engaging in times of crisis

annual report

Engaging in Times of Crisis

Contents

Introduction 2 Who We Are 3 Corporate Governance 5 Board of Governors 6 Board of Directors 7 AuditCommittee 7 Management 8 To the Board of Governors

9 Statement by the President

11 Highlights of 2020

Economic Overview of the Black Sea Region in 2020: 12 The Pandemic and The Response of The Black Sea Region 20 TradeDynamicsDuringCrises:ObservationsfromTwoCrises 27 FinancialSector-RecentTrends,RisksandOpportunitiesintheBlackSeaRegion

BSTDB in the Black Sea Region: 34 InFocus:aVisioninHindsight–EvaluationofStrategy2010-2020 38 BSTDBPortfolioDescriptionin2020 42 Selected BSTDB Financings in 2020 49 Technical Assistance Support 50 Addressing Sustainability

52 Institutional Activities

Financial Statements for the Year Ended 31 December 2020 59 ResponsibilityforExternalFinancialReporting 60 Independent Reasonable Assurance Report 62 Income Statement 63 Statement of Comprehensive Income 64 StatementofFinancialPosition 65 Statement of Changes in Members’ Equity 66 StatementofCashFlows 67 Notes to the Financial Statements 128 Independent Auditor’s Report

Annex A 132 Organizational Chart

Annex B 133 Contact BSTDB

ANNUAL REPORT 2020

2

W H O W E A R E

The Black Sea Trade and Development Bank (BSTDB), an international financial institution with headquarters inThessaloniki,Greece,wasestablishedbyAlbania,Armenia,Azerbaijan,Bulgaria,Georgia,Greece,Moldova,Romania,Russia,Turkey,andUkraine.BSTDBstartedoperationsinJune1999andhasanauthorizedsharecapitalofEUR3.45billionand a subscribed share capital of EUR 2.3 billion.

BSTDBsupportseconomicdevelopmentandregionalcooperationintheBlackSeaRegionthroughloans,guarantees,andequityparticipationinprivateenterprisesandpublicentitiesinmembercountries.

Asaninternationalfinancialinstitution,theBankhaspreferredcreditorstatus.ThismeansthattheBankwillusually(i)notrescheduledebtpaymentswithrespecttoitsloansto,orguaranteedby,itsmembercountriesand(ii)notrescheduleitsloanstoprivatesectorborrowerduetoageneralforeignexchangeunavailabilityintheborrower’scountry.

Introduction

Moldova 0.5% Greece 16.5%

Russia 16.5%

Turkey 16.5%

Romania 14.0%

Georgia 0.5%

Ukraine 13.5%

Bulgaria 13.5%

Armenia 1.0%

Albania 2.0%

Azerbaijan 5.0%

3

BLACK SEA TRADE AND DEVELOPMENT BANK

C O R P O R A T E G O V E R N A N C E

Management Structure

BSTDBiscommittedtomaintainingeffectivecorporategovernancethroughaframeworkofresponsibilitiesandcontrols.Transparencyandaccountabilitysupportedbyclearlydefinedreportingsystemsenablemaintenanceofanappropriatelycontrolled business environment.

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.ThePresidentisappointed by the Board of Governors.

TheManagementCommitteeiscomprisedofthePresident(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, monitors and reports accordingly on the Bank’s compliance risk.

With regard to internal integrity issues, DCR monitors, administers and advises on Code of Conduct-related issues for Bank Officialsandstaff.

With regard to thefinancingoperations, anti-fraud, corruption,money laundering, terrorismfinancing and sanctionsduediligenceis–amongothertypesofduediligence–integratedintotheBank’snormalapprovalofnewbusinessandintothemonitoringofexistingactivity.TheBankscreensalltransactionstoensurethattheydonotrepresentsuchrisks.TheHeadoftheCompliancefunctionadvisesthebusinessgroups,asneeded,interalia,ontheCustomerDueDiligenceprocess and integrity issues.

ANNUAL REPORT 2020

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Reporting and Disclosure

BSTDB’scorporategovernancestructureissupportedbyappropriatefinancialandmanagementinformationreporting.Through its reportsanddisclosures, theBank, in linewith itspolicyofmaintaining industrybestpractice, followsthereportingconventionsofother internationalfinancial institutions.TheAccountingPoliciesadoptedbytheBankare incompliancewithInternationalFinancialReportingStandards.

Withrespecttoexternalfinancialreporting,theBankpresentsfinancialstatementsinitsquarterlySummaryStatementstotheBoardofDirectors,andboththeinterimfinancialstatementsandtheAnnualReportarepublishedontheBank’swebsite. Pursuant to Article 35 of the Establishing Agreement, published reports are accessible by [transmitted to]the Governments of the Member States, members of the Board of Governors and Directors, and the BSEC Permanent InternationalSecretary.

Initsfinancialreporting,theBankaimstoprovideappropriateinformationonriskandperformance.Industrybestpracticeguidestheevolvingdisclosurepracticebothinpublicfinancialreportsandmanagementinformationreporting.

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,disciplinedapproachtoevaluateandimproveeffectivenessofriskmanagement,control,andgovernanceprocesses.TheInternalAudit’smissionistofosteranenvironmentofcontinuousimprovementincontrolsandriskawareness.

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,coordinatedbytheInternalAuditDepartmentandaWorkingGroupwith representativesof all theDivisionsof theBank, anannual certificationstatementisissued,signedbythePresidentandtheVicePresidentFinanceandsubjecttoreviewandanattestationofthe Bank’s external auditors.

The external auditors issue an annual attestation on the effectiveness of the Bank’s internal controls over financialreportingaspartoftheannualauditprocess.

External Auditors

TheExternalAuditorsareappointedbytheBoardofGovernorsupontherecommendationoftheBoardofDirectors.Theyarequalifiedexternalauditorsofinternationalreputationandappointedforatermofoneyear,renewablefurtheronsuchtermsandconditionsasapprovedbytheBoardofDirectors.

5


B O A R D O F G O V E R N O R S As of 31 December 2020

Republic of Albania

Governor: Ms. Adela XHEMALI, Deputy Minister of Finance

Alternate Governor: Ms. Kesjana HALILI, General Director, General Directorate of Public Debt & Foreign Aid Coordination, Ministry of Finance & Economy

Republic of Armenia

Governor: Mr. Arthur JAVADYAN, Ambassador-at large-

Alternate Governor: Mr. Davit NAHAPETYAN, Secretary General, Central Bank of Armenia

Republic of Azerbaijan

Governor: Mr. Samir SHARIFOV, Minister of Finance

Alternate Governor: Mr. Mikayil JABBAROV, Minister of Economy

Republic of Bulgaria

Governor: Ms. Marinela PETROVA, Deputy Minister of Finance

Alternate Governor: Ms. Gergana BEREMSKA, Director, International Financial Insitutions and Cooperation Directorate, Ministry of Finance

Georgia

Governor: Mr. Koba GVENETADZE, Governor, National Bank of Georgia

Alternate Governor: Mr. Ivane MATCHAVARIANI, Minister of Finance

Hellenic Republic

Governor: Mr. Adonis-Spyridon GEORGIADIS, Minister of Development & Investments

Alternate Governor: Position vacant

Republic of Moldova

Governor: Mr. Serghei PUSCUTA, Minister of Finance


Romania

Governor: Mr. Sebastian Ioan BURDUJA, Minister of Public Finance

Alternate Governor: Ms. Boni Florinela CUCU, General Director, General Directorate for International Financial Institutions/ Corporate Governance Relationships, Ministry of Public Finance

Russian Federation

Governor: Mr. Timur MAKSIMOV, Deputy Minister of Finance


Republic of Turkey

Governor: Mr. Bulent AKSU, Deputy Minister of Treasury & Finance


Ukraine

Governor: Mr. Ihor PETRASHKO, Minister of Economic Development, Trade & Agriculture

Alternate Governor: Mr. Volodymyr KUCHYN, Head of Office for European Integration & International Programs, National Bank of Ukraine

ANNUAL REPORT 2020

6

B O A R D O F D I R E C T O R S

As of 31 December 2020

Republic of Albania

Director: Mr. Oltjon MUZAKA, Secretary General, Ministry of Finance & Economy

Alternate Director: Position vacant

Republic of Armenia

Director: Mr. Andranik GRIGORYAN, Director, Financial Stability Directorate, Central Bank of Armenia, Member of Executive Committee

Alternate Director: Mr. Argam ARAMYAN, Head, International Cooperation Department, Ministry of Finance

Republic of Azerbaijan

Director: Mr. Famil ISMAYILOV, Deputy Head, International Relations Department, Ministry of Finance


Republic of Bulgaria

Director: Ms. Petya KUZEVA, Director, Government Debt Directorate, Ministry of Finance

Alternate Director: Ms. Yoana ZAHARIEVA-BOIADJIEVA, Head, Regional Financial Institutions Department, Ministry of Finance

Georgia

Director: Mr. Nikoloz GAGUA, Deputy Minister of Finance

Alternate Director: Mr. Lasha KHUTSISHVILI, Deputy Minister of Finance

Hellenic Republic

Director: Mr. Ioannis TSAKIRIS, Deputy Minister of Development & Investments


Republic of Moldova

Director: Ms. Elena MATVEEVA, Head, Public Debt Department, Ministry of Finance


Romania

Director: Ms. Diana BLINDU, Head of Division, General Directorate for International Financial Relations, Ministry of Public Finance


Russian Federation

Director: Mr. Evgeny STANISLAVOV, Director, Department of Economic Cooperation, Ministry of Foreign Affairs


Republic of Turkey

Director: Dr. Serhat KOKSAL, Acting Director General, Foreign Economic Relations, Ministry of Treasury and Finance


Ukraine

Director: Mr. Taras KACHKA, Deputy Minister for Development of Economy, Trade & Agriculture / Trade Representative of Ukraine


7


A U D I T C O M M I T T E E


Ms. Diana BLINDU, DirectorforROMANIAandChairpersonoftheAuditCommittee

Mr. Arian KRAJA, DirectorfortheRepublicofALBANIAandAuditCommitteemember

Mr. Andranik GRIGORYAN,DirectorfortheRepublicofARMENIAandAuditCommitteemember

Mr. Famil ISMAYILOV,DirectorforRepublicofAZERBAIJANandAuditCommitteemember

M A N A G E M E N T

Dmitry PankinPresident

Chairman of the Board of Directors

Hasan DemirhanVice President Banking

Ivaylo MoskovskiVicePresidentOperations

Valeriy PiatnytskyiVice President Finance

Aristotelis SpiliotisSecretary General

ANNUAL REPORT 2020

8

To the Board of Governors

InaccordancewithArticle35oftheAgreementEstablishingtheBlackSeaTradeandDevelopmentBankandSection10of itsBy-Laws, I submit to theBoardofGovernors the Bank’s Annual Report for 2020 as endorsed by the Board of Directors. The Twenty Second Annual Report contains the Bank’s financial statements;separatefinancialstatementsfortheoperationsoftheBank’sSpecialFundshavealsobeenissued,asprescribedinSection12oftheBank’sBy-Laws.

Dmitry PankinPresidentChairman of the Board of Directors

9


Statement by the President

The global community experienced a year unlike any other in 2020. The Covid-19 pandemic spread to every corner of the planetandleftnooneunaffected.Themostcommonexperiencewasthataspositivecasesspreadfromcountrytocountry,governmentsrespondedwithamixofpublichealthandeconomicpolicyresponses.Health-wise,thesetypicallyinvolvedtheinstitutionofsocialdistancingprotocols,investmentincontacttracing,protectiveequipment,researchforthedevelopmentoftreatmentsandvaccines,andsocietallockdowns.Theeconomicimpactwassevere,aspandemicinducedsupplyanddemandshocksaffectedallfacetsofeconomicactivity;supplychainsweredisruptedandresourcesre-channelledtowardsrespondingtothepandemicontheonehand,whileinvestmentprojectsweredelayedorcancelledandconsumptiondrasticallyalteredonthe other hand.

Theeconomicresponsewasunprecedentedandimpressive,butitalsointroducednewelementsofuncertaintyandconcernforthefuture.Governments,verycorrectly,soughttofill thegapscausedbythedemandandsupplyshocksandorientedmonetaryandfiscalpoliciestohelpingsustainactivitiesandmitigatingtheworsteffectsofthecrisis.Whileadvancedeconomiesundertookthelargeststimulusmeasures,withthefiscalcomponentaloneinexcessof20%ofGDP,emergingmarketeconomiesalsofoundthemselvesabletostimulatetheireconomies,ratherthanresortingtothepainfulcombinationoffiscalcutsandmonetarytighteningthathadbeentheclassicresponsetopreviouscrises.

TheMemberStatesoftheBlackSeaTradeandDevelopmentBankrepresentacaseinpoint,astheywereabletotakeadvantageof the high credibility they had built up over the previous decade of sound economic governance. The countries loosened their monetarypoliciesviainterestratecutsandevenquantitativeeasinginordertoinvigoratelending,andtheyundertookfiscalmeasures,whichbyyearendhadreachednearly7%ofGDP.Whilecostly,thecountriespossessedtheheadroomtoimplementsuchpolicies,andfactorssuchas(i)recordlowborrowingrates,(ii)thestabilizationandrevaluationofmostlocalcurrenciesaftertheinitialshockinMarch2020,and(iii)thelackofnegativeactionfromcreditratingagenciestestifiestothesolidqualityofnationalaccountsandtheconfidenceinpolicymaking.AllBlackSeaeconomiesexperiencedmuchworseeconomicoutturnsfor2020relativeto2019,andcollectivelyfellintorecession,withGDPcontractingbyanestimated-2.9%.However,thiswasbetterthantheinitiallydireprojections,asmostBlackSeacountriesoutperformedtheglobaleconomy,theirinterventionssucceeded inprotectingthemostvulnerablepartsof thepopulation,andtheyappearpoisedforastrongbounce-back in2021-22.

FortheBlackSeaTradeandDevelopmentBank,2020wasaboutadaptationandresilience.ThetopmostprioritywassafeguardingthephysicalhealthoftheBank’sstaffandthefinancialhealthoftheinstitution.AsthepandemicspreadthroughEurope,BSTDBshiftedtoaremoteworkingarrangementforthemajorityofstaff,withtheinstitutionofprotocolsonlimitationstoin-officeworking,dealingwithpotentialinfections,andmaintainingcloseandregularcontactwithourMemberStates.Byanymeasure,theshiftwasremarkablysuccessful,andwasmaintainedthroughoutthecourseoftheyear,withfewerrestrictionsandmorein-officeworkasthepandemicsubsided,andthere-introductionofmeasuresasitreturnedinthelatterpartoftheyear.TheBankalsoheldregularmeetingsofitsBoardofDirectorsandtheAnnualMeetingofitsBoardofGovernorsremotely.Regretfully,itwasnotpossibletoholdourAnnualBusinessDayeventinthelovelycityofOdessa,aswehadplannedandtheinabilitytospeakfacetofacewithofficials,clients,investors,andotherinterlocutorswasfrustratingattimes,butwealsolearnedagreatdealaboutthepotentialtouseteleconferencingandteleworkingregularlyinthecourseofourdailyactivities.

ANNUAL REPORT 2020

10

Operationally,afterarecordyearofprojectdevelopmentandgrowth,theBankwaspoisedtocontinueitsexpansionofactivitieswithagrowingfocusonsupportingmuchneededinfrastructureinvestmentsacrosstheBlackSeaRegion.Thepandemic ledtothecancellationordefermentofmanysuchinvestments,andtheBankadaptedaccordingly inordertomaximizetheimpactofitssupport.Projectdevelopmentremainedactiveandrobust,ascommitmentsfortheyearamountedto20operations for€624million,andoverallBoardapprovals involved22operations for€771.4million.Significantly,overthecourseof2020,totalamountsdisbursedtofinanceactivitiesreached€784.7million.ThesenumbersunderscorethecontinuinghighdemandforBankfinancingintheRegion,buttheydonotimmediatelyrevealtheshiftinthetypeofsupportdemanded.Thus,whiletheshareofinfrastructurefocusedsectorsexceeded40%ofcommitmentsin2019,in2020therewasashifttoassistingfirmstocopewiththepandemic,withanemphasisonactivitiessuchasbridgefinancingandworkingcapitalsupport;theshareoffinancialsectors(includingSMEs)andkeycorporatesupportareassuchasindustrialsandmaterialsroseto83%fortheyear.

Notwithstandingtheshiftsanduncertainties,theBank’soutstandingportfolioofoperationsgrewto€2,069millionatyearend,ahealthyincreaseof11.8%overend2019.Theportfoliobreakingthe€2billionmarkrepresentsamilestoneinthedevelopmentoftheBank,butjustasimportantly,theBankcontinuedtodiversifyitscoverageanditmaintaineditshigh quality, despite the stresses of the pandemic and the recession.

Moreover,followingtheinitialperiodofshockcausedbythepandemic,theBankundertookawiderangingandexpansiveprogramofborrowing,takingadvantageoffavourablemarketconditionstoborrow€1,009millionoffundsfromadiverserangeofsources,infivedifferentcurrencies,andforavarietyoftermswhichstretchedoutto20years,thushelpingtodevelopayieldcurve,despitetherelativelysmallsizeoftheBank.

BSTDBwas able to translate its own reduced borrowing costs intomore attractive lending rates for its clients, thuscontributingtotheimprovementoftheaccessandcostofregionalfirmstofunding.Inaddition,applyinganabundanceofprudence,theBankenhanceditsprovisioningbufferssoastoincreaseitsresilience.Thus,incomebeforeprovisionsreached€29.4million,whilenetincomefor2020was€14.2million.ThisrepresentsthesixteenthconsecutiveyearinwhichtheBankregisteredpositivenetincome.

