us

that employees are satisfied with their work, challenges they face, involvement, supervision,

compensation, opportunities for advancement, trainings, and that they are proud to be part of

TEB.

What’s next?

Human Resources team will continue during 2018 to:

Give the full support of employees and management on recruiting and retaining best

employees. It will be focused on development of employee skills and knowledge, and

offer them new career paths and opportunities for internal mobility.

Will be organizing and following continuously in house and e-trainings, to make sure

that our staff development is in line with groups‟ requirements and standards.

Will arrange different internship programs to create potential pool of candidates for

recruitment through initiation of agreements with Ministry of Education and

respective Universities, to target and engage best students who are in process of

completion of their studies and possible candidates for the programme, with

possibility to be recruited.

Will continue organizing staff activities / events to contribute to their motivation

Will finalize the new module for Performance Evaluation to be used for evaluation of

2018 performance

Enhance the training data maintenance through automatized training module.

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4.9. Organization and Process Development

Through our corporate culture in which customer value and quality service is at the center of

everything we do, we have continued to leverage our strength by further adapting our

vigorous and risk-aware business model.

As a proud member of two strong international financial groups, we are taking full advantage

of their wide-ranging expertise so that TEB can become even more robust in facing every

challenge. We continued our efforts to embed Group values and strategies into our business

activities and processes. The emphasis is always on compliance with laws and regulations, a

strong culture of ethics, and the quality of services provided to our customers.

Policies and procedures are an essential factor for the communication of corporate values and

professional standards. They serve as the cornerstone for the proper management of the

Bank‟s activities, compliance with regulatory and legislative requirements, control of the

risks and the quality of services offered to customers. As such, throughout the year, the Bank

has invested extensive efforts in drafting and revising exhaustive policy and procedure

documents, covering all its activities, to ensure these are of a high quality and align business

strategies and business activities.

Customer satisfaction is at the heart of the brand image which in turn strengthens our

reputation. That is why we have a comprehensive quality management program at Group

level. The priorities are to make customer satisfaction a central pillar of strategy to ensure that

every contact with the Bank results in a greater appreciation for the Bank and a better image

of our profession. It also aims to measure customer satisfaction and set targets for

improvement. while listening to any expression of customer dissatisfaction. It supports our

endeavor to respond quickly in the most appropriate way, and to protect the interests of

clients by behaving in an exemplary manner at all times and by offering products and services

which meet their needs.

We work in a dynamic banking environment. The bank continues to rise to the challenge of

providing bespoke products and services to meet their needs. The initiatives for development

and operational efficiency that we undertake are aimed at controlling and optimizing our

processes in order to secure customer operations, and to improve the efficiency and speed of

our services.

The operational efficiency program, its methodology and its principles, aims to enrich the

customer experience and satisfaction by significantly reducing lead times while contributing

to internal productivity.

What’s next?

Looking ahead, we will continue to optimize and develop essential organizational structures

and process infrastructures in line with the Bank‟s business strategy. Customer satisfaction

and operational efficiency will remain one of the drivers for value creation.

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4.10. Information Technology

Shaping our visions into technology always was a challenge, especially adapting for unique

human behavior to shape the quality of the customer journey and the effectiveness of

technology solutions. As IT Department our line was to initiate the change through simplicity

is always a good way to guide customers.

In 2017, many projects were implemented to improve our services to our customers. We

simplified the loan application and allocation process for business customers as well as

individual customers. Besides that, we improved account opening process in order to serve to

our customers faster and with higher quality.

IT is fast growing, changing sector in banking business, working hard to cope with clients ,

see through their eyes ; our strengths is giving priority to client perspective, changing things

as they want to interpret things. TEB Mobile Application, E-Banking services, website and

some products we offer are built based that.

While providing the services and products to our client‟s security was one most important

topics for us. Cyber-attack volume and types are growing in sector day by day, TEB SHA is

working hard to apply up-to-date security technologies to keep its information systems secure

and under control. For this purpose, we implemented in 2017 new technologies and functions

to mitigate security risks.

Achievements

2017 was productive year for department, many new services launched and so many of

existing ones improved. We introduced our first digital branch concept with improved

services in 2017. For Customs and Electricity payments, we enabled the SMS channel, so

customers are able to make these payments with a simple SMS after being registered for this

service. In addition to that, we added in our service list in our ATMs; i) the phone top-up

transaction and ii) we enabled an option for our customers to verify and update own

registered phone number. For card business, we started issuing in 2017 contactless cards of

Mastercard, supported both in debit and credit cards.

Secure Banking and Strong Infrastructure

We closely monitor any security vulnerabilities both at home and abroad, taking action to

protect the Bank and our customers accordingly. A number of upgrades in our production

systems were completed to provide a more stable and more responsive infrastructure. A small

but important practical change that contributes to our environmental commitment is the move

to double-sided printing on all our printers. This is now standard practice at the Bank.

What’s next?

TEB Sh. A. always keeps customer needs in the core while evaluating technology

investments. Our aim is to provide the best services and alternative channels to our customers.

Therefore we will focus on bringing new innovative services which will increase the value for

our customers.

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Digitization is a crucial area we will invest in 2018. Not only in banking sector, in every

sector daily basis we see and hear digital transformation. As IT department of the bank, we

observe the new trends in the world and we choose the best solutions possible to present for

our customers and market. With digitization, we transform our services and introduce new

channels, as well as we improve internal processes in the bank. In accordance with this

strategy, we will continue in enhancing our mobile banking and internet banking channels, by

adding new features in these channels. Besides that, one of the projects in 2018, we plan to

develop a new mobile banking application for our business clients. On the other hand,

internally, we will increase the digitization ratio in internal processes for a paperless

environment, which is aligned with our corporate social responsibility strategy.

4.11. Information Security and Data Protection

Information Security

Even this year, the Bank maintained its main principle “Information Security is everybody‟s

responsibility”. That principle is improved and strengthened with newly added culture and

programs as is Cyber Security Culture and Cyber Security Programs. Addition to that, the

Information Security Committee Meeting frequency was increased. New SIEM solution was

purchased for monitoring and intervention to cyber incidents. New controls are added for

improving the Bank‟s information security management system. Information Security

Awareness trainings is kept as compulsory for all Bank‟s Employees as well as new comers,

in order to increase their awareness on information security and to instill cyber security

culture to them. By reminder notifications sent each month, it is supported.

Data Protection

The Unit acts fairly and lawfully while proceeding the personal data and respectful its privacy

and rights. The Bank Data Protection Unit took appropriate technical and organizational

measures against unauthorized or unlawful processing of personal data and against accidental

loss or destruction of, or damage of, personal data. The Bank shows the same due care while

transferring personal data to a country or territory outside the European Economic Area as

well. The Data Protection Unit responds to each complaints and/or request of data owner in

accurate manner and on time. Therefore, it is constantly in contact and in cooperation with the

National Agency for Personal Data Protection. The Data Protection Unit aims to increase the

importance of and awareness of the personal data. With this perspective, it performs ad-hoc

control visits to the Bank‟s Branches and organizes compulsory training program for all

employees and newcomers in each year.

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5.1. TEB Sh. A. Organizational Structure – (Functional Presentation)

*Reports to the Audit Committee of Board of Directors

**Reports to the Risk Management Committee of Board of Directors

31

5.2. Board of Directors

TEB SH. A. Board of Directors

Chairman: Jacques Roger Jean Marie Rinino

Vice-Chairman: Dr. Ismail Yanık

Vice-Chairman: Alp Yılmaz

Member: Ayşe Aşardağ

Member: Birol Deper

Member: Esra Peri Aydoğan

Member: Orçun Özdemir

Member: Osman Durmuş

Member: Sabri Davaz

Member: Tuğbay Kumoğlu

Governance

TEB Sh. A (the Bank/TEB) has a Board of Directors currently comprising eight members. All

have extensive banking experience (please see biographies of members). The Board carries

out its duties and responsibilities according to requirements set out in the Bank‟s charter and

Board of Directors‟ By-laws and in line with all relevant legislation and requirements

imposed by the Central Bank of Kosovo (CBK) and regulators. The Board meets at least

quarterly.