TheBank’sachievementsin2020,havelaidafirmbasisforcontinuedgrowthin2021.Eventhoughthepandemichascontinuedintothenewyear,thereishopethatthesituationwillimproveasvaccinationratesriseandnewtherapiesaredeveloped.This,inturn,willpermittheeconomiestore-openandforsocietiestoresumeoperating,ifnotasbeforethenatanewfunctional‘normal’.ThisappliestotheBlackSeaRegion,ofcourse,andtheexpectedre-openingwilllikelyresultinachangetotherequirementsofthebanks,firmsandagencieswithwhichBSTDBinteracts.Thisislikelytoincludearesumptionofcertainshelvedinvestmentplansbutalsonewactivity,asthepandemiccreatesnewopportunitiesandgreaterrecurringneedsforcertainproductsandequipment.Thenagain,itmayalsoopenupentirelynewmarketsandareasof activity,which12or24monthsagowouldnothaveappearednecessaryor attractive. Eitherway, theBankpossessesthenecessaryflexibilityinordertoadaptaccordingly,anditintendstocontinueofferingsupportforrecovery,growth,andcooperationacrosstheBlackSeaRegion.

Dmitry PankinPresidentChairman of the Board of Directors

11


Highlights of 2020

• 2020wasthelastyearoftheimplementationoftheLong-TermStrategicFramework2010-2020.TheindependentevaluationoftheStrategy’s implementationrevealedasuccessfulachievementoftheBank’skeylong-termgoals.Amongmostnotableaccomplishmentsarethesubstantialgrowthof theoutstandingportfolio, reaching11%perannumonaverage,againstatargetof10%,with27signedoperationsonaverageagainstatargetof25operations.Overtheperiod,theportfoliogrewfromEUR574,82millionattheendof2010toEUR2.07billionattheendof2020,closetothetargetedEUR2.16billion.Apartfromvolumes,theportfoliowasimprovedinstructureanddiversitybyexceedingthetargetofinvesting25%inthepublicsector,withitsactualsharereaching28%oftheportfolio.TheBank’slong-termcreditratingwassignificantlyimprovedfrom“Baa1”fromMoody’sin2010to“A2”fromMoody’sand“A-”fromStandard&Poor’s,whichrepresentsasubstantialprogressintheaftermathofaglobalfinancialturmoil.

• In2020 theBankmanaged tomaintain itsgrowthandportfolioqualityagainst thechallengingconditionsof thepandemiccrisis.TheBSTDBoutstandingportfoliogrew11.8%over2019toreachEUR2.07billion.Duringtheyear,theBoardofDirectorsapproved771.4millioninnewoperations,whiletheBanksigned20loanagreementsforEUR624million,withdisbursementstobusinessclientsreachedEUR784.7million.TheBankmaintainedprofitabilityforthesixteenthconsecutiveyear.

• BSTDBrespondedtothepandemiccrisisbyrefocusingitsfinancingtoprimarilyassistthesectorsandindustriesmostaffectedbytheturmoilcausedbytheCOVID-19infection.Inthecriticalconditionsandchangesinmarketperceptionsof risk and liquidity, the Bank continued to assist the small andmedium-sized enterprises, themost vulnerablecorporate sector. Additional technical assistancewas offered to affected clients to facilitate project preparation,includingfeasibilitystudies,environmentalimpactassessments,etc.InJuly,theBankandtheInternationalCentreforBlackSeaStudieshostedawebinaronthe“Post-PandemicRecoveryoftheBlackSeaEconomies”,whereapanelofprominentinternationalexpertsassessedthechallengestore-starteconomiesandre-establishtrade,investmentandfinancinglinks,andwaysinwhichthepandemicmayimpactlong-termeconomictrendsintheBlackSeaRegion.

• In2020BSTDBcontinuedtoactivelyattractfunds inthe internationalcapitalmarketwhileconsciouslymovingtoaprivateplacementformattoachievehigherfundingefficiencyandlowercostoffundstobetterrespondtothegrowingfinancingneedsinmembercountries.Inparticular,BSTDBplacednoteswithRomanianinvestorsofaEUR100millionequivalent sizeanddevelopeda setofother currencies, suchasCZKandHUF,withdebut issuancesachievingasubstantialfundingarbitrage.

• In2020theBankcompletedthesetupofitsRussiandomesticissuanceprogramandobtainedaratingfromACRA,theRussiandomesticratingagency,atA+(internationalscale)/AAA(Russianscale)withstableoutlook.TheBSTDB’sotherratingsweremaintainedatA-/positiveoutlookfromS&PandA/stableoutlookfromMoody’s.

• The Bank sought to proactively support clients address successfully the uncertainties and risks of the pandemicperiod.Inseveralcases,theBankledandcollaboratedwithotherlendersinprovidingexpertisetore-engineerclientbusinessmodelsandallowforasustainablepathtofinancialrecovery.

LONG - TERMSTRATEGIC FRAMEWORK2010 2020 27

SIGNEDOPERATIONS

EUR 574.82M

EUR 2.07B2020

2010

BSTDB’sOUTSTANDINGPORTFOLIO

EUR 771.4MIN NEW OPERATIONS 16 consecutive

years of profitability

EUR 2.07B

A2Moody’s A- Standard & Poors2020

2010Baa1


SIGNEDOPERATIONS

EUR 574.82M

EUR 2.07B2020

2010




EUR 2.07B


2010Baa1

P O R T F O L I O G R OW T H


SIGNEDOPERATIONS

EUR 574.82M

EUR 2.07B2020

2010




EUR 2.07B


2010Baa1

L O N G -T E R MC R E D I T R AT I N GI M P R OV E M E N T


SIGNEDOPERATIONS

EUR 574.82M

EUR 2.07B2020

2010




EUR 2.07B


2010Baa1

ANNUAL REPORT 2020

12

Economic Overview of the Black Sea Region in 20201

T H E P A N D E M I C A N D T H E R E S P O N S E O F T H E B L A C K S E A R E G I O N

Asintherestoftheworld,theCovid-19pandemicwasthedominanteventthatdefined2020intheBlackSeaRegion2. TheRegionentered the yearwith theexpectationof improvingperformanceand reversing the trendofpositivebutslowinggrowthduringthe2018-2019period.Theoutbreakandrapidspreadofthepandemicquicklyrenderedirrelevantallsuchexpectations,andbytheendofthefirstquarterallcountrieshadimposedlockdownsthatsignificantlyslowedeconomicactivity,particularlyintheperiodfromMarchtoMay.Bothdemandandsupplycollapsed,andsupplychainsandinternationaltradewereseverelydisrupted.Bylatespring,theMemberStatesoftheBlackSeaRegion,alongsideotherEuropeancountries,beganastagedprocessofre-openingsocietiesandeconomies,attemptingtobalancetheneedtorestarteconomicactivitywiththeneedtoenforcerestrictionsandsocialdistancingstandardsinordertocontainthefurther spread of the pandemic. This balancing act became the main theme for the rest of the year. As the spread of the pandemicslowedinthesummermonths,activityrecovered,yetlesssoforservicesthatrequirefrequenthumancontact,andmoresoformanufacturing,agriculture,and‘sociallydistancedservices’.However,aresurgenceofthepandemicinthefallledtoarenewedimpositionofrestrictionsinthelatethirdandthefourthquartersof2020.Economicactivityonceagainwashit,althoughtheextratimetopreparealternativesand/or introducesubstitutes,suchasdistanceworking,mitigatedtheimpactsomewhat.

Anadditionalmitigant to theslowdownwas thepolicy responseofemergingmarketeconomies to thepandemic. Inpreviouscrises,thetypicalresponsewasforagovernmenttocutbackspending,andforthecentralbanktoraiseinterestrates,soastomaintainthevalueofthecurrency,reducepossiblerunsonreserves,andincreaseconfidence.Whilethesepoliciesdideventuallyrestoreconfidence,theyusuallydidsoatgreateconomiccost,intermsofbothcurrentactivityandfuture investment foregone.

Attheoutbreakofthepandemicin2020,asmarketsfrozeuptherewerefearsofareprise.However,onthebackoftheunprecedentedfiscalexpansionofdevelopedeconomiesandthemonetarylooseningofreservecurrencycentralbanks(especially the US Federal Reserve and the European Central Bank), emerging market policymakers found themselves able toundertakesimilar(albeittoamoremoderatedegree)actionsinordertomitigatetheworsteffectsofthepandemic-induced economic slowdown. As Figure 1 shows, while advanced economies undertook fiscal and liquidity supportmeasuresthatamountedto24%ofGDP,emergingmarketsundertookstimulusontheorderof6%ofGDP.

1NoteonSources:BlackSeaRegiondataarebasedonBSTDBcalculationsfromnationalstatisticalagenciesofthecountriesoftheBlackSeaRegionandtheInternationalMonetaryFundIFSDatabase.Sourcesfornon-regionaldataincludetheGlobal Economic Prospects reports of the World Bank, the IMF’s World Economic Outlookpublications,andtheEconomistIntelligenceUnit.Asmanyfiguresatthetimeofwritingrepresentestimatesfor2020,actualfinalfiguresmaydifferindetail,buttheoveralltrendsdiscussedinthissectionwillnot be altered.2 Comprised of the 12member countries of the Black Sea Economic Cooperation (BSEC): Albania, Armenia, Azerbaijan, Bulgaria,Georgia, Greece, Moldova, Romania, Russia, Serbia, Turkey, Ukraine.

13


Figure 1: BSEC Government Pandemic Support Measures, % of GDP

Figure 2: Real GDP Change in 2020, Globally and by Select Region

Figure 1: World, index 1997=100 Figure 2: Trade in goods and services, % of GDP

0%

5%

10%

15%

20%

25%

30%

Armenia

Moldova

Albania

Ukraine

Russia

Romania

Azerb

aijan

North M

ac.

Georgia

Serb

ia

Bulgaria

Turkey

Greece

BSTDB average Advanced economies Emerging economies

Sources: IMF Fiscal Monitor & Database of Fiscal Policy Responses to Covid-19

Sources: IMF Balance of Payments, IMF WEO Sources: IMF Balance of Payments, IMF WEO

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Black Sea GDP Growth

CEE + Baltics GDP Growth

Europe & Central Asia

European Union

Developing Countries

World

Source: National Statistical Agencies, World Bank & IMF

100

150

200

250

300

350

400

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

GDP, constant GDP, US$

Trade, constant Trade, US$

35,0%40,0%45,0%50,0%55,0%60,0%65,0%70,0%75,0%80,0%

19971999

20012003

20052007

20092011

20132015

20172019

World Advanced EM

EM Europe BSTDB

Figure1alsoshowsthelevelofresponseofBSECmembercountries.FacedwiththeCOVID-19challenge,allcountriesoftheBlackSeaRegiontookunprecedentedmeasurestominimizethenegativeimpactontheircitizensandeconomies.Whilethereweredifferencesindegree,allcountriesintroducedcountrywidelockdowns,closedborders,schoolsanduniversitiesandall‘non-essential’businesses.Work-at-homewasadvisedwheneverpossible.Thesepoliciesfocusedonstoppingthespreadofthevirusandhadsignificantnegativeeconomicimpact.Tocounterthenegativeimpactsofthepolicies,governments implementedliquidityandfiscalpolicies intherangeof2.0-16.0%ofGDP.Calculations indicatethattotalfiscalmeasuresintheBlackSeaRegioncorrespondtoclosetoUS$200billionorroughly6.7%ofregionalGDP.Thislevelofsupportisslightlyhigherthantheestimateof6.1%ofGDPforthelevelofanti-pandemiceconomicsupportprovided by all emerging economies.

Whiledifferingindetail,thepolicieswerebroadlysimilaracrossthecountries.Theseincludedincreaseindirectfiscalspending,reallocationsfrompreviousspendingcategories,provisionofguarantees,tappinginternationalfunds,reachingswapdeals,etc.Belowisthebroadcategorizationofthepoliciestakenbycountriesoftheregion:

• Additionalspendingonhealthcareforhiringofhealthcarepersonnel,acquisitionofnecessarymedicalequipment,protectiveequipment,tests,researchontherapiesandnewvaccines,etc.

• Additionalallocationsforsocialassistanceand/orwagesupportforunemployedand/ortoaffectedcompaniesthatpromisenottofiretheirstaff.

• Tax deferrals.• Transferstodevelopment/statebanksandfundstoincreasetheircapitaltoeaseliquidityinthemarket.• Loanguaranteestoaffectedcompaniesandsubsidiesforinterestpayments.• IntroductionorexpansionoffacilitiesprovidingsubsidizedloanstoSMEandotheraffectedbusinesses.• Deferralofloanprincipalpayments,extensionofloansforaffectedbusinesses,andallowanceforcommercialbanks

nottocategorizethemasimpaired.• Temporaryeasingofbankingratiosand/orprovisioningrequirementstoprovideliquidityinthemarket.• Cuts in monetary policy rates, to ease access to liquidity.

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• Interventioninforeignexchangemarketstopreventexchangeratevolatility.• Utilitybillsupport(paymentpostponement,partialcoveragebythestateorsomeother)toaffectedcompaniesand/

or vulnerable social groups.• Temporarypriceregulations,andexportbans,foressentialitemswereintroducedinsomecountries.• SwaplineswiththeECBwereprovidedforsomecountries,andinotherscentralbankseitherintroducedorexpanded

swaplinestodomesticbanks.• SomecountriesreachedagreementwiththeIMFonnewprogramsofsupport;muchusewasmadeoftheIMF’snew

RapidCreditFacility(RCF)whichprovidesrapidfinancialassistancetolowincomecountriesfacingurgentbalanceofpaymentneeds.ThekeyfeatureofthisRCFisthatitprovidesaccesstoforeignexchangeliquidityquicklyandflexibly,withlimitedconditionsandnoneofthetraditionalrequirementsfordetailedreformprograms.

• Insomecountries,businesseswereforbiddentolayoffemployees,andforeclosuresandtaxaudits/controlsweresuspended.

Theemergencypolicysupportmeasuresweresupplementedbytheeasingofmonetarypolicy.Inemergingeconomies,this easing consisted primarily of interest rate cuts in order to incentivize commercial banks to increase the flowoffinancingtohouseholdsandfirms-theso-called‘realsectors’oftheeconomy.Insomeinstances,itextendedtolimitedpurchase of government issueddebt or other assets by central banks, although again thiswas undertaken farmoremodestlythaninadvancedeconomies.Byandlarge,domesticcurrenciesheldtheirvalue.DepreciationsoccurredmainlyintheinitialstagesofthepandemicinFebruary-March.AsthesituationsettledandmeasureswereimplementedbehindleadingglobalcentralbankssuchastheUSFederalReserveandtheEuropeanCentralBank,exchangeratesstabilizedandmany emerging currencies recovered even as their central banks implemented monetary easing policies.

Economic Performance of the Black Sea Region

The upside to these policieswas that the degree of recessionwas alleviated, financial sectors avoided stress, socialprotectionschemeswiththeirautomaticstabilizersbufferedthedownturnforthemostvulnerablesegmentsofsociety,andhealthsectorswerebolstered.Thiswastrueacrosstheglobaleconomy,inadvancedaswellasdevelopingeconomies,andincludestheBlackSeaRegion,too.Figure2showsGlobalGDPoutturnsfor2020.




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Nevertheless, recession was not averted, with the global economy experiencing its worst economic contraction indecades,decliningby-3.3%.Whiletherewasconsiderablevariationfromregiontoregion,everysinglecountrygloballyexperiencedaworseGDPoutturnin2020thanitdidin2019,withtheoverwhelmingmajorityexperiencingcontractions.TheBlackSeaRegionwasnodifferentthanotherregionsinthisrespect,sufferingaslumpof-2.4%inrealterms.Thiswasacontractionthatwasslightlyworsethanfordevelopingcountriesintotal,butfavourablecomparedtotheoutturnsforEmergingEuropeandCentralAsia.Itwaslessseverethantheimpactontheoverallglobaleconomy,beingbetterthantheoutturnsfortheCentralandEasternEuropeanandBalticstates(‘CEE&Baltics’)3,anditwasalsomuchmorebenignthanthedownturnexperiencedbytheEuropeanUnion,theblocofcountriesthatconstitutethegreaterBlackSeaRegion’smostimportanttradepartnerandsourceofinvestmentandfinancing.

Althoughtheslowdownwas lesspronounced, intermsoftimingitwassimilartothepatternsofeconomicactivity inmuchofthenorthernhemisphere.Theyearbeganwithanexpectationofmoderategrowthontheorderof2.5%,afigureslightlyhigherthanthe2.1%postedfor2019.WiththeonsetofthepandemicandthelockdownsimposedinresponseinlaterFebruaryandMarch,economicactivitynosedived,andasthelockdownspersistedthroughthespring,thedeclinewasmostpronouncedinthesecondquarterof2020.Bycontrast,thephasedre-openingofeconomiesinthesummerwasaccompaniedbyahealthybouncebackinthethirdquarterandhopesthattherecoverymightpersist.

However,theevenmorevirulentreturnofthesecondwaveofthepandemicacrossthenorthernhemisphereinthefallled to renewedsociety-wide restrictions, including total lockdowns insomecountries.Asaconsequence,a recessionreturned in the fourth quarter in almost all countries, although it appears to have been less damaging to economic activitythanthesecondquarterslowdown.Ontheonehand,countriesandcivilsocietieshadhadsomeexperiencetobuildupon,aswellastimetoadjusttotherenewedlockdowns,turningtoremoteworkingregimesmoresmoothlyandefficiently.Ontheotherhand,theimpactofthemassivefiscalandfinancialstimuliundertakenduringthesecondquarterwerestillsupportingeconomicactivityandstayingbankruptciesandotherpotentiallydamagingeventsthatcouldleadtouncontrolleddownwardspiralsandcontagion.

In termsof sectorof activity, initialoutturns suggest that industry (-4.6%)and services (-2.5%) sufferedmuchbiggerdownturnsinBSECcountriesthandidagriculture,whichexperiencedamarginaldeclineof-0.9%.This isunsurprising,andcorroboratesexperienceelsewhere,where services requiringhuman interaction inparticular sufferedmost fromlockdownsandsocialdistancingprotocols.Theindustrialdeclineislinkedtosupplysideproblemssuchasthedisruptionofsupplychainsandthedisruptionoflabourasworkersinmanyindustrieswerekeptawayfromworksites,butalsothecollapseindemandasconsumerscutbackonitemsconsideredasnon-essential.

Lookingatcontributiontoeconomicactivityonthedemandside, initialoutturnsindicatethatinvestment-publicandprivate-experiencedthebiggestfallataround-5.4%.Eveninpreviousyearsofpositivegrowth,investmentactivityhadbeen anaemic in the Black Sea Region. The onset of the pandemic resulted in further cutbacks as planned investments weredelayed,deferred,orcancelledoutright.Whilethoseinvestmentsthatwerepostponedmaycontributetoafasterrecovery once economies re-open, there is also a concern that cancelled investment may result in longer term or even permanenteconomicdamage.Forpublicinvestment,cancellationsmayresultinpoorerinfrastructureorinferiordeliveryandconsumptionofpublicgoods.Cancelledprivateinvestmentmaysimilarlyreducewealthgeneratingcapacityandnewemploymentcreation,aswellasproductivitygrowth.

Privateconsumptionalsodeclined,byanestimated-4.9%duetouncertaintiesfacedbyconsumersandtheaforementionedcuttingbackonpurchases.Bycontrast,publicconsumption increased,by+3.6%,asautomaticfiscal stabilizerskickedinoncerecessiontookhold(e.g. increasedunemploymentbenefits)aswellasthefiscalstimulusmeasuresthatwereconsciouslyenactedinordertobuttressoveralleconomicactivity,andtotargetspendinginspecifichighprioritysectors.Externaltrade-importsaswellasexports-declinedtoanevenmorepronounceddegreealthoughtheirnetimpactonGDPlargelyoffseteachother4.Thedeclineincross-borderactivitywasunderscoredbythefallinforeigndirectinvestmentwhich,asTable1shows,fellto1.0%ofGDP,thelowestlevelintheBlackSeaRegionsincethelate1990s.

3 TheGroupofninestates,mostofwhichjoinedtheEuropeanUnionin2004and,asformer‘transition’countries,areoftencomparedtothecountriesofthegreaterBlackSeaRegion:CzechRepublic,Estonia,Hungary,Latvia,Lithuania,Poland,Slovakia,Slovenia;andCroatia,whichjoinedtheEUin2014.4 For a detailed analysis, see the special chapter on trade.

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Table 1: Summary of Key Economic Indicators for 2020, by BSEC Member Country

Real GDP Growth Inflation Cur Acct Bal /

GDP Budget/ GDP Public Debt/ GDP FDI/ GDP

Albania -3.3% 1.6% -8.9% -6.9% 82.0% 7.2%

Armenia -7.6% 1.2% -3.1% -5.1% 66.3% 0.9%

Azerbaijan -4.3% 2.8% -0.5% -2.4% 23.4% 1.2%

Bulgaria -4.2% 1.7% -0.8% -3.0% 24.0% 3.6%

Georgia -6.2% 5.2% -11.5% -7.8% 56.3% 6.3%

Greece -8.2% -1.2% -6.7% -9.2% 208.1% 1.9%

Moldova -7.0% 3.8% -6.8% -5.4% 35.2% 0.5%

Romania -3.9% 2.6% -5.3% -9.7% 39.8% 1.1%

Russia -3.1% 4.9% 2.3% -3.8% 17.8% 0.6%

Serbia -1.0% 1.6% -4.2% -8.2% 59.1% 6.5%

Turkey 1.8% 12.3% -5.2% -3.4% 39.5% 1.1%

Ukraine -4.0% 2.7% 4.0% -5.2% 65.4% -0.4%

BSEC Region -2.4% 5.0% -1.0% -4.8% 41.7% 1.0%

Table1providesasummaryofkeyeconomicindicatorsbycountry,andaweightedaveragefortheBSECRegionasawhole.ItshowsthecontractioninregionalGDP,butalsotheconsiderablevariationfromcountrytocountryintermsoftheoutturnsposted.Economicstructureandtheimpactofthepandemiconkeyindustrieswasoneimportantfactordeterminingthedegree of contraction experienced, but other factors such as severity of the pandemic, and comprehensiveness anddurationoflockdownsimposedalsoplayedsignificantroles.WhereasallBSECcountriesexperiencedpositiveGDPgrowthin2019,allcountriesexperiencedmuchworseoutturnsin2020andallbutoneexperiencednegativegrowthrates.

Thecollapseindemandoutweighedsupplyshortagesandanyrelatedpricerises.Commodityprices,particularlyforoilandgas,fellsignificantlyinthesecondquarterandrecoveredonlypartiallyinthesecondhalfoftheyear.Asaresult,inflationratesfellinmostBSECcountries,andoverall,theaverageannualrateofinflationfelltounder5%forthefirsttimesinceBSECwascreatedintheearly1990s.

ThecurrentaccountbalancefortheRegionfell to-1.0%ofregionalGDP,asmalldeclinedrivenmainlybytheweakerperformance of commodity exporters (especially energy and steel) and countries that have large service sectors in areas suchas tourism, shipping, and logistics.By contrast, the change infiscalbalancesand the rise inpublicdebtfiguresweremuchsharper.Bothdeterioratedduetothehigherspendinginstitutedtocombatthepandemicontheonehand,andthedeclineinrevenuescausedbyreducedeconomicactivityontheotherhand.However,inbothcases,thelevelsweremanageable,sincethededicationtofiscalprudenceandsolidmacroeconomicmanagementofpreviousyearspaiddividends,permittinggovernmentswiththecredibilityand‘fiscalspace’toborrowandtospend.Buoyedbytheampleavailabilityof liquidity,governmentswereableto issuerecordamountsofdebtathistorically lowrates.Thus,budgetdeficitsaveraged-4.8%ofGDP,andpublicdebtlevelsjumped7.4%from34.3%ofGDPto41.7%,whiledebtservicingcosts fell.

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Figure 3: Regional Credit Ratings at end 2020 and Evolution Over Time

As at December 2020

Moody’s S&P Fitch

Albania B1 B+ —

Armenia Ba3 — B+

Azerbaijan Ba2 BB+ BB+

Bulgaria Baa1 BBB BBB

Georgia Ba2 BB BB

Greece Ba3 BB- BB

Moldova B3 — —

Romania Baa3 BBB- BBB-

Russia Baa3 BBB- BBB

Serbia Ba3 BB+ BB+

Turkey B2 B+ BB-

Ukraine B3 B B

Figure3demonstratestheresilienceofregionaleconomiesdespitethestressesanddownturns.Theleft-handtableshowsthecreditratingsofBSECcountries,astheystoodatendDecember2020,fromthethreelargestandmostinfluentialcreditratingagencies.Despitetheonsetofrecessionandthelooseningoffinancialandfiscalpoliciesinresponse,thereweremoreupgrades(four)thandowngrades(two).Theright-handchartshowstheaverageweightedcreditratingofBlackSeacountriesandcomparesittotheevolutionoftheaveragecreditratingoftheBlackSeaTradeandDevelopmentBank.The2008crisisledtoalengthyperiod,upto2015,inwhichdowngradesoutnumberedupgrades,andtheaverageratingofBlackSeacountriesslippedfrominvestmentgrade(BBB-)toalowthatreachedalmostBB-in2015-16.Since2016upgradeshaveexceededdowngradesandtheaverageweightedcreditratinghasrisen,graduallybutsteadily,toBB.Thisremainslowgiventhequalityofcountryfinancesandtheirtrackrecordofcommitmenttoprudentmacroeconomicmanagement;nevertheless,themaintenance,andevenslightincrease,oftheaverageoverthecourseof2020representsacknowledgementoftheirstrengthanddurability.

The Decoupling of Finance from the Real Economy

GlobalfiscalsupportinresponsetothepandemicreachedanestimatedUS$14trillionbytheendof20205,withmajorschemes for even further support planned in 2021 (most notably in the United States). These have contributed to saving livesandmitigatingtheeffectsofthepandemiconconsumptionandoutput.However,theyhavealsoraisedthelevelof risk going forward. Thedownside to thesenecessary and successful stimulusmeasures is their impact ondeficitsanddebts,andthe‘decoupling’or“de-synchronization”ofthefinancialeconomyfromthe‘real’economywhereactualactivityandoutputtakeplace.

5IMFFiscalMonitor,January2021.

Average Weighted Rating at End of 2020

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Figure 4: Emerging Market Borrowings6

Incombinationwiththelowerrevenuescausedbytheeconomicrecession,theextraordinarysupporthasresultedinasharpincreaseinpublicdebtanddeficits.AccordingtotheIMF,globalpublicdebtincreasedfrom84%ofGDPin2019toanestimated98%ofGDPattheendof2020.Althoughthebulkofthisdebtincreaseisindevelopedeconomies,Figure4showsthatborrowinginemergingmarketsreachedrecordlevelsin2020,andtheratioofdebttoGDPinthe19largestemerging markets rose by an average 10 percentage points7.

ΤheaforementionedTable1recordshowpublicdebtintheBlackSeaRegiongrewto41.7%,up7.4%fromthepreviousyear,afigurewhich iseminentlymanageable,particularly in thecurrentsituationofultra-low interest rates.There isconsiderablevariationfromcountrytocountry,butthehigherdebtcountriesenjoyadditionalsafeguardsintheformofextraordinary access to special lines of foreign exchange, be it eligibility for bond purchases by the European Central Bank (ECB),ECBswaplines,and/orIMFsupport.One-offjumpsinfiscaldeficitsarenotacauseforgreatconcerneither,butthelongerthepublichealthcrisisandconcomitanteconomicslowdowncontinue,thegreaterthestressesthatwillemergeovertime.Aprolongedpandemic inducedrecessionmayalsocauselastingdamagetoeconomicactivity inacountry,thusreducingwealthgeneratingcapacityandmakingrecoveryofrevenuesanevenbiggerchallenge.Apostpandemicrecoverywillleadtothecessationofextraordinaryoutlays,helpingtoreducethespendingside,butrevenuerecoverymayprovemoreunevenandlengthy,withrisksrisingifthepandemicdragsout.

Theissueofdecouplingistrickiertocomprehend,aswellastoassessitspotentialimpactgoingforward.Thisdecouplingconcernstheperceptionsandbehaviouroffinancialmarketsrelativetoactualeconomicrealities.Economicactivityhassuffered,unemploymenthasrisen,andcompanyfailuresareimminent,whichimpliesthatthebaddebtsofbanksarelikelytogrow.Moreover,thesupportmeasuressavedfirmsfromdefaultandpossibleclosureintheshortterm,butastimepasses,theforestallingofbankruptciesriskscreatinganoverhangofcompaniesthatundernormalcircumstanceswouldandshouldhaveceasedtoexist,butwiththeextraordinarysupporthavemanagedtosurvive.

6RecopiedfromemergingmarketsborrowersselldebtatrecordrateinJanuary,FinancialTimes,28January20217 Emerging economies tap debt markets but risks pile up ahead, Financial Times 28 September 2020

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Atthesametime,governmentsareexperiencingwideningimbalancesindeficitsanddebts.Yetinsteadofadownturninanticipationofthesenegativeevents,financialmarketshavebehavedinamanneruncorrelatedtoactualeconomicactivity.Afteraninitialfreezeupandasharpwideningofspreads,lendingandthetermsforloanshaverecoveredsubstantially,particularlyforsovereignswhichareborrowingatrecordlowrates.Evenmorestrikingisthebehaviourofstockmarkets,whichgrewsharplythroughout2020andcontinuedtodosothroughthesecondwave,eventhoughthereisnodatatosupportexpectationsofeconomicrecoveryforaslongasthepandemicsituationpersists.

Thisdecouplinglastedthrough2020andinto2021,evenasthepandemicsituationcontinues.Butwhatisunclear,andwillonlybecomeknownexpostfacto,iswhetherthebuoyantmarkets(a)correctlyforecastaneconomicrecoverywhichwillpickuppaceandleadtoarecoveryinbothoutputandwealthgeneration,aswellasconsumptionandinvestment;or(b)succumbedtoaliquidityfedeuphoriathatwilleventuallydissipate.Inthecaseofthelatter,theriskisthatmarketssuddenlyrealizethattheirupswingoccurredinavoid,withtherealeconomyfailingtorecoversufficiently,andthisleadstoarenewedlossofconfidenceandpossiblerecurrencesofpanicandseizures.

Withgovernmentsalreadyhavingexpendedsomanyresourcestopropupeconomies,theymaynotbeinpositiontorespondtosucharenewedlossofconfidence,whichmayresultinunforeseeableconsequences,withemergingmarketsinthefirstranksofthoselikelytobearthebruntofsuchadownturn.

Nevertheless, at the close of 2020, the Black Sea Region found itself once again having demonstrated resilience in the face of exogenously generated adversity.Moreover, andwith the backstopping support of global intergovernmentalbodies,thesolidmacroeconomicsituationofmostcountriesprovidedgovernmentswiththefiscalandmonetary‘space’torespondaggressivelyandsuccessfullytoaverttheworsteffectsofthepandemicinducedeconomicdownturn.Moststillhaveroomtoundertakeadditionalstimulusmeasures,ifnecessary,aswellastoprotectthemselvesfromeconomicshocksthatmayarise(e.g.anewemergingmarketcrisis).Shouldthecoronaviruspandemicbebroughtundercontrol,ashoped,andbecomeendemicviawidespreadinoculationandtheadventofnewtherapies,BSECcountriesarewellpositionedtorestoremacroeconomicbalancequicklyandtoreturntoapathofgrowth.InthisrespectaccesstoCovid-19vaccinesbecomesanimportantconsideration,andcouldhaveimplicationsforregionalandevenglobaleconomicandfinancialstabilityandoutlooks.

Oneotherpotential ‘silver lining’ for theBlackSeaRegionconcerns its locationonkey transportandcommunicationcorridors,aswellasitsproximitytowealthymarkets.ThislocationaladvantageputsBSECcountriesinastrongpositiontobenefitfromanyrestructuringandshorteningofglobalsupplychainsbeingcontemplatedinNorthAmericaandWesternEurope,suchastherelocationofproductionfacilitiesawayfrommoreremotelocations,aswellasthedesiretodiversifysources of supply and reduce dependence on one large supplier.

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T R A D E D Y N A M I C S D U R I N G C R I S E S : O B S E R VA T I O N S F R O M T W O C R I S E SDespiteoccasional setbacks, transborderoperationsare ingeneralonan increasing trendglobally,ascountries trademorewitheachother,withcapitalflowingeasilyacrossbordersandleadingtoanefficientallocationofresourcesandfurther integrationofcountries intoglobal tradenetworks. Integrationprocessesgenerally facetemporarychallengesandreversalsduringcrisistimes.Overthelasttwodecades,theworldexperiencedtwomajorcrisismomentsthathadasignificantnegativeimpactonglobaltradeflows.Thefirstwasin2008/09whentheglobalfinancialcrisisspilledoveracrosscountriesandsectorstohurtmostareasofeconomicactivity, includingtradeflows.Thesecondonestartedinearly2020,asthespreadofCoronavirusforcedgovernmentstotakedrasticlockdownmeasures.Publichealthconcernsmadethosepoliciesmandatory,albeitatthecostofarecordlevelofglobaleconomiccontraction.Asaresult,tradeflowssufferedagain.

Whiletradevolumesfallduringmostcrises,thetradepatternsleadingtothecrises,theimpactedproducts/sectors,andtheeventualrecoveriesdiffer.Thetwocrisesofthelasttwodecadesofferanopportunitytoanalyzedifferencesanddrawconclusions.Unfortunately,thecurrentcrisisisstillunfoldingandmostofthedetaileddataisincomplete.However,evenwiththecurrentdata,therearepossibilitiestomakesomeconclusions.

Heading towards the crisis in 2008/09, trade volumes of goods and services had increased synchronously in almostallcountries,inmostcasesatdoubledigitratesandnearlydoublingeveryfewyears.Whiletradeinserviceswasalsoincreasing, itspacelaggedthatofmerchandisetrade.Almostallcountriesexperiencedpeaklevelsoftradeactivity inSeptemberorOctober2008andthereweresimilaritiesintheeventualreboundtrajectoriesamongcountries.Headingtowardsthe2020crisis,ontheotherhand,therewasaverymixedtrendintradeflows,withsomecountriesalreadyexperiencing falls, andothers experiencingminorbooms,while a drop in commoditiesprices had started far earlier.Additionally,incontrastto2008,theshareoftradeinserviceswasincreasingintotaltrade.Oncetheshockmaterialized,allthosefactorsledtodifferentiatedtrends.Serviceswerehurtmore,andcommoditypricesfellfurther,albeitrecoveringquickly.Onthepositiveside,recoverystartedearlier,particularlyfornon-energyexportswhiletheprospectsforimportantservicessectorssuchastransportationandtourismarelikelytodependonthepaceofvaccinations.

WithrespecttotheBlackSeaRegion,followingarecoveryintradevolumesafterthe2008/09crisis,BSTDBmembers’exports and imports remainedbroadly flat until late 2014 and started todecline thereafter. Intra-regional trade alsofollowed similar trends, albeit thepost-2014declinewasmorepronounced, thereby leading to a fall in the shareofregionaltradeasaratiotototaltrade.Oneofthepossibleexplanationsisweakergrowthintheregion’seconomiessince2009.However,onapositivenote,itcanbestatedthatBSTDBmemberswereabletoexpandtradeactivitieswithawiderarray of countries beyond the region.

The Global Trend in Trade

Sincethe1980stheworldhasbecomeafarmoreintegratedandinterdependentplaceasglobalizationhasgainedpace.In2019,globalGDPinrealtermswas3.7timesbiggerthanin1982,whileinnominalUS$termsitwasalmost8timesbigger.Tradevolumeingoodsandservices,inparticular,wasmorethan7timeshigherinrealtermsandmorethan13timesbiggerinnominalUS$terms.

So,theweightoftradeintheglobaleconomyhasincreased.Intheearly1980s,tradevolume,definedasthesumofexportsandimportsofgoodsandservices,wasaround35%ofGDP. Itremainedbroadlyatthat levelthroughoutthedecadeandstartedtoincreaseintheearly1990s.Thisprocessfurthergainedpaceinthe2000swiththeweightoftradereaching60%ofGDPby2008.Followingthesharpdropin2009,whentheratiodroppedto51.7%,theratiopickedupinthefollowingyearsandstabilizedaround57%ofGDP.