The role of the Board of Directors

Although the details are defined in the Articles 26, 27 and 28 of the Law No. 04/L-093 on

Banks, Microfinance Institutions and Non-Bank Financial Institutions, the Board‟s primary

task is to supervise the financial and business activities of the Bank. It is responsible for

defining the Bank‟s organizational and administrative structure, its business policy including

operational and administrative units, their sub-units and functions, supervisory positions and

reporting relationships. Moreover, the Board is also tasked with the supervision of senior

management activities. The Board of Directors determines and establishes the Bank‟s banking

structure and exposure levels, reviews and approves necessary adjustments and measures.

Furthermore, the Board is responsible for adopting the report of senior management on

business operations based on the semi-annual balance sheet, profit and loss statement, annual

balance sheet and internal and external audit reports. Decisions taken by the Board require a

majority vote from members who are either present or voting by proxy.

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5.3. Committees

Committees of the TEB SH. A. Board

In line with TEB SH. A.‟s Charter, regulations and the Bank‟s requirements, our Board had

appointed an Audit Committee, a Risk Management Committee, an Asset and Liability

Committee, an Upper Credit Committee that are all made up of members of the Board with

relevant experience and external experts. The Board can also establish ad hoc committees and

determine their composition and tasks, where relevant and appropriate. As per Article 22 of

the Charter of TEB SH. A., dated 24 June 2013, Committees may be selected from the ranks

of the Bank‟s shareholders, directors and employees, as well as from the ranks of other

persons outside the bank, subject to any restrictions in the Charter. Committees shall not take

decisions in lieu of the BoD or shareholders, but shall act as advisors to them.

Audit Committee

Chairman: Sabri Davaz

Member: Ayşe Aşardağ

Member: Esra Peri Aydoğan

Member: Birol Deper

Member: Nexhat Kryeziu (external expert member)

Duties and Responsibilities:

The audit committee has clear duties and responsibilities that are defined in the audit

committee by-laws and are in line with relevant legislation and regulations

• Recommending appropriate accounting, operational and administrative internal controls;

• Supervising the Bank‟s compliance with policies and procedures;

• Requesting and reviewing reports from the Bank‟s head of internal audit;

• Recommending compensation for the head of the internal audit department;

• Monitoring compliance with relevant banking legislation and applicable regulations or

requirements;

• Recommending the appointment of an external auditor;

• Monitoring the performance of the external auditor, reviewing the external auditor‟s report

on the Bank‟s financial statements and reporting any findings to the Board of Directors;

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• Delivering opinions to the Board of Directors on any matters submitted to it by the Board of

Directors, or that the committee wishes to address; and

• Approving internal audit plan of TEB SH. A.

The Audit Committee meets at least quarterly.

Upper Credit Committee (CRECOM)

Chairman: Osman Durmuş

Vice-Chairman: Haluk Kırcalı

Member: Alp Yılmaz

Member: Alp Özateşler

Duties and Responsibilities:

This committee is authorized to take credit decisions on amounts between €500,000 and €2.5

million.