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Withitsincreasingweightintheglobaleconomy,understandingtradedynamicsgainedfurtherimportance.Asthechartsaboveshow,globaltradevolumeincreasedrapidlyfrom2002to2008,droppedin2009(Figure1),andthenremainedrelativelyflatasaratiotoGDP.However,thisaggregatefigurehides importantdifferencesamongcountriesandevenregions.

Figure2,aboveontheright,showsthat intheten-yearperiodupto2008,thetradetoGDPratioincreasedfaster inemerging markets as booming global demand and available liquidity incorporated them into global supply chains, along withelevatedcommodityprices.Since2008,theratioinemergingmarketshasdeclined,retreatingfrom64.0%to50.1%by2019.Inadvancedeconomies,ontheotherhand,theratioremainedbroadlyflat.However,emerginganddevelopingeconomiesofEurope,likelybenefittingfromthecontinuedintegrationintheEU,divergedfromtheirglobalcounterpartsand outperformed advanced economies.

BSTDB Region8

ThevalueoftradeingoodsandservicesintheBSTDBregionwentfromlessthanUS$400.0bninthelate1990stoalmostUS$2.0tnin2008,correspondingtoafive-timeincreaseinlessthanadecade(Figure3).Asaresult,thetradetoGDPratioincreasedfastinthefirstfewyearsoftheearly2000s.Duringthesecondhalfofthedecade,however,nominalGDPincreasedproportionatelytotradevolume,andthereforetheratioremainedbroadlyflatat55%ofGDP.In2009,tradevolumecollapsedbymorethan30%comparedto2008.However,in2010-11traderecoveredtoitspreviouslevelandremainedflatthereafter.Forexample,innominalUS$terms,totalregionaltradevolumeincreasedfromUS$1.5tninlate2016toaboveUS$2.0tnin2018.AsnominalGDPinUS$termslaggedbehind,thetradetoGDPratiosurgedtoalmost65%bytheendof2018.Thetrendreversedonceagaininlate2019,possiblyduetoasteepfallincommoditypricesand,fromthesecondquarterof2020,duetopandemic-relatedlockdowns.Eventually,thetradetoGDPratiofortheBSTDBcountriesfellfrom65.1%ofGDPin1Q19to58.6%ofGDPin3Q20.

8ThefollowingshortanalysiswillfocusontheBSTDBregionandhowtradevolumesdevelopedheadingstowardsglobaleconomiccrises,overthelasttwodecades.TheanalysiswillbelimitedtotheBSTDBregionand,whereverpossible,monthlyandquarterlydatawillbeused.Bydefault,themonthlydatawillbeusedinatwelve-monthmovingsumformat,whilequarterlydatawillbeusedinafour-quarter moving sum format.




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Theaggregatefigureshideimportantdifferencesamongcountries(Figure4),particularlyintheperiodleadingto2020.Oneoftheimportantdifferencesbetweenthe2008-09crisisandthe2020crisisisthatbefore2008,allcountriesexperiencedaboomintrade(Figure5),whilebefore2020tradedynamicsdiverged(Figure6).TradevolumeinnominalUS$termshasalmostdoubledinalmostallBSTDBmembercountriesleadingtotherecordhighinlate2008.However,inthedecadeupto2020,thecountrieshaddifferentexperienceswithtradeflows.While insomecountriestherewasan increase,inotherstherewasdeclineandinothersrelativestabilityintradevolumes,withnoobvioustrend.Forexample,infiveBSTDBmembers,thevolumeoftradeingoodsinUS$termswashigher12monthsbeforeJanuary/February2020,afterwhichtradevolumescollapsed.Pre-shockdivergenceintradepathsmeantthatpost-crisispathswoulddiffersignificantly,unlikein2009whentherewasarelativelysimilarrebound.

Figure 3: BSTDB Region Trade in Goods and Services, % of GDP Figure 4: Trade in Goods and Services, % of GDP

Figure 5: Trade Volume in US$, 2008 peak=100 (September or October)

Figure 6: Trade Volume in US$, 2020 peak=100 (January or February)

Figure 7: Trade in Services, BSTDB countries Figure 8: Travel Receipts, % of GDP

Sources: IMF WEO Oct 2020, IMF Balance of Payments and International Investment Position, IMF IFS, BSTDB calculations

Sources: IMF Balance of Payments and International Investment Position, IMF IFS, BSTDB calculations

The horizontal axis: months before and after the peak.Source: IMF Direction of Trade Statistics, BSTDB calculations


IMF Balance of Payments and International Investment Position, IMF IFS, BSTDB calculations


0%

30%

60%

90%

120%

150%

RUS

TUR

ALB AZE

MD

A

ROU

UKR

ARM GRC

GEO

BGR

BSTD

B

4Q01 3Q08 1Q19 3Q20

50,0

60,0

70,0

80,0

90,0

100,0

110,0

ALB ARM BGR GEO GRC

MDA ROU RUS TUR UKR

70,0

75,0

80,0

85,0

90,0

95,0

100,0

105,0

110,0

ALB ARM AZE BGRGEO GRC MDA ROURUS TUR UKR

0

50

100

150

200

250

300

350

400

450

500

17%

18%

19%

20%

21%

22%

23%

24%

1Q02

3Q03

1Q05

3Q06

1Q08

3Q09

1Q11

3Q12

1Q14

3Q15

1Q17

3Q18

1Q20

% of the total trade (LHS) US$ bn (RHS)

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

GEO ALB GRCARM

BGRTU

RAZE

MDA

ROUUKR

RUS

3Q204Q19

0

500

1.000

1.500

2.000

2.500

50%

52%

54%

56%

58%

60%

62%

64%

66%

1Q00

4Q01

3Q03

2Q05

1Q07

4Q08

3Q10

2Q12

1Q14

4Q15

3Q17

2Q19

% of GDP (LHS) US$ bn (RHS)

-24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24











0%

30%

60%

90%

120%

150%

RUS

TUR

ALB AZE

MD

A

ROU

UKR

ARM GRC

GEO

BGR

BSTD

B

4Q01 3Q08 1Q19 3Q20

50,0

60,0

70,0

80,0

90,0

100,0

110,0

ALB ARM BGR GEO GRC

MDA ROU RUS TUR UKR

70,0

75,0

80,0

85,0

90,0

95,0

100,0

105,0

110,0


0

50

100

150

200

250

300

350

400

450

500

17%

18%

19%

20%

21%

22%

23%

24%

1Q02

3Q03

1Q05

3Q06

1Q08

3Q09

1Q11

3Q12

1Q14

3Q15

1Q17

3Q18

1Q20


0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

GEO ALB GRCARM

BGRTU

RAZE

MDA

ROUUKR

RUS

3Q204Q19

0

500

1.000

1.500

2.000

2.500

50%

52%

54%

56%

58%

60%

62%

64%

66%

1Q00

4Q01

3Q03

2Q05

1Q07

4Q08

3Q10

2Q12

1Q14

4Q15

3Q17

2Q19


-24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24

23


Thechartsaboveshowhowthetradeactivityvariedfromcountrytocountryinthemonthsleadingtotheshock/peaklevel before the onset of the recession, rendering the analysis of trade dynamics in an aggregate manner challenging. For example,insomecountries,mainlybutnotlimitedtoenergyexporters,tradevolumeswerealreadydecliningevenbeforetheworstofpandemic-relatedcrisishit.Naturally,forthosecountriesthe2020crisisdoesnotactasawatershedintermsoftradedynamicsand,aswouldhavebeenexpected,theirtradevolumesdeclinedlessduetothelowerbasefromwhichtheybegan.Asimilarstoryholdsforthecountriesthathadaflattrendjustbefore2020.Withalowerbasefromwhichtostart,tradevolumecontractionhasbeensmallercomparedtothe2008-09crisis.Recentlyreleaseddataalsoshowthat,exceptforenergycommodities,thebottomhasalreadybeenpassedandrecoverystarted.Inthe2008/09crisis,ontheotherhand,ittookafullyearfortradeactivitytorecover.

Hardest Hit Sectors: Tourism and Oil

Tradeingoodshasalwaysdominatedtransborderoperationsbetweencountries.Intheperiodleadingto2009,itwasmainlymerchandiseproductsthatshapedtheoveralltrendintrade.Alongwithtradeingoods,thetradeinservicesalsoboomedinthefirstdecadeofthe2000s,albeitatarelativelyslowerpace.Thedifferenceinthepaceledtoafallintheshareofservicesfrom22.8%ofthetotaltradein2002to18.1%inmid-2008.However,followingthe2008-09crisisandespeciallyafter2011,theservicesectorsboomedwhilethetradeingoodsstagnated.Asaresult,theshareofservicesreachedalmost23%oftotaltrade,beforeretreatingtoastillhigh22.6%inthefirstquarterof2020(Figure7).

As the pandemic spread, authorities started to take drasticmeasures, including the suspension of international anddomestictravel.Thisledtotheevaporationoftravel-relatedreceiptsforallcountries.Particularlyhardhitweretheoneswheretourismisamongthemajorsectorsintheeconomy.Asaresult,intheBSTDBRegion,service-relatedtrans-borderoperationsweredownfrom22.5%ofGDPin4Q19to19.6%ofGDPin3Q20,whileforsomememberslossesexceeded6%ofGDP(Figure8).

Ingeneral,transportandtraveldominateintotalservicesandaccountedfor30.3%and26.4%oftotalservicestransactionsforBSTDBmembercountriesin2019.Inthefirstthreequartersof2020,onnominalUS$terms,theformerdecreased35.1%comparedtothesameperiodinthepreviousyearwhilethelattercollapsed69.8%.Giventheirshares,performanceinthosesectorsshapedoveralltransborderoperationsinservices.However,unliketransportationandtraveloperations,











0%

30%

60%

90%

120%

150%

RUS

TUR

ALB AZE

MD

A

ROU

UKR

ARM GRC

GEO

BGR

BSTD

B

4Q01 3Q08 1Q19 3Q20

50,0

60,0

70,0

80,0

90,0

100,0

110,0

ALB ARM BGR GEO GRC

MDA ROU RUS TUR UKR

70,0

75,0

80,0

85,0

90,0

95,0

100,0

105,0

110,0


0

50

100

150

200

250

300

350

400

450

500

17%

18%

19%

20%

21%

22%

23%

24%

1Q02

3Q03

1Q05

3Q06

1Q08

3Q09

1Q11

3Q12

1Q14

3Q15

1Q17

3Q18

1Q20


0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

GEO ALB GRCARM

BGRTU

RAZE

MDA

ROUUKR

RUS

3Q204Q19

0

500

1.000

1.500

2.000

2.500

50%

52%

54%

56%

58%

60%

62%

64%

66%

1Q00

4Q01

3Q03

2Q05

1Q07

4Q08

3Q10

2Q12

1Q14

4Q15

3Q17

2Q19


-24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24

ANNUAL REPORT 2020

24

therewasan increase in“telecommunication,computer,and informationservices” (+8.0%y/y), constructionservices(+13.3%y/y),“insuranceandpensionservices”(+15.2%y/y),andfinancialservices(+14.8%y/y).

Alongwithtransportationandtourism,afallinoilpriceswasanothercasualtyofthecrisiswhichhadasignificantnegativeimpactonenergy-exportingmembercountries. Inthefirstthreequartersof2020,totalexportsofgoodsfromBSTDBcountriesdeclined17.6%y/y,dropinoilandgasexportsreached27.8%y/ywhilenon-oilexportsretreated13.0%y/y.9

Approximate calculations indicate that, excluding the volume of travel services and oil and gas-related exports fromAzerbaijan and Russia, annualized total trade volume declined 7.9% from 4Q19 to 3Q20, against a 12.4% decline inaggregate. As of December 2020, compared to December 2019 and excluding oil and gas, exports of goods increased from all BSTDB member countries except for Georgia. In fact, compared to the same month of the previous year and excluding oilandgas,exportsfromtheBSTDBRegionhavebeenincreasingsinceSeptember(+8.3%y/y).WhilethepaceofincreaseslowedalittlebitinOctoberandNovember,itsurgedto+13.9%y/yinDecember2020.10

Intraregional Trade

IntraregionalmerchandiseexportsinthewiderBlackSeaRegionpeakedatUS$150.0bninthe12monthstoFebruary2013,just0.7%highercomparedtothepreviousrecordpostedinOctober2008.SincethentheexportshavedeclinedandasofNovember2020,theyweredowntoUS$93.3bn.Thepatternwassimilarwithimports,whichweredownfromtherecordofUS$152.9bntoUS$96.7bninNovember2020(Figure9).Unliketradewithintheregion,thetradewiththerestoftheworlddeclinedlesssincelate2014.Asaresult,theweightofintraregionaltradeinthetotaltradeofBSTDBcountriesdeclinedandhoveredatclosetorecordlowsof13-14%(Figure10).Thetrendissimilarevenifresourcerichcountries(AzerbaijanandRussia)areexcluded,implyingthatthefallintheshareoftheregionintotaltradewasbroad-based and not related only to the fall in oil prices.

9 Comprehensive detailed merchandise trade data is not available yet.10TourismdataispublishedwithinBalanceofPaymentsstatisticsbytherespectivecentralbanksandonaquarterlybasis.Dataforthe 4th quarter has not been published yet. Similarly, detailed trade data is not yet available for some member countries, therefore it isnotpossibletomakefullanalysisofthesectoraldistribution.

Figure 9: BSTDB Intraregional Trade, US$ bn Figure 10: Intraregional Trade in Total Trade, %

Figure 11: % Difference in Exports Between Nov 2020 and Past Record High

Figure 13: Regulatory Capital to Risk-Weighted Assets (%)

Figure 12: % Share of BSTDB Members in Total Exports by Countries

Source: IMF Direction of Trade Statistics, BSTDB calculations Source: IMF Direction of Trade Statistics, BSTDB calculations

Source: IMF Direction of Trade Statistics, BSTDB calculations

Source: Financial Soundness Indicators - IMF Data, Regulatory Authorities’ websites


0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

Exports Imports

12,0%

13,0%

14,0%

15,0%

16,0%

17,0%

18,0%

19,0%

Exports Imports

-80,0%

-70,0%

-60,0%

-50,0%

-40,0%

-30,0%

-20,0%

-10,0%

0,0%

ALB

ARM

AZE

BGR

GEO GRC

MD

A

ROU

RUS

TUR

UKR

BSTD

B

Intra-Reg. Total

0,0%10,0%

20,0%

30,0%

40,0%50,0%

60,0%

70,0%


18 1820 19

17

25

22

12

18 2018 17

23

18 17

27

23

12

1922

0

5

10

15

20

25

30

Alba

nia

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

2019 2020 Required minimum

Jan-

00

Sep-

01

May

-03

Jan-

05

Sep-

06

May

-08

Jan-

10

Sep-

11

May

-13

Jan-

15

Sep-

16

May

-18

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20

Jan-

00

Sep-

01

May

-03

Jan-

05

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06

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-08

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-13

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16

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20

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06

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-13

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20

25


Nonetheless,therearewidevariationsamongthemembercountries.Forexample,comparedtoitspeak,thetotalexportsfromUkrainewere27.9%lowerinNovember2020,whileintraregionalexportsweredown67.8%.InAzerbaijan,ontheotherhand,intraregionalexportswere8.2%lessthanthepastpeak,whiletotalexportswere70.2%lessthanthetotalrecord high (Figure 11).

While the share of other BSTDB members in total exports declined for all member countries, the biggest decline occurred for Ukraine,Moldova, and Armenia. Over the past two decades, at different times, other BSTDBmember countriesaccountedformorethan20%ofthetotalexportsfor7members(Figure12).Thisnumberfellto3byNovember2020asmembersdiversifiedtheirexportdestinationalongwithaninabilitytorecoverpreviouslevelsofexportstothosemarkets.

Conclusions

Crisesappeartohaveadisproportionatelynegativeimpactontrans-borderoperations.Tradevolumesdeclineandsomecountriesarehitharderthanothers.However,unlikeinthepre-2008period,globaltradehasbeenina“consolidation”phasesince2008:followingrecoveryfromthelowsin2009,tradevolumesremainedbroadlyflat.Additionally,conservativegovernment policies helped to contain potential bubbles before the 2020 crisis, and thiswas particularly obvious inthe BSTDB region. Still, some sectors, like tourism, transportation, or energy trade, experienced bigger contractionsthanothersandtheirprospecttoreboundwilldependonthespeedandsuccessofthevaccinationprocess.Oncethepandemic-relatedlockdownsareover,tourismshouldrebound.Asforthefallintradeinenergy,itwasdrivenbyfallingoilpriceswhichprecededthecurrentcrisisandhaditsowndynamic.Asidefromthose,tradeflowsinothersectorsseemtoberecovering.Excludingoilandgas,exportsfromallBSTDBmembercountries,butone,werealreadyhigherinDecember2020comparedtoDecember2019.Moreover,totalexportsfromtheBSTDBregionaregrowingagainsinceOctober2020compared to the corresponding month of the previous year.

Followingthe2008/09crisis,tradevolumesamongBSTDBmembersfailedtomatchglobaltrends,resultinginalowershare of intra-regional trade as a share of the total trade of the members. Trade volumes declined further during the currentcrisis,withintra-regionalexportsretreating15.5%y/yintheJanuary-Novemberperiod,slightlylesssharplythanthe17.0%y/ydecline in the totalexportsofmembers.Over the same9months, intra-regional imports (-14.0%y/y)declinedfasterthanthetotalimportsofmembers(-6.5%y/y).

Overall,thesynchronizedtradedynamicsofthepre-2008periodgavewaytotheanarchictrendsinthepre-2020period.Thisdifferenceisalreadyleadingtovaryingtrendsindifferentcountries.TheBSTDBregionisnotanexception,withthetradeperformanceof itsmembersdivergingsignificantlycomparedtotheperformance leadingtothe2008/09crisis.Anotherimportantaspectofthecurrentcrisisisitsimpactontheservicetrade,particularlyontourismandtransportation.However,thesesectorsshouldrecoverquicklyoncepandemicrestrictionsareover,giventhedeferredand increasingdemand. Formerchandise goods trade, on the other hand, a rebound is already happeningwith the trade volumesincreasing in the last quarter of 2020 compared to 2019.









0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

Exports Imports

12,0%

13,0%

14,0%

15,0%

16,0%

17,0%

18,0%

19,0%

Exports Imports

-80,0%

-70,0%

-60,0%

-50,0%

-40,0%

-30,0%

-20,0%

-10,0%

0,0%

ALB

ARM

AZE

BGR

GEO GRC

MD

A

ROU

RUS

TUR

UKR

BSTD

B

Intra-Reg. Total

0,0%10,0%

20,0%

30,0%

40,0%50,0%

60,0%

70,0%


18 1820 19

17

25

22

12

18 2018 17

23

18 17

27

23

12

1922

0

5

10

15

20

25

30

Alba

nia

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine


Jan-

00

Sep-

01

May

-03

Jan-

05

Sep-

06

May

-08

Jan-

10

Sep-

11

May

-13

Jan-

15

Sep-

16

May

-18

Jan-

20

Jan-

00

Sep-

01

May

-03

Jan-

05

Sep-

06

May

-08

Jan-

10

Sep-

11

May

-13

Jan-

15

Sep-

16

May

-18

Jan-

20

Jan-

00

Sep-

01

May

-03

Jan-

05

Sep-

06

May

-08

Jan-

10

Sep-

11

May

-13

Jan-

15

Sep-

16

May

-18

Jan-

20

ANNUAL REPORT 2020

26

Tosumup,thecurrentcrisishasledtolesscontractioninglobaltradevolumes,andafasterrebound,comparedtotheone in2008/09period.Theshareof theservicessectorswashighercomparedtopre-2008period,and, therefore, ithadplayedarelativelyimportantrole.Intra-regionaltradewasstagnatingevenbeforethepandemicrelatedrestrictionswereintroduced,whichledtoanevenmorechallengingenvironmentfortrade,particularlyinservices.However,oncerestrictionsareover,tradeinservices,particularlyintourism,willlikelyreboundstronglygiventhebuild-upofdemand,theproximityoftheBSTDBregiontothemajortouristsendingcountries,andtheirfamiliaritywithtouristicdestinationsin the region.

27


F I N A N C I A L S E C T O R - R E C E N T T R E N D S , R I S K S A N D O P P O R T U N I T I E S I N T H E B L A C K S E A R E G I O N

Financial sectors in BSTDB member countries came under stress in 2020, as the global economy shrank due to the COVID 19outbreakandcountrieshave seen significant reductions ineconomicactivities.Theway thecurrent shockaffectsthefinancialsectorisdifferentfromthepreviousglobalshockof2008-2009wherethefinancialsectorwasasourceofshockitself.Thistime,financialsectorsfacedtheglobalpandemicanditseconomicconsequencesinrelativelyhealthyconditions. After one year of crisis, the financial soundness indicators of BSTDBmember countries donot showanysignificantdeteriorationandfinancialhealthinmostcountriesstilllookspositive.Despitethedemonstratedresiliencein2020,thereremainriskssincetheimpactoftheeconomicslowdownisusuallyreflectedonbanks’balancesheetswithsomedelayuntilthefullimpactofthepandemiccrisisonbanks’balancesheetsisseen,andinadditionsomecountriesintroduced moratoria on servicing bank loans.

By the endof 2020, banksmaintained significant capital buffers above the requiredminimum in almost allmembercountries,pointingtothestrongpositionthatthefinancialsectorhasevenifnegativeriskscenariosmaterialize.Inmostcountriescapitaladequacyratioshaveincreasedthroughout2020,partlyreflectingthefactthatpotentialdeteriorationofassetqualityisnotyetfullyreflectedinthebalancesheetofbanks.Evenincountrieswherecapitaladequacydeclined,thechangeisnotdramaticandthelevelstaysconfidentlyaboveminimumrequirements.

Bankingsectorprofitability in2020declinedinmostmembercountries.ThelargestdropinprofitabilitywasrecordedinGeorgiawhereReturnonEquity(ROE)droppedfrom20%in2019downto1%in2020.Suchadramaticdecline inprofitswasaresultofnewlygeneratedloanlossprovisions,whichweremadeinresponsetothenegativeexpectationsassociatedwithCOVID-19.Afterthepandemic,itisexpectedthatbankswillbeabletorecovertheirprofitabilitythankstohighoperatingincome.AlthoughthedeclineinprofitabilitywassizableinUkraineaswell,itstillstayedatarelativelyhigh levelof22%.Despite reductions,RoE indicators inothercountries remainat reasonablysound levelsexpect forGreece,wherebanks’profitabilityhasbeendepressedinrecentyearsanditwentintonegativeterritoryin2020.Withtheterminationofloanmoratoriainmostofthemembercountriesthequalityoftheloanportfolioisexpectedtofurtherdeteriorate,somethingwhichwillputadditionaldownwardpressureonbanks’profitabilityincomingyears.









0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

Exports Imports

12,0%

13,0%

14,0%

15,0%

16,0%

17,0%

18,0%

19,0%

Exports Imports

-80,0%

-70,0%

-60,0%

-50,0%

-40,0%

-30,0%

-20,0%

-10,0%

0,0%

ALB

ARM

AZE

BGR

GEO GRC

MD

A

ROU

RUS

TUR

UKR

BSTD

B

Intra-Reg. Total

0,0%10,0%

20,0%

30,0%

40,0%50,0%

60,0%

70,0%


18 1820 19

17

25

22

12

18 2018 17

23

18 17

27

23

12

1922

0

5

10

15

20

25

30

Alba

nia

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine


Jan-

00

Sep-

01

May

-03

Jan-

05

Sep-

06

May

-08

Jan-

10

Sep-

11

May

-13

Jan-

15

Sep-

16

May

-18

Jan-

20

Jan-

00

Sep-

01

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-03

Jan-

05

Sep-

06

May

-08

Jan-

10

Sep-

11

May

-13

Jan-

15

Sep-

16

May

-18

Jan-

20

Jan-

00

Sep-

01

May

-03

Jan-

05

Sep-

06

May

-08

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10

Sep-

11

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Jan-

15

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20

ANNUAL REPORT 2020

28

DespitesignificantcontractionineconomicactivitiesinBSTDBmembercountries,therewasnomajorworseninginthequalityofcreditportfolios.Onthecontrary,inmostofthecountriesnon-performingloans(NPL)declinedrelativetothetotalcreditportfolio.Onereasonbehindthisreductionisstrongcreditgrowthobservedinmanycountriesthatinflatesthedenominatoroftheindicator.Inaddition,thenegativeconsequencesofeconomiccriseshavenotyetfullytransmittedtotheassetquality.Themoratoriumondebtservicethatwasintroducedbymanycountriesin2020alsocontributedtothedelayinincreaseinNPLsasunderthedebtservicemoratoriumitisimpossibletoidentifywhichborrowersdonotservicetheirdebtduetothefinancialdifficulties.InUkraine,NPLsdeclinedsignificantlylastyearbutstillstoodatthehighlevelof41%atyear-end2020.OnthepositivesideitshouldbenotedthatmostoftheNPLsinUkraineareprovisionedastheNPLprovisionsratiostandsat90%.ThereductioninNPLratioresultedmainlyfromwrite-offsoflegacyNPLs,thosethathadnotbeenservicedforalongtimeandthosethatwerefullyprovisioned.

Figure 14: Banking Sector ROE (%)

Figure 15: Non-performing Loans to Total Gross Loans (%)

Figure 16: Loan to GDP Ratio (%)

1310 11

20

1

15 12

20

11

38

11 95

1

-6

10 9

1811

22

-10-505

10152025303540

Alba

nia

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

2019 2020

8 6 72

36

84

95

48

8 7 62

27

74

94

41

0

10

20

30

40

50

60

Alb

ania

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

2019 2020

95

61 65 57 56 4934 32 24 20 19

86

45

102

71 7865 68

5237 38

23 22 20

0

20

40

60

80

100120

Gre

ece

Turk

ey

Geo

rgia

Russ

ian

Fede

ratio

n

Arm

enia

Bulg

aria

Alb

ania

Rom

ania

Ukr

aine

Mol

dova

Aze

rbai

jan

Euro

are

a

Cent

ral E

urop

ean

d th

e Ba

ltics

2019 2020



Source: Central Banks’ websites, World Bank database.




1310 11

20

1

15 12

20

11

38

11 95

1

-6

10 9

1811

22

-10-505

10152025303540

Alba

nia

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

2019 2020

8 6 72

36

84

95

48

8 7 62

27

74

94

41

0

10

20

30

40

50

60

Alb

ania

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

2019 2020

95

61 65 57 56 4934 32 24 20 19

86

45

102

71 7865 68

5237 38

23 22 20

0

20

40

60

80

100120

Gre

ece

Turk

ey

Geo

rgia

Russ

ian

Fede

ratio

n

Arm

enia

Bulg

aria

Alb

ania

Rom

ania

Ukr

aine

Mol

dova

Aze

rbai

jan

Euro

are

a

Cent

ral E

urop

ean

d th

e Ba

ltics

2019 2020




29


BSTDBmembercountriesexhibitsignificantdifferencesintermsofdepthoffinancialsectors.Banks’loantoGDPratiorangesfromcloseto100%inGreecetoaround20%inAzerbaijan.OverallfinancialdepthinBSTDBmembercountriesasmeasuredbyloantoGDPratiocompareswelltoitsregionalpeerssuchastheEuroareaorcountriesinCentralEuropeandtheBaltics.

One of themain challenges that financial sectors inmember countries have is high levels of dollarization. Financialinstitutionshave theirFXpositionclosedsince foreveryFX liabilitybankskeepassets in the respectivecurrencyandeliminatedirectriskstemmingfromexchangeratevolatility,butatthesametimeborrowerswhohaveborrowedinFXhavetheirincomemostlyindomesticcurrency,thusexposingthemtoexchangerateriskthatistranslatedindirectlyintocreditriskforfinancialinstitutions.Soeventhoughbanks’FXpositionsareclosedtheyarestillexposedtoexchangeratevolatilityindirectlyduetohighdollarization.Dollarizationhasbeenanissueformanyyearsalreadybutthetrendinrecentyearshasbeenpromising.ThepercentagedeclineintheshareofFXloansinthetotalloanportfolioforthelast5yearshasreacheddoubledigitlevelsinmostmembercountriesandthisdecliningtrendcontinuedin2020.Nevertheless,thelevelofdollarizationremainselevated.




1310 11

20

1

15 12

20

11

38

11 95

1

-6

10 9

1811

22

-10-505

10152025303540

Alba

nia

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

2019 2020

8 6 72

36

84

95

48

8 7 62

27

74

94

41

0

10

20

30

40

50

60

Alb

ania

Arm

enia

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

2019 2020

95

61 65 57 56 4934 32 24 20 19

86

45

102

71 7865 68

5237 38

23 22 20

0

20

40

60

80

100120

Gre

ece

Turk

ey

Geo

rgia

Russ

ian

Fede

ratio

n

Arm

enia

Bulg

aria

Alb

ania

Rom

ania

Ukr

aine

Mol

dova

Aze

rbai

jan

Euro

are

a

Cent

ral E

urop

ean

d th

e Ba

ltics

2019 2020




Figure 17: Share of FX Loans in Total Loan Portfolio (%)

Figure 18: Share of Loans to Hotels and Restaurants and to Households in Total Credit Portfolio

Figure 19: Annual Growth of Outstanding Credit in BSTDB Member Countries (%)

0

10

20

30

40

50

60

70

80

90

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Bulgaria GreeceRomania Russian FederationTurkey Ukraine

0

10

20

30

40

50

60

70

80

90

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Albania Armenia GeorgiaMoldova Azerbaijan

3,8% 4,6% 4,0% 5,4% 4,8%0,6%

3,6%0,7%

33% 35%

46%41%

50%

40%36% 38%

31%25%

22%

0%

10%

20%

30%

40%

50%

60%

Alb

ania

Arm

enia

Aze

rbai

jan

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

Loans to hotels and restaurants Loans to households

12%

35%

16%

5%-2%

-20%

-10%

0%

10%

20%

30%

40%

50%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20

Russian Federation TurkeyGreece RomaniaBulgaria Ukraine

6%

14%

-5%

20%

0%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%Albania Armenia Azerbaijan

Georgia Moldova

Source: Financial Soundness Indicators – IMF Data, Regulatory Authorities’ websites.

Source: Central Banks’ websites.


ANNUAL REPORT 2020

30

TourismisoneoftheindustriesthatwashitdramaticallybytheCOVID-19pandemic.Astravelflowsalmostdisappearedintheregionandlockdownrestrictionswereintroduced,revenuesintheaccommodationandfoodservicesectorcameunderstress.Therefore,onemajorsourceofriskforthebankingsectorinmembercountriesisitsexposuretosectorsrelatedtothetourismindustry.Lookingatthestructureofthecreditportfolioinmembercountries,banksdonothavelargedirectexposuretohotelsandrestaurantsastheshareof loansgrantedtocompaniesoperatinginthesesectorsrangesbetween3to5%oftotalcreditportfolio.Ontheotherhand,thetourismindustrygeneratesincomeforalargepartofthepopulationinmanycountries,so loansgrantedto individualsmayalsocomeunderstressduetoreducedtourism.Bankstendtohavequitelargeexposuretohouseholdsespeciallyincountrieswhereotherindustriesarenotwelldeveloped.Inmoreadvanced/sophisticatedeconomies,theshareofloansgrantedtohouseholdsisrelativelylow.

Lendingtotheeconomyisanimportantindicatorofthehealthofthefinancialsystem.Ononehandifthecreditgrowthistoorapidthiscanleadtoexcessiveriskaccumulationinthefinancialsystemthatmaybefollowedbythedeteriorationofassetqualityandpossiblematerializationofadversescenario.On theotherhand, if creditgrowth is tooslowthismaypointtoinabilityoffinancialsystemtoallocateresourcesefficientlythatmayharmlongtermgrowthpotentialoftheeconomy.LookingatcreditgrowthinBSTDBmembercountriesforthelast5years,theevidenceismixed.Insomecountriestherehasbeenstronggrowthincreditofaround20%peryearonaverageforthelast5yearsandforthesecountriessomeslowdown in lendingmaybenecessary toavoidoverheating.Othershaveexperiencedcontraction inlending to theeconomy.Negativegrowthof creditsmaybea resultof,ononehand,weaknesses in the real sideofeconomy,wherebanksareunabletofindenoughprofitableprojectstofinance,and,ontheotherhand,fragilityinthefinancialsectoritself.Duringthepandemiccrisisandespeciallytheaftermathofthecrisiswheneconomiesareexpectedtostartrecovering,thesupplyofcredittosupporteconomicactivityisessentialtoovercomethecriseswiththefewestcosts.

For2020creditgrowthfiguresinBSTDBmembercountriesweredrivenbyanumberoffactorssuchasmonetarypolicyeasing, exchange rate depreciation and the resulting re-evaluation of existing credit stock, announcedmoratoria onservicingandrepaymentof loans.Themacroeconomicresponsetothepandemiccrisiswassignificanteasingofbothmonetaryandfiscalpoliciesallovertheworld.BSTDBcountrieswerenoexceptiontothatasauthoritiesemployedcutsinmonetarypolicyratesandlargeliquidityinjectionsinordertosupportlendingthatisnecessarytosoftentheimpactofglobaleconomiccontraction.

Another common characteristic ofmany countries in the region was exchange rate depreciations throughout 2020.Asrevenues fromtourismalmostdisappeared,oilpricesdropped,andmerchandisedexportscontractedsignificantly,domesticcurrenciescameunderpressure.Exchangeratedepreciationisanaturalresponsetodeteriorationinanexternalposition thatabsorbspartof theexternal shock.As itwasmentionedabove,member countrieshaveahigh levelofdollarizationofloansinthesecountries.So,exchangeratedepreciationsinthesecountrieshaveincreasedtheoutstandingvolumeofloansandcontributedpositivelytototalcreditgrowthfiguresin2020.Besidesthat,moratoriaondebtservicethathasbeenannouncedinmanycountriesalsocontributedtototalcreditgrowthnumbersasthishascauseddelayintherepaymentofexistingdebtstock.Asaresultofeasedmonetarypoliciesandliquidityinjectionsbyrespectivecentralbanks,creditgrowthaggregatesincreasedin2020inmostcountries.Evenincountrieswherelendinggrowthhasbeennegativeinrecentyears,therewassomepositivedevelopmentin2020withtherateofdeclineslowing.




0

10

20

30

40

50

60

70

80

90

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020


0

10

20

30

40

50

60

70

80

90

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020


3,8% 4,6% 4,0% 5,4% 4,8%0,6%

3,6%0,7%

33% 35%

46%41%

50%

40%36% 38%

31%25%

22%

0%

10%

20%

30%

40%

50%

60%

Alb

ania

Arm

enia

Aze

rbai

jan

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine


12%

35%

16%

5%-2%

-20%

-10%

0%

10%

20%

30%

40%

50%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20


6%

14%

-5%

20%

0%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20

-10%

-5%

0%

5%

10%

15%

20%

25%

30%


Georgia Moldova




31


Depositsgrowthwassolidinalmostallmembercountries,apatternthatiscommonforBSTDBmembercountriesoverthepast5years.Strongdepositgrowthisimportantasitisamorestablesourceoffundingforbankscomparedtootheralternatives.DepositgrowthinBSTDBmembercountriesismainlydrivenbyeitherbanklendingorfiscalspending.Asmentionedabove,creditgrowthhasbeenstrongduringthelast5yearsandhascontributedtoanincreaseindepositbase.Atthesametimebudgetdeficitinmanycountriesintheregionhasbeensizableformanyyears,whichwasanadditionalfactorbehindstrongdepositgrowth.Growingtrendcontinuedin2020aswell,whenmostcountriesreportedpositivegrowth.Theincreaseinsavingsin2020isaglobalphenomenonasgovernmentsallovertheworldintroducedvariousfiscalmeasurestofighttheconsequencesofthepandemic,suchasincreasedspendingtomostvulnerable,subsidies,taxwaiversetc.Atthesametimetheconsumer’spropensitytoconsumedeclinedastherewerelimitedoptionsforspendingby people.




0

10

20

30

40

50

60

70

80

90

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020


0

10

20

30

40

50

60

70

80

90

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020


3,8% 4,6% 4,0% 5,4% 4,8%0,6%

3,6%0,7%

33% 35%

46%41%

50%

40%36% 38%

31%25%

22%

0%

10%

20%

30%

40%

50%

60%

Alb

ania

Arm

enia

Aze

rbai

jan

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine


12%

35%

16%

5%-2%

-20%

-10%

0%

10%

20%

30%

40%

50%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20


6%

14%

-5%

20%

0%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20

-10%

-5%

0%

5%

10%

15%

20%

25%

30%


Georgia Moldova




Figure 20: Annual Growth of Deposits in BSTDB Member Countries (%)

Figure 21: Customer Deposits to Total Loans (%)

Figure 22: Interest Rates on Loans to Households with Maturity of More Than 1 Year (%)11

14%

35%

6%

16%

10%

26%

0%

10%

20%

30%

40%

50%

60%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20


5%4%

-4%

32%

3%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Albania ArmeniaAzerbaijan GeorgiaMoldova

202

110

162139

7992

169

137

10287

103

214

113

163147

82

114

175152

10491

131

Alb

ania

Arm

enia

Aze

rbai

jan

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

0

50

100

150

200

250

2019 2020

5,4

7,6

4,5

6,9

8,1

3

4

5

6

7

8

9

10

11

12

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep-

19O

ct-1

9N

ov-1

9D

ec-1

9Ja

n-20

Feb-

20M

ar-2

0A

pr-2

0M

ay-2

0Ju

n-20

Jul-2

0A

ug-2

0Se

p-20

Oct

-20

Nov

-20

Dec

-20

Albania Bulgaria GreeceMoldova Romania

12,3

15,715,6

9,7

21,2

23,7

8

13

18

23

28

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep-

19O

ct-1

9N

ov-1

9D

ec-1

9Ja

n-20

Feb-

20M

ar-2

0A

pr-2

0M

ay-2

0Ju

n-20

Jul-2

0A

ug-2

0Se

p-20

Oct

-20

Nov

-20

Dec

-20

Armenia AzerbaijanGeorgia Russian FederationTurkey Ukraine


Source: Financial Soundness Indicators - IMF Data, Central Banks’ websites.


ANNUAL REPORT 2020

32

Strongergrowthindepositsrelativetocreditsin2020pushedupthedeposittoloanratioinmostcountries.Thevolumeofoutstandingdepositsrelativetoloanspointstothestrongliquiditypositioninallthemembercountries.Inalmostallcountriesthecreditportfolioiscompletelyfundedbythedepositbase,whichrepresentsastablefundingsource,havingalowerrefinancingrisk.In2020,thedeposittoloanratioincreasedinallmembercountries,contributingtothebuildingofevenmoresolidliquiditybuffers.

Interestratesonloansindomesticcurrencyhavebeenonadecliningtrendforthelast5yearsintheBlackSeaRegioncountries.Thistrendisinlinewiththeoneinadvancedeconomies,whereafteryearsofeasedmonetarypoliciesandmassiveQEpolicies interest ratesdropped tohistorically low levels and in somecases turnednegative. Low interestratesinhardcurrenciescreatesdifferentchallengesforemergingeconomiesandforcountriesintheBlackSeaRegion.Underthesecircumstancesdomesticfinancialinstitutionshaveaccesstocheapfundinginhardcurrenciesthattheyon-lendtodomesticborrowersthatincreasesvulnerabilitiesinthefinancialsystemasitelevatesdollarizationincountriesandexposesdomesticborrowerstoexchangeraterisk.Therefore,maintainingthedecliningtrendininterestratesfordomesticcurrencyloansisveryimportantsincethelargeristhespreaddomesticversusforeigninterestratesthemoredifficultitisforlocalcurrencyloanstocompetewithforeigncurrencyloans.Besidesthat,continueddeclineininterestratesisareflectionofreductioninrisksassovereigncreditratinghasbeenimprovingformostofthecountriesintheregion.Inaddition,asaresultofprudentmonetarypoliciesinflationratesmoderated,thuspermittingthesafereductionofinterestrates.OneexceptiontothisgeneraltrendisTurkeywhereinflationwasabovethetargetforthemostoflastdecadeandithasbeenonariseduringlast4years,whichhasresultedinincreasinginterestrates.

In 2020 the general declining trend in interest rates continued and, in some cases, accelerated. Although risks haveincreasedduetohighuncertaintyrelatedtoCOVID19pandemic,countriesrespondedwithaggressiveeasingofmonetarypoliciesthatpushedinterestratesdownward.Despitethedecliningtrend,interestratesinsomecountriesstayelevatedon a double-digit level.




14%

35%

6%

16%

10%

26%

0%

10%

20%

30%

40%

50%

60%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20


5%4%

-4%

32%

3%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%


202

110

162139

7992

169

137

10287

103

214

113

163147

82

114

175152

10491

131

Alb

ania

Arm

enia

Aze

rbai

jan

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

0

50

100

150

200

250

2019 2020

5,4

7,6

4,5

6,9

8,1

3

4

5

6

7

8

9

10

11

12

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep-

19O

ct-1

9N

ov-1

9D

ec-1

9Ja

n-20

Feb-

20M

ar-2

0A

pr-2

0M

ay-2

0Ju

n-20

Jul-2

0A

ug-2

0Se

p-20

Oct

-20

Nov

-20

Dec

-20


12,3

15,715,6

9,7

21,2

23,7

8

13

18

23

28

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep-

19O

ct-1

9N

ov-1

9D

ec-1

9Ja

n-20

Feb-

20M

ar-2

0A

pr-2

0M

ay-2

0Ju

n-20

Jul-2

0A

ug-2

0Se

p-20

Oct

-20

Nov

-20

Dec

-20





33


Needlesstosay,suchaglobalandprofoundcrisisastheCOVID19pandemicwilleventuallyhaveastrongnegativeimpactonfinancialsectorperformanceinmanycountries,includingtheBlackSeaRegion.Thisisparticularlytrueifthecrisislastswellinto2021andbeyond.Butin2020,financialsectorsinmostmembercountriesfacedthecrisesinhealthyconditionswithvery strongcapital and liquiditybuffers. If theeconomic recovery is slowordelayed,additionaldeteriorationofassetqualityinthebalancesheetofbanksisexpected.However,banksareadequatelycapitalizedtomanageapossibleincreaseinNPLs.Stronggrowthperformanceofthefinancialsectorinmostcountriesoftheregionalsogivespositivesignals.MaintainingfinancialsectorhealthandkeepingbalancesheetscleanwillbeveryimportantcontributingfactorsinthepostCOVIDrecovery.Afterthepandemicfadesandeconomiesstarttorecover,thefinancialsectorshouldplayakeyroleinboostingtherecoveryprocess.Therefore,maintainingthesector’shealthisofvitalimportance.




14%

35%

6%

16%

10%

26%

0%

10%

20%

30%

40%

50%

60%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20


5%4%

-4%

32%

3%

Dec

-18

Feb-

19

Apr

-19

Jun-

19

Aug

-19

Oct

-19

Dec

-19

Feb-

20

Apr

-20

Jun-

20

Aug

-20

Oct

-20

Dec

-20

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%


202

110

162139

7992

169

137

10287

103

214

113

163147

82

114

175152

10491

131

Alb

ania

Arm

enia

Aze

rbai

jan

Bulg

aria

Geo

rgia

Gre

ece

Mol

dova

Rom

ania

Russ

ian

Fede

ratio

n

Turk

ey

Ukr

aine

0

50

100

150

200

250

2019 2020

5,4

7,6

4,5

6,9

8,1

3

4

5

6

7

8

9

10

11

12

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep-

19O

ct-1

9N

ov-1

9D

ec-1

9Ja

n-20

Feb-

20M

ar-2

0A

pr-2

0M

ay-2

0Ju

n-20

Jul-2

0A

ug-2

0Se

p-20

Oct

-20

Nov

-20

Dec

-20


12,3

15,715,6

9,7

21,2

23,7

8

13

18

23

28

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep-

19O

ct-1

9N

ov-1

9D

ec-1

9Ja

n-20

Feb-

20M

ar-2

0A

pr-2

0M

ay-2

0Ju

n-20

Jul-2

0A

ug-2

0Se

p-20

Oct

-20

Nov

-20

Dec

-20





11ForArmeniaandAzerbaijaninterestratesonalltypesofloansaredepictedonthefigure22,forAlbania-interestratesonloanstohouseholds for consumer durables and housing.

ANNUAL REPORT 2020

34

BSTDBin the Black Sea RegionI N F O C U S :A V I S I O N I N H I N D S I G H T – E VA L U A T I O N O F S T R A T E G Y 2 0 1 0 - 2 0 2 0

At theendof2020 theBankcompleted the implementationof its Long-TermStrategy2010-2020.Subsequently, theBank’s Evaluation Department conducted a comprehensive independent evaluation of the Strategy implementation.AnoverviewofthemaingoalsoftheStrategy,alongwiththerespectiveevaluationofthedegreeofachievement,arepresentedinthefollowingtwotables.

Evaluation of External Strategic Goals 2010-2020

External Goals of Strategy 2010-2020

Rationale Metrics Evaluation of Achievement

1.ObtainabetterriskratingofAa3(2020)from Baa1 (2010). This represents high quality andverylowcreditrisk,just3notchesbelowthehighestAAArating.

Substantiallyreducethecostofborrowedfunds,relativelytoborrowingcostsofany of the Bank’s Member States

CreditRatingsassigned by Moody`s and S&P

BSTDB obtained long term credit ratings of “A2” fromMoody’sand“A-”fromStandard&Poor’s.Thegoalispartly(50%) achieved as A2 stable represents the mid-point.The Bank made various efforts to reach the goal, e.g. bysacrificingitsowntargetofequityinvestmentsshare,aswellasovershadowingsomedevelopment/mandateobjectives.While the result is below the target, the achievement is asubstantial improvement, despite credit rating downgradesofsomeoftheBank’sshareholders.BSTDBalsorealizedthatthefinancing costof the recentbenchmarkbond issuedidnot fully meet the cost-reduction expectations associatedwith the current credit rating as some member countrieswithlowercreditratings,actuallyborrowedatbetterterms.Theevaluationacknowledgedanotableachievementofthisambitiousgoal.

2.AttractanAAAratedMember(InternationalFinancialInstitution-IFI)

Accelerateactivityandportfolio

AAAratednewshareholder

The Bank interacted with various partnering IFIs anddeepenedrespectiveco-operation,butthisdidnotresultinanextendedmembership.Theevaluationacknowledgestheeffort towards thisgoalwhichclearly remainedbeyondtheBank’s outreach.

3. Outstanding amount of portfoliotoreacharoundSDR 1.8 bn (EUR 2.16 bn).

Maintain a balanced growthdespitefunding constraints

Portfolioamount at end of 2020

Total Outstanding Amount at the end of 2020: EUR 2.07 bn (estimatedandunauditedatthetimeofwriting)orSDR1.7bn.Thevolumetrictargetwasalmostreached,particularlybytherapidportfoliogrowthinlast2years.

4. Increase the share of public and quasi-public operationsfrom11%to25%.

Tosupportalowerriskprofileandabettercreditrating

25%by2020 In 2020 public non-sovereign operations reached 10.07%,publicsovereignoperations-18.32%,resultingintotalpublicsectorshareof28.39%.Whilethe25%targetwasachieved,theevaluationrevealedthatthesubstantialincreaseinpublicandquasi-publicexposureshadalimitedpositiveimpactontheperceivedriskprofileandthecreditrating,ceteris paribus.

35


5. Increase the share of equity in the outstanding portfoliofrom1.5%to10%.

Diversify the product mix in reference to mandate goals

Reach10%in 2020

Theshareofequityoperationsremainedunchanged(1.41%atthelastquarterof2020.TheBankintentionallyrevisedandabandoned thegoal, tooffsetunderperformance regardingthe first two external strategic goals.While the targetwassetingoodfaith,theBankrealizeditimpliesseverenegativeconsequences for the risk weighting of the portfolio. Theevaluationisthereforeconductedinviewofthisconsiderationand the revised goal of not increasing the share of equity. It therefore concluded that the Bank maintained a prudently lowequityshare,inlinewithoverarchingstrategicgoals.

6. Expand the use of Technical Assistance.

Enhance the development impact ofoperations

Amount At the end of 2020 the Bank maintained 2 TA Funds of EUR 0.5Meach(contributedbyAustriaandRussiarespectively).While these partly substitute the previously availablefund contributed by Greece, there is no actual expansion of TA, hence the evaluation concluded that the goal wasunderachieved,duetolimitedprovisionofrespectivefundingbyshareholdersandpartnerinstitutions.

7. Design and implement along-termborrowingprogram

To increase approximately four-fold the value of the Bank’s outstanding portfoliobetween2010 and 2020

Long term borrowingprogram and instruments in place

The Bank has implemented a Medium-Term Note Program – allowingittoswiftlyissueawiderangeofbondsinresponseto investor demand. To encourage investor interest the Bank complemented the credit ratings of the two largest ratingagencieswithadditionaltwo-oneEuropeanandoneRussianratingwerealsoadded.Itproactivelyapproachedarangeofinvestors through roadshows, conferences and the InvestorRelations section of itswebsite. It has also negotiated andsigned funding agreementswithmajorMDBs andNationalDevelopment Banks. The evaluation considers this toconstitute an equivalent of a long-term funding program–asawork inprogress, fulfilling the respective strategygoaladequately.

8.Theborrowingprogramtocoverportfoliogrowth,whilemaintainingacomfortableratioofborrowedfundstoownfunds.

Necessary as the Bank’s cost of borrowedfundsishigherrelativetoother IFIs.Finance long term high value projectswithstrongdevelopment impact.

GearingRatio(borrowed/ownfunds)2:1

With an equity of around EUR 843 million, the 2:1 target allows theBank tohave total assetsof EUR2.8billion anda loan and equity portfolio of around EUR 2 billion. ThestrategicobjectivesfortheBankarecurrentlya littlehigherat total assets of close to EUR 3 billion and a loan and equity portfolioofaroundEUR2.5billion.Thebindingconstraintsongrowthare(i)theloanandequityportfoliosizethroughtheoperationalgearingratio(100%ofsubscribedcapitalreservesand surpluses – EUR 2.45 billion) and (ii) the objective ofkeeping paid in capital (EUR 687 million) at 30% of totalassets.TheBank’sgearing ratios increasedconsistentlyandremainwithinthetarget,asfollows:2010:28%;2011:30%;2012:32%;2013:32%;2014:39%;2015:46%;2016:49%;2017: 48%’ 2018: 56%; 2019: 76%; 2020: 81% (average of3 quarters) Reflecting these considerations the evaluationacknowledgesthegoalasachieved.

9.Averageannualgrowthofoutstandingportfolio–10%.

Economy of scale 10%averagep.a.

Theannualgrowthratesof theBank’sportfoliovaryacrossthe10yearperiod,asfollows:2010:-1%;2011:7%;2012:9%;2013:-1%;2014:23%;2015:16%;2016:7%;2017:-2%’2018:16%;2019:36%;2020:11.8%Astheannualaveragegrowthisover11%,theevaluationconcludesthatthestrategicgoalwasfullyachieved.

10. The Bank should financeabout25operationsp.a.atanaveragesizeofSDR10.5million (disbursements of about SDR 300 million p.a.).

As above Number of operationsandcommittedamounts

The Bank registered the following number of signedoperations:2010:25;2011:36;2012:17;2013:22;2014:24;2015:25;2016:20;2017:20;2018:31;2019:27;2020:20.The committed amounts, in million EUR, were as follows:2010:197mln;2011:298mln;2012:168mln;2013:225mln;2014:213mln;2015:480mln;2016:373mln;2017:401mln;2018: 618mln; 2019: 843mln; 2020: 624mln. The resultsare in line with the strategy projections and therefore theevaluationconsidersthegoalachieved.

ANNUAL REPORT 2020

36

External Goals of Strategy 2010-2020

Rationale Metrics Evaluation of Achievement

1.KeyPerformanceIndicators(KPI)tobeused in quarterly and annual reports.

Reinforceportfoliomanagement and accountability

KPI KPIdesignandimplementationturnedmorechalleng-ingthanexpectedbutwasgenerallyaccomplished,atleastatcorporatelevel.Asimplificationatdepartmen-tallevelwasadoptedrecently.Theevaluationrendersthe goal as generally achieved.

2.Considersettingupateam of professionals in equity investments

Increasing the share ofequityoperationsintheportfolioof outstanding operations(asperExternal Goal nr. 5)

Equity team Thegoalwasabandonedmid-way,astheBanktookcoursetowardreducingtheportfoliorisklevelsinaspirationofabettercreditrating.Theevaluationacknowledgestherationaleofthechangecourseasprudent(preservingasaferiskratingprofile).

3. Corporate Balance Scorecards (CBS) to be used for implementationoftheMediumΤermStrategy.

Allocationoftasksinworkprograms.Translate mission and strategy into tangibleobjectives.

CBS AswithKPIs,CBSturnedveryhardtoeffectivelyimplement and cascade to departmental levels. Consequently, the Bank returned to a more lenient assessment process, similar to its approach prevailing at2010,whentheLong-TermStrategywasapproved.Theevaluationacknowledgesthechallengingtaskandconcluded that the Bank implemented the goal to the extent possible.

4. The total number of staffwouldnotexceed120

Matching available skillswithneedswhilelimitingcostincrease.

Number of staffbelow120 at end of 2020

Totalnumberofstaffatendof2020standsat117.Thisiswithinthegoalframework.

5. Enhance monitoring andevaluationsystems,toattainhigherimpactwhilecontrollingtherisk-returnprofile.

Elevate accountability to highest internationalstandards, to improve mandate fulfilment

IFI standards Themonitoringprocessandoutcomeswerestream-linedwithcertainprogressincompletionreporting(self-evaluation).Theindependentevaluationsystemwaspeerreviewedandsubstantiallyenhancedin2012,followedbyafullrecognitionandmembershipattheEvaluationCooperationGroupoftheMultilateralDevelopmentBanksin2014.Thestrategicgoalwasfullyachieved.

Evaluation of Internal Strategic Goals 2010-2020

37


Conclusions

The evaluation concluded that the Bank successfully implemented themain goals of its 2010-2020 Strategy. Amongthekeyachievementsarethemutuallyreinforcingsubstantialgrowthanddiversificationofthefinancingportfolio,theelevationoftheBank’screditrating,andthecomprehensiveborrowingprogram.

Whilemost strategic goalswere accomplished, somewere attainedonlypartially. Themain reason for theobservedconstraintsisassociatedwiththeexternalcharacteroftherespectivegoals,overwhichtheBankhadalimitedcontrolor influence, i.e. theextentofcredit rating improvement,aswellas therelatedaspirationofattractinganAAA-ratedshareholder.

Despitethenotedlimitations,overthe10-yearperiod,theBankdemonstratedagilityandresiliencetothechallengesoftheexternalenvironment.Inthiscontextitregularlyrevisiteditsstrategicgoalsandadequatelyprioritizedthoseofhigher importance, e.g. the credit rating and the related refinancing strength over the less important and thereforeovershadowedexpansioninriskyequityinvestments.

Theevaluationrevealedthattheinternalgoalswereadequatelysubordinatedtothehigherplaneexternalaspirationsandwereimplementedwithoutmajordeviations,withafewexceptions,i.e.,cancellingtheintentiontocreateanequityinvestmentteam,giventheoverridingconsiderationtohigherstrategicpriorities,asalreadynoted.

OverthelastdecadetheBankhasadvancedinseveraldomainsandcomparesadequatelywithitspeersinmanyrespects.Itmaintainedasoundoperatingandportfoliostructureanddemonstratedacapacitytogrowandfulfillitsspecificmandate.The achievements so far represent a ground for further development but should not be a source of complacency. To drive furthersuccess,BSTDBwillcontinuouslyandcandidlyreviewitskeystrengthsandweaknesses,toenhancetheformerandmitigatethelatter,fortheultimatepurposeofstreamliningitsgoalstowardstheBank’smandate.

ANNUAL REPORT 2020

38

Portfolio Description Operational Priorities

TheBankemploysitscapitalstructure,relationswithmembercountries’governmentsandknowledgeoftheregionofoperationtofosterdevelopmentbyfocusingon:

(i) financingprojects,programsandcommercialactivities;(ii) informationsharing,promotionoftheregion,developmentofnetworks,andotherknowledgedissemination

activities;and(iii) promotinginstitutionaldevelopmentandcapacitybuilding.

TheBanktargetsaportfoliocompositionwellbalancedbetweenlargecorporations,banks,sovereignandsub-sovereignclients,andmedium-sizedcompanies,withwhomtheBankmayestablishdirectworking relationships. Inaddition tolarge,relativelygoodcreditriskcompanies,theBankextendsassistance,graduallyandcautiously,tofirmswhicharelesswellestablished,lesswellknown,andwithasmallertrackrecord,inordertoachievehigherdevelopmentimpact.TheBankalsotargetsclientsinthepublicsector,includingmunicipalities,publicutilitiesandpublicagencies.

TheBank’scapacitytoinvestinoperationswithhighdevelopmentimpacthasbeencontinuouslyenhanced,inparticularwithreferencetooperationsaimedatpromotingtheSMEsector,certainprivatesectoroperationsinsmallshareholdingcountries,andpublicorpubliclyguaranteedoperations(e.g.municipalinfrastructure).

Furthermore,theBankincreasinglyfocusesitsbusinessdevelopmentandmarketingeffortsonidentifyingcross-countryoperations,particularlyininfrastructurerelatedsectors.SuchoperationspossesshighshareholdervaluefortheBankandarethereforepriorityactivities.

Since thebeginningofoperations in June1999, theBankhasapproved444operationsamounting toaboutEUR7.2billion.Throughoutthisperiod,therewere387signedoperationsforatotalsigningamountofEUR5.9billion.Atotalof320operationsforaboutEUR4.2billionwererepaid.Atend-2020,therewere123operationsinthetotalportfoliooutstanding balance for EUR 2.069 billion.

BSTDB Portfolio Development 2000-2020

Source: BSTDB

100

257 39

8 435 48

6 567 66

4

891

1.07

3

1.05

4

1.14

5

1.37

2

1.27

6

1.23

8

1.51

7

1.89

4

1.93

0 2.03

6

2.26

6

3.10

3

3.34

6

65

154 23

1 345 40

8 479 52

5

680

941

906 1.

010 1.

180

1.16

8

1.14

5 1.32

0

1.70

3

1.72

1

1.75

4

2.05

6

2.70

1

2.89

7

39 64 100 21

0 288 33

2

340

506

678

630 67

3 720 78

6

779

962 1.

114

1.19

2

1.16

6 1.35

8

1.85

1

2.06

9

0,00

500,00

1000,00

1500,00

2000,00

2500,00

3000,00

3500,00

4000,00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EUR

(000

s)

Board Approved Operations Signed Active Operations Outstanding

39


Asofend-2020theoutstandingoperationsoftheBank(cumulativedisbursementslessrepaymentsforactiveoperations)representedEUR2.069billion,distributedbycountryasperthefollowinggraph:

Cumulative Signed Operations by Sector

Outstanding Operations by Country

Active Signed Operations by Country

Source: BSTDB

Source: BSTDB

Source: BSTDB

ConsumerDiscretionary4.4%

Consumer Staples7.5%

Energy5.9%

Financials37.4%

Health Care3.1%

Industrials14.8%

InformationTechonolgy0.5%

Materials11.0%

Real Estate2.0%

TelecommunicationServices2.7%

Utilities10.7%

Albania1.7%

Armenia4.4%

Azerbaijan5.1% Bulgaria

7.6%

Georgia4.9%

Greece18.4%

Moldova1.8%

Romania5.9%

Russia15.6%

Turkey23.1%

Ukraine11.5%

Albania2.1%

Armenia3.7%

Azerbaijan4.2%

Bulgaria10.7%

Georgia4.7%

Greece15.8%

Moldova1.5%Romania

8.0%

Russia16.5%

Turkey22.3%

Ukraine10.5%




Source: BSTDB

Source: BSTDB

Source: BSTDB



Energy5.9%

Financials37.4%

Health Care3.1%

Industrials14.8%


Materials11.0%

Real Estate2.0%


Utilities10.7%

Albania1.7%

Armenia4.4%


7.6%

Georgia4.9%

Greece18.4%

Moldova1.8%

Romania5.9%

Russia15.6%

Turkey23.1%

Ukraine11.5%

Albania2.1%

Armenia3.7%

Azerbaijan4.2%

Bulgaria10.7%

Georgia4.7%

Greece15.8%

Moldova1.5%Romania

8.0%

Russia16.5%

Turkey22.3%

Ukraine10.5%

ANNUAL REPORT 2020

40

Co-Financing

TheBankvaluesitscooperationwithotherfinanciersinmobilizinginvestmentintheBlackSeaRegionandrealizingcross-countryoperations.SuchoperationspossesshighshareholdervaluefortheBankandarethereforepriorityactivities.

Inthecourseof2020,48%ofsignedportfoliowasco-financing.IntermsoftotalsignedactiveportfoliointheamountofEUR2.9billion,50.5%ofoperationsareco-financing.The shareof co-financedactiveoperations to totalportfoliooutstandingbalanceis51.0%.

Portfolio Developments During 2020

Followingahighly intensivebusinessdevelopmenteffort, in2020 theoutstandingportfolioof theBank increasedby11.8%.TheBankhassigned20newoperationsforatotalamountofEUR624million,whiletheBoDhasapproved22operationswithatotalvalueofEUR771.4million.During2020theBankdisbursedEUR784.7millionendingtheyearwithan outstanding amount of EUR 2,069 million.

Independentanddistinctfromtheabovenumbers,referringonlytodevelopmentsduring2020,theBankevaluated52businessproposals,whichwentthroughdifferentphasesoftheoperations’cycle.Ofthese,14weregoingthroughtheentireoperationscycleandgotBoDapproval.Of theoperations identified in2020,10operationsareexpectedtobesubmittedforapproval,while4alreadyapprovedoperationsareexpectingtobesignedin2021.




Source: BSTDB

Source: BSTDB

Source: BSTDB



Energy5.9%

Financials37.4%

Health Care3.1%

Industrials14.8%


Materials11.0%

Real Estate2.0%


Utilities10.7%

Albania1.7%

Armenia4.4%


7.6%

Georgia4.9%

Greece18.4%

Moldova1.8%

Romania5.9%

Russia15.6%

Turkey23.1%

Ukraine11.5%

Albania2.1%

Armenia3.7%

Azerbaijan4.2%

Bulgaria10.7%

Georgia4.7%

Greece15.8%

Moldova1.5%Romania

8.0%

Russia16.5%

Turkey22.3%

Ukraine10.5%

41


Thesedevelopmentsaregraphicallyexemplifiedbythefollowingstructure:

52 Business Proposals

42 Eligibility Reviews 10 Remained at Exploratory Stage

18 Remained in Eligibility Review

24 Projects Presented at Concept Clearance

24 Approved at Concept Clearance

14 presented at Final Review

14 Approved at Final Review

14 Presented at BoD

14 Approved at BoD

4 Remained to be signed

10 Remained at Concept Clearance

10 operations signed

ANNUAL REPORT 2020

42

Selected BSTDB Financings in 2020Prometheus Gas II - Supporting Russian Exports to Greece

PrometheusGasIIisacontinuationofthecollaborationbetweentheBankandPrometheusGasS.A.andpertainstotherenewaloftheexistingLetterofGuaranteeforanamountofuptoEUR30millionasameansofpaymentsecurityforthebenefitofitsgassupplier,GazpromExportLLC,forthesupplyofnaturalgasfromRussiatoGreeceviapipeline.

PrometheusGasS.A.isajointventureownedbytheRussiancompanyGazpromExportLLC(50%)andtheGreekcorporategroupCopelouzosGroup.

TheOperationhassignificantelementsofregionalcooperationimpact,enablingthesupplyofnaturalgasfromRussiatoGreeceviapipeline,thusassistingtheHellenicRepublicinincreasingitsenergysecuritybydiversifyingitsenergymixandassistingtheRussianFederationinincreasingitsexportactivity.

BSTDB approved amount: Up to EUR 30 million

TotalOperationcost: N/A

Typeoffinancing: guarantee

Maturity: 14 months

43


State Leasing Transport Company (STLC) – Further Support to the Russian Maritime Sector

TheBankhasbeenpromotingthedevelopmentoftheRussianmaritimesectorbyparticipating intheproject fortheconstructionofanewportLavnaintheKolaBayintheBarentsSeaandforbuildingnewice-classpassengervesselsforsubsequent lease to Russian operators.

Backin2019,BSTDBprovidedafirstloanofUSD69milliontotheStateTransportLeasingCompany(STLC)forthepurchaseofequipmentforLavna.TwofurtherloansofcombinedUSD63milliontoSTLCweresignedduring2020.Thenewroundoffinancingisearmarkedfortheconstructionoftwomodernice-classvesselsandacquisitionoftransshipmentmachineryfor Lavna deep-sea terminal.

Projects in this sector have a substantial development effect for the transportation infrastructure that supports theconnectionofRussianbusinesseswithglobalmarkets.TheinvolvementoftheBankinvesselsfinancingwillboostthedevelopmentandmodernizationofpromisingeconomicsectorssuchaspassengerstransportationandtourismandwillalsoreducetheenvironmentalimpactoftradingindesignatedemission-controlareas,asthesevesselswillusefuelwithasulphurcontentbelow0.1%.

BSTDB approved amount: USD 63 million


Typeoffinancing: loan

Maturity: 8 years

Locko Bank (Russia)

TheBankprovidedaRUB2billionloantoLockoBankforon-lendingtosmallandmedium-sizedenterprises(SMEs)inRussia.ThefacilitysupportsRussianSMEswhichweremostlyimpactedbytheCOVID-19crisisandhelpsmaintainjobsandincomegeneration,thussustainingtheresilienceoftheSMEsector.TheRuble-denominatedfacilityrespondstotheincreasingmarketdemandforlocalcurrencyfinancing,freefromexchangeratefluctuations.

WiththeloantoLockoBankBSTDBfurtherexpandsitslocalcurrencyfundingtopartnerfinancialinstitutions.InthepastfouryearsBSTDBprovidedRuble-denominatedloanstotheRussianfinancialsector,foratotalamountofaboutRUB15billion,thussupportingtheeconomicactivityinthecountry.

BSTDB amount: RUB 2 billion

Typeoffinancing: loan for SME financing

Maturity: 5 months, revolving

ANNUAL REPORT 2020

44

Promoting Improved, Environmental-Friendly Public Transportation in Izmir (Turkey)

BSTDBprovidedalong-termloanofEUR50milliontoIzmirMetropolitanMunicipalityforfinancingtheconstructionofa7.2kmmetrolinewithsevenundergroundmetrostations,theFahrettinAltay-Narlidere-Kaymakamlikmetroline. Withagrowingpopulationofoverfourmillionpeopleandaboomingtourismindustry,Izmir,locatedonTurkey’sAegeancoast,isinever-growingneedofbetterpublictransporttoprovideaviablealternativetopollutingcartravelonthecity’scongested roads.

The Fahrettin Altay-Narlidere-Kaymakamlik metro line will improve the connection between a university campus, ahospitalandretailareas.Theprojectwillextendtheexisting19kmEvka3-FahrettinAltaylineandwilllinkupwithbus,suburbanrailandtramnetworks.ThemetroprojectisanimportantpartofIzmir’s250kmrailsystemandwillexpandcity’stransportnetworkandhenceimprovethequalityofurbantravelforthelocalresidentsandtourists.

TheIzmirMunicipalitywillimplementandfinancetheproject,whichhasatotalcostofEUR168millionandtheIzmirMetroCompany,fullyownedbythemunicipality,willoperatethemetroline.Theprojectisco-financedwiththeEBRD.

BSTDB approved amount: EUR 50 million

TotalOperationcost: EUR 168 million


Maturity: 10 years

45


Financing Sofia Airport Concession to Boost the Development of a Strategic Bulgarian Airport

BSTDBcommittedEUR83million long-termfinancing to support the largestconcession inBulgaria’s transport sectorandthefirstmajorPPPproject inthecountry inthelastdecade:theconcessionofSofiaInternationalAirport.BSTDBparticipatesinthislandmarktransactionalongsideEBRD,IFCandcommercialbanks.

TheborrowerisSOFConnectAD,aSpecialPurposeVehiclemajorityownedbyMeridiamGroup,France,awell-establishedinfrastructureinvestmentfirm.

TheBSTDBfinancingwillsupporttheprivatesectorinvolvementintheinfrastructuresectorinBulgaria.Inadditiontotheoperationandmaintenanceoftheairportforaperiodof35years,theprojectencompassesthemodernisationandupgrading of this strategic airport for the country.

In thecurrentCOVID-19pandemiccritical circumstances for theaeronauticsector, theBank’s loan is instrumental toensurethepaymentoftheupfrontconcessionfeetotheGovernmentofBulgariaandfortheinitialcapitalexpenditureaimedtomodernizeandupgradetheairport.SofiaAirportisthelargestairportofBulgariaandthemaininternationalairport of the country, handling 7.1 million passengers in 2019.




Maturity: 7 years

Metinvest Investment Loan (Ukraine)

BSTDB has extended a EUR 62million loan toMetinvestGroup (Ukraine), active in themining and steel productionindustry,withtheaimtofinancepurchasesofspecialisedequipmentandmachinery.

TheBankisgladtoassistMetinvest,aleadingUkrainianmanufacturerandemployer,inimplementingitsdevelopmentandcapitalexpenditureprogramfocusedonimprovedproductiontechnology,efficiencyandenvironmentalimpact.GiventhevitalroleofthissectorinUkraine’seconomyanditsexports,thisoperationwillhaveanimportantdevelopmentalimpact.TheGroupplans topurchasenewequipment from,andexport itsproducts tootherBSTDBmember countries, thusstrengtheningtheregionalcooperation.




Maturity: 7 years

ANNUAL REPORT 2020

46

Liquidity Support to a Leading Bulgarian Vegetable Oil Producer and Exporter Oliva

BSTDBprovidedEUR35milliontosupporttheoperationsofBulgaria’s leadingproducerofvegetableoilOlivaand itsparent company, Buildcom. The short-term trade finance facility is part of a debut group secured syndicated facilitycontributedbyBSTDBandinternationalcommercialbanks.Theadditionalliquidityfundingsource,complementarytothelinesofcreditfromlocalbanks,wasneededduetoexpandedproductionactivityofOliva:inOctober2019thecompanystartedtooperate itsthirdnewcrushingplantnexttoVarnaportontheBlackSeashore,thusdoublingthecrushingcapacity of the company.

BSTDBfundingwasprovidedamidthechallengingenvironmentofongoingCOVID-19pandemic.Itfinancesthegroup’spurchasesofsunflowerandrapeseedforthecrushingbusinesscycleatthreefactories, includingtheprepaymentstofarmersbeforeandduringharvestingthecrops,thusenablingOlivatosecureitssupplycontractsandfuturedeliveries.

Theloanfollowsthewholeproductionlogistics,fromfinancingpurchasesandstorageoffeedstocks,fundingtheindustrialcrushingcycle,thestorageofthevegetableoilsandby-products,untiltransitandexporttakeplaceandsalescollectionisachieved.Inaddition,thefinancingstrengthensanotherbusinesslineofthegroup,thegraintrade:theprocurement,transportation,storageofgrainsandseedsandtheirexporttotheinternationalmarkets.Thisactivityisperformedbythegroup in parallel to the crushing business, as farmers usually produce both oil seeds and grains.




Maturity: 12 months

NBG Factors (Greece)

OwnedbytheNationalBankofGreece,oneofthelargestsystemicGreekbanks,NBGFactorswilluseaEUR40milliontradefinancefacilityfromBSTDBtosupportitsfactoringactivityandpromotetradefinancetransactionsinBSTDBmembercountries.ThroughthisoperationtheBanksignalsitsconfidenceinthefinancialservicessectorofGreece,whichhasbeenstronglyrecoveringfromtheeconomiccrisisandintheinstitutionaldevelopmentofNBGactorsspecifically.Extendedinthetimesofthepandemiccrisis,thisloan,throughNBGFactorsasintermediary,willhelpGreeksmallandmedium-sizedenterprises and entrepreneurs to address the pandemic crisis challenges and achieve recovery.

BSTDB amount: EUR 40 million

Typeoffinancing: short term trade finance facility

Maturity: 12 months, revolving

47


Ukrgasbank (Ukraine)

TheBankprovidedaEUR30millionloantoUkrgasbank,aleadingUkrainianfinancialinstitution,topromotefinancingforgreenenergy, includingenergyefficiency, renewableenergyandother“green”projects, thusreducingthecarbonfootprintintheUkrainianindustry.TheBSTDBloanwillalsobeusedtohelpUkrainiansmallandmedium-sizedenterprises(SMEs)toweatherandrecoverafterthepandemiccrisis.

Ukrgasbankisawell-positioned“green”bankwhichpromotessustainableand“green”solutionsinUkraine.Giventhechallengingbusinessconditionsin2020amidtheCOVID-19crisis,BSTDBfinancingaimstocontributetoabetterresilienceoftheSMEsector,savingjobsandhelpingmaintainincomegenerationinthecountry.

BSTDB amount: EUR 30 million

Typeoffinancing: loan for “green” energy and SME financing

Maturity: 5 years

ANNUAL REPORT 2020

48

Ardshinbank SME Financing (Armenia)

BSTDBextendedaUSD20millionfacilitytoitspartnerArdshinbanktoenhancethesupportforsmallandmedium-sizedenterprises(SMEs)inArmenia.ThisBSTDB’sfourthSMEfacilitydemonstratesthestrengthenedcooperationbetweenthetwoinstitutionstojointlyassistSMEs,themostvulnerablebusinesssegmentamidtheturmoilcausedbytheoutbreakofthe COVID-19 pandemic.

Thefive-yearloanwillenableArdshinbanktoofferthemuch-neededmedium-termfinancingforSMEs’investmentsandworkingcapitalneeds.InthedifficulttimesBSTDBsupportstheeffortsofitsMemberStatestoreducethenegativeimpacttheCOVID-19pandemichasonhumanlives,societiesandeconomicactivity.Despitethechangesinmarketperceptionsofriskandliquiditycausedbythepandemic,theBankcontinuestosupportthemostvulnerablesegmentofcompanies,the SMEs.

BSTDBisactivelysupportingthedevelopmentinArmeniaoftheSMEsector,whichisthebackboneofcountry’seconomy.BSTDBhasallocatedoverEUR130millionforSMEfinancingthroughlocalfinancialinstitutionsinArmenia,includingUSD35 million through Ardshinbank.

BSTDB amount: USD 20 million

Typeoffinancing: loan for SME financing

Maturity: 5 years

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T E C H N I C A L A S S I S T A N C E S U P P O R T

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).BSPPF focusesonpilotmedium-sizedprojectsmeetingtheestablishedcriteriaandrequirementsofBSECPERMISandBSTDB. In2020,BSPPFconcludeda fourthassignmentrelatedtothecreationof anonline center for thepromotionofpublic-privatepartnership (PPP) investments in theBlack SeaRegionandafifthassignmentforprovisionoflegaladviceforimplementinganunfundedriskinsuranceinstrumentcoveringaBSTDBlendingoperation.

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Addressing SustainabilityThe Approach

SustainabilityisaddressedbyBSTDBthroughtheoperationsitfinances,andtheprinciplesitfollowsinthisrespectareat heart of theBank’s operation cycle. Pollutionpreventionandmitigation, respect for fundamental human rights intheworkingenvironment;tacklingclimatechange;protectionoftheBlackSeaagainstpollution;efficientuseofnaturalresources,protectionandconservationofbiodiversity;disclosureofinformationonenvironmentalandsocialperformanceofitsoperations;andengagementinopendialoguewithstakeholders,areallkeysustainabilityprinciplesthatformtheduediligencepracticeofBSTDB.

The Due Diligence

AsafirststepBSTDBscreensitsprospectiveoperationsintoA,B+,B,CandFIcategories,dependingontheassociatedpotential environmental and social risks and impacts, and the scope of the environmental and social due diligencenecessarytoidentify,assessandmitigatetheserisksandimpacts.TheduediligenceofoperationsfinanceddirectlybyBSTDB,dependingonrelevanceineachspecificcase,focusesonsuchissuesastheenvironmentalandsocialmanagementappliedbytheborrowers;labourandworkingconditionsandhowpeoplearetreatedintheworkingenvironment;theappliedpollutionpreventionandabatementmeasuresandhowefficienttheresourcesarebeingused;potentialrisksonthelocalcommunities,theirhealth,safetyandsecurity;issuesrelatedtolandacquisition,involuntaryresettlementandeconomicdisplacement;impactsonbiodiversity,ecosystemservicesandsustainableuseoflivingnaturalresources;protection of any cultural heritage; and potential risks and impacts on indigenous peoples if present in the area ofinfluenceoftheoperation.

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,disclosureofrelatedinformationabouttheoperationbeforeitmaybeconsideredbytheBSTDB’sBoardofDirectors,itspotentialenvironmentalandsocialrisksandimpacts,publicreviewandcomment.

The Standards and Compliance Requirements

TheBankappliesgoodinternationalenvironmentalandsocialpracticesinalltheoperationsitfinances.Bygoodpractices,the Bank recognizes the performance standards and requirements of the leading Multilateral Development Banks(MDBs), development Agencies, the European Union (EU) environmental and social standards, the ILO CLS, the World HealthOrganization(WHO)standards,relevantIMOconventions,aswellasrelevantinternationalconventions,suchasConventionontheProtectionoftheBlackSeaAgainstPollution,andthemultilateralenvironmentalagreementsundertheUnitedNationsEconomicCommissionforEurope(UNECE),inparticulartheConventiononAccesstoInformation,PublicParticipationinDecision-MakingandAccesstoJusticeinEnvironmentalMatters(AarhusConvention),andConventiononEnvironmentalImpactAssessmentinaTrans-boundaryContext(EspooConvention).

TheoperationsconsideredbyBSTDBneedtocomplywiththefollowingminimalenvironmentalandsocialrequirements:1)National andapplicable EUenvironmental, labour, health and safety, andpublic information laws and regulations,includingnationalcommitmentsunder international law;2)Availabilityofpermits,approvals, licensesandcertificatesrequiredunderrelevantlawsandregulations;3)CategoryAoperationsneedtomeettherequirementsappliedbyEU,namelytheEnvironmental ImpactAssessment(EIA)Directiveandrelevantsector-specificandcross-cuttingDirectives,ortherequirementsappliedbytheWorldBankGroup.CategoryAoperationsthatarelikelytogeneratetrans-boundaryimpactsneedtomeettherequirementsstipulatedundertheEspooandAarhusConventionsirrespectivewhetherthecountryofoperationisapartytotheConvention;and4)MeettherequirementsoftheBSTDBEnvironmentalandSocialExclusion List.

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Public Disclosure

AsanintegralpartofBSTDB’ssustainabilityapproachtheBankinformsthepublicinatransparentandtimelymannerabouttheenvironmentalandsocialaspectsofitsoperations.ThisinformationispostedontheBank’swebsiteasOperationSummaryDocuments(OSDs)andincludesgeneralinformationabouttheoperationfinanced,aswellasinformationonenvironmentalandsocialscreening,thepotentialrisksandimpacts,andhowthesewillbeaddressed.OSDsaredisclosedtothepublicaftersuchoperationsareapprovedbytheBank’sBoardofDirectors.

CategoryAoperationsaredisclosedtothegeneraland/orinterestedpublicbeforethesearepresentedtoBSTDB’sBoardofDirectorsforconsideration.Theoperationsintheprivatesectoraredisclosednotlaterthan30calendardaysbeforetheBoardofDirectorsmeeting,andtheoperationsinthepublicsectoratminimum60calendardaysbeforeconsideredforapproval.TheenvironmentalandsocialinformationrelatedtoCategoryAoperationsisdisclosedontheBank’swebsiteand is open for public comments.

Monitoring and Institutional Aspects

All the operations financed by the Bank are monitored against the agreed environmental and social compliancerequirementsinordertoensurethatrelevanttermsandconditionsstipulatedinthelegalagreementaremet.Inadditiontothat,monitoringhelpstheBanktodeterminewhetherthepreventionandmitigationmeasuresemployedinmanagingtheenvironmentalandsocialrisksandimpactsareeffectiveorneedadjustments.

All aspects of environmental and social sustainability of the Bank are led by the Environmental and Social Sustainability Office,which ischarge fordevelopingand implementingrelevantstrategicobjectives,policystatements,and internalprocedures;itleadstheindependentenvironmentalandsocialduediligenceprocessofoperations;andadvisestheSeniorManagementontherelevantrisksandimpactsofthefinancingdecision-makingandthegeneralE&SperformanceoftheBank;thus,ensuringtheBank’sactivitiesdonotaffectthestateofenvironmentandhumanwell-being,andcontributingtoamoreefficientfulfillmentoftheBank’sdevelopmentmandate.

International Cooperation

BSTDBcooperatescloselywithpartnermultilateralandbilateralfinancialinstitutions,businesses,civilsociety,andgeneralpublic.AttheEuropeanlevelBSTDBisactivelyinvolvedintheEuropeanDevelopmentFinanceInstitutions(EDFIs)WorkingGroup on Environmental and Social Issues. This is a high-level forum that brings together all the European Bilateral Financial Institutions in joining efforts to harmonize their environmental and social practices and achieve higher developmenteffectivenessoftheirfinancing.

AtthegloballeveltheBankpartnerswithitspeersaspartoftheMultilateralFinancialInstitutions(MFI)WorkingGrouponEnvironmental and Social Standards (WGESS). The Group is another high-level forum represented by the key environmental andsocialrepresentativesofMFIsanddevelopmentagenciesaroundtheworld,whichaimstodeeperharmonizetheenvironmental and social sustainability practices by sharing experiences and developing common approaches andpartnerships.

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Institutional Activities

H U M A N R E S O U R C E S

HumancapitalandstaffresourcesareakeyfactorinthesuccessofBSTDB.Theinstitutionstrivestomaintainitsstatusasacompetitiveemployerfollowinginternationalstandardsandbestpractices,applyingmeritocraticrecruitment,andaremunerationsystemthatpromotesexcellenceandpositiveincentives.

HR Development

InspiteoftheobjectivedifficultiesposedbytheCOVID-19realities,theyear2020wasmarkedbytheimprovementofcertainimportantHRpolicies.Morespecifically,importantmodificationsweremadetotheBank’sBenefitsandAllowancePolicy,theBank’sRemunerationPolicy,andtheBank’sRulesforWorkandLeave.

Thefollowingisamoredetaileddescriptionofeachoftheseachievements.

The modifications to the Benefits and Allowance Policy concentrated on streamlining the administration of certainimportantallowances, andon theadditionof certainbenefits intended to facilitate theadaptation tonewCOVID-19realitiesforthestaff’sfamilies.

ThemodificationoftheRemunerationPolicybroughtabouttheintroductionofacomplexcompositionforstaff’sbasicsalariesintendedtoregularizetheimplementationofcertainsalary-relatedBankactions.

ThenewbenefitsintroducedwithintheframeworkoftheRulesforWorkandLeaveaimatprovidingmoreflexibilitytothestaffwithintheframeworkofmaternityleavebenefits,andatexpandingthesetofbenefitsavailableunderadoptionleave.

AnewBankPerformanceManagementSystemwasimplementedseveralyearsago.ThisSystemwasintendedtoofferincreased objectivity by linking individual performance to the performance of the institution through a process ofcascadingobjectivesatdifferentorganizationallevels.Italsointroducedmonetaryrewardsdirectlylinkedtoperformance.TheexperienceaccumulatedwiththeSystem’simplementation,however,necessitatedarevisionoftheSystemsoastoimprovetheaccuracyofthestaffperformanceappraisalprocess.TheBankisinthefinalstageofthisrevisionandtheimplementationof thenewPerformanceManagementSystem isplannedtotakeplacewithin2021.ThenewSystemwillprovidemeaningfulandprecisetoolsfortheevaluationoftheInstitutionalandDepartmentalperformance,andwillplaceanemphasisonmanagerialdiscretionforthedistributionofindividualbonuseswithinthedepartmentalbonuspoolcalculated on the basis of departmental performance.

Staffing and Recruitment

BSTDBconductsrecruitmentonawidegeographicalbasis.Whilepreferenceisgiventocitizensofthemembercountries,recruitmentiscompetitiveandisbasedontheprofessionalqualificationsofthecandidates.Inthecourseof2020,inspiteoftheCOVID-19limitations,theBankmanagedtorecruit7newemployees,whichbroughttheBank’stotalheadcountto115full-timeemployeesasat31December2020.

Staff Development

BSTDBofferslearningopportunities,addressingthedevelopmentneedsofitsstaffwithinthecontextoforganizationalbusinessrequirements.Thepolicyontraining,learninganddevelopmentestablishesaclearlinkbetweentheinstitution’sbusinessneedsandthedevelopmentofprofessionalandtechnicalskillsofthestaff.In2020,theemphasiswasplaced

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onin-housegrouptraining,whichspecificallycoveredthesubjectsofcybersecurityskills,AFMLTFtraining,marketabuseprevention,BSTDBproceduresrequirements,TeamsandOneDrive,onlineseminarsonPPP’sandpersonaldataprotection.

Staff Benefit System

BSTDBoperatesamarket-orientedstaffcompensationandbenefitssystemdesignedtomatchtheemploymentstandardsofotherinternationalfinancialinstitutions.

The BSTDB medical, life and temporary incapacity/long-term disability insurance plan provides adequate coverageemphasizingpreventivemedicalcare.BSTDBalsooffersoptionalpost-separationmedicalcoverage.

The BSTDB pension plan, launched in January 2003, is comprised of a fully funded defined benefit, and a definedcontributioncomponent, funded throughvoluntaryemployees’ and theBank’sequal contributions.This combinationofferstheflexibilityrequiredforbestmeetingtheneedsofamultinationalworkforce.

Contributing to the Implementation of the BSTDB Long-Term Strategy 2010-2020

TheBSTDB’sLong-TermStrategicFrameworkfor2010-2020identifiedtheimprovementoftheuseofhumanresourcesbybettermatchingavailableskillswithneedsamongitskeystrategicgoalsforthedecade.TheStrategyindicatedthat,inanyevent,thetotalnumberofstaffattheendoftheplanningperiodshouldnotexceed120.

Thenumberofstaffattheendof2020was115–withintheindicativelimitmentionedbytheStrategy.TheincreaseinthenumberofstaffoverthedecadecoveredbytheStrategyconstituted17%.

Overtheperiod,theBankworkedcontinuouslytomaintainitsstatusasacompetitiveemployerfollowinginternationalstandards andbestpractices. It hasdevelopedand improved itspolicies coveringall themajorHRaspectsofBank’sactivities: recruitment, compensation and benefits, pension, insurance, performance management, learning anddevelopment, succession planning etc.

TheBankcontinuouslymonitorsthedevelopmentsandchallengesintheareaofhealthinsurancesoastoensuretheproper levelof serviceand risk coverage for itsemployees. It is alsocommitted tomaking itsprivatepensionplanameaningfulsourceofincomeuponretirement,towhicheffectitiskeepingthepensionplan’sdefined-benefitcomponent100%-fundedbasedontheresultsoftheannualactuarialvaluationsand,overthedecade,has increasedthe levelofcontributionstothepensionplan’sdefinedcontributionscomponentinordertomaintaintheinitiallyintendedone-to-onedefinedbenefit/definedcontributiondistributionofpensionplanbenefits.

TheBankhasstartedtotransfer itsHRactivitiestotheSAPplatform–theworkthat iscurrently inprogresswiththetransferofthecorepersonnelmanagementandleaveadministrationmoduleshavingbeenimplementedandthepayrolland recruitment modules being next in the pipeline.

Duringthesubjectdecade,theBankbecameanactiveparticipantintheexperienceexchangegroupsbringingtogetherHRspecialistsinvariousareasfromalmostalltheIFIs.Therelevantinformationexchangeandstorageweb-basedplatformwascreatedunderthecoordinationoftheInternationalServiceforRemunerationsandPensions.

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I N F O R M A T I O N T E C H N O L O G I E S

Ten Years of IT Contribution to the Bank

TheITstrategyisalignedwiththeorganizationstrategicgoalsandobjectivesanditprovidesthetoolsneededforthebusiness todelivery theirobjectives. In the long-termstrategyof theorganization, IThasplayedan important role insupportingthebusinessbutalsoinprovidinginnovativetoolstoassisttheorganizationinreachingitslong-termstrategy,takinginconsideration,efficiency,productivityandsecurity.

Duringthelast10yearsaspartofthelong-termstrategy,IThasdeliveredthefollowing:

• Builtanagileoperatingenvironmentbasedfullyonvirtualtechnologiesatboththeserverandendpoints,usingvirtualdesktops,allowingtheBanktoeasilyprovisionservicesandusers’accesstoresources.

• BSTDBwasamongthefirstBanks inGreece, todeploya two-factorauthenticationto itsusersandBoardofDirectors by deploying the VASCO token technology, to provide secure remote access.

• Implemented,adigital-signaturesystem,thatallowedtheBanktodigitallysignelectronicdocuments.

• In 2017, won the Enterprise InformationManagement (EIM) Innovation Award, in the EnterpriseWorld ofOpenText’s annual event, on the solution that developed in integrating OpenText’s Extended ECM for SAPsoftwarewithSAPERP,increatingworkspacesforitsoperations.

• ImplementedtheSAPHumanCapitalManagementmodule,which is integratedwiththerestoftheSAPERPmodulesallowingittobettermanagestafftimeallocationandstaffdevelopment.

• Createdandupdateditswebsiteseveraltimestobettercommunicateitsmissionandvisionandreachingouttoclients,byallowingpotentialclientstosubmitonlinebusinessinquires,whichcouldbefinancedbytheBank