Asset and Liability Management Committee (ALM)

Chairman: Dr Ismail Yanık

Vice-Chairman: Orçun Özdemir

Member: Alp Yılmaz

Member: Tolga Gürdem

Member: Serhan Ozarslan

Duties and Responsibilities:

• Monitoring financial markets, checking the situation, movements and changes in the Bank‟s

balance sheet and taking decisions, all in accordance with the Bank‟s Policy and Procedures;

• Guiding and monitoring the Treasury and ALM Department‟s operations on an ongoing

basis and acting as the decision-making body as defined in the ALM committee by-laws;

• Supervising asset & liability management by the Treasury and ALM Department in terms of

the following criteria:

• Ensuring the observance of external (regulatory) ratios set by the Central Bank of Kosovo

(CBK) and internal rules set by the Board or ALCO;

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• Monitoring minimum requirement reserves set by the CBK.

The Asset & Liability Committee meets at least quarterly.

Risk Management Committee (RMC)

Chairman: Osman Durmus

Vice-Chairman: Alp Yilmaz

Member: Jacques Roger Jean Marie Rinino

Duties and Responsibilities:

The Risk Management Committee is responsible for monitoring all risk-related components

and functions involved in credit, market, liquidity, operational, reputational, the Bank‟s

capital adequacy and other risks.

The Risk Management Committee meets on monthly basis.

5.4. Internal Audit

Internal Audit

The Board of Directors of TEB SH. A. established the Internal Audit Department in February

2013 as one of the key components in the Bank‟s governance structure. Prior to that date, the

Bank had outsourced its internal audit function to Turk Ekonomi Bankası (TEB) A.Ş. based

on a Service Level Agreement (SLA) signed in 2008. The Bank continues to receive audit

support from TEB A.Ş. through audit advice to the Internal Audit Department. Moreover,

TEB A.Ş. carries out specific audits on selected activities based on pre-prepared audit plans.

The Bank‟s Internal Audit Department is independent and as such reports directly to the

Board of Directors through the Audit Committee and on its own initiative if deemed

necessary or appropriate.

The Internal Audit Department has an assurance function, helping the Bank to accomplish its

objectives by bringing a systematic and disciplined approach to evaluating and improving the

effectiveness of the control environment, including risk management, control and governance

processes. It is Internal Audit‟s responsibility to assess whether the control environment

ensures that risks that could arise from the Bank‟s operations are managed in a manner that

enables an acceptable level of mitigation. Audit activities are carried out by the Internal Audit

Department according to the audit plan, which is prepared at least on an annual basis using a

risk-based approach consistent with the Bank‟s goals and objectives. Each audit plan is

approved by the Bank‟s Audit Committee. The plan is updated regularly to reflect changes

inherent to the internal control system and to integrate new business lines. In the same

manner, the responsible internal auditor develops and records a risk-focused plan for each

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audit task, which analyzes the inherent risk items and includes objectives, scope, timing and

resource allocation.

The work of the Internal Audit Department is performed in compliance with the International

Standards for the Professional Practice of Internal Auditing developed by The Institute of

Internal Auditors, which is the governing body for the internal audit profession worldwide,

and TEB A.Ş. audit practices.

5.5. Risk Management

TEB Sh. A has a comprehensive and prudent approach to risk, its identification and

continuous management. TEB Sh. A measures and monitors credit, market, liquidity and

operational risk and other related bank risks using methods in line with group and

international standards. The Risk Management department role is of the second level control

and is organized within the framework of TEB A.Ş. and BNP Paribas risk management

methodologies (GRM and IRB, respectively). The process is composed of risk identification,

analysis, risk acceptance or mitigation and risk monitoring through establishing sound

policies and procedures. Group Risk Management (GRM) supervises the overall risk

management process within the group. TEB Sh. A Risk Management department works in

cooperation with executive management to ensure that the risks assumed by TEB Sh. A are in

accordance with the TEB A.Ş. GRM and BNPP‟s IRB policies and are in line with bank risk

appetite.

With this structure, the Risk Management department maintains its independence in its daily

functions as they report directly to the Board of Directors through the Risk Management

Committee (RMC) for which risk mitigation directives are given.

Credit Risk

Credit risk is the most common risk the bank is exposed considering the local market

structure and conditions. As definition, credit risk is the loss that may be incurred if the

counterparty in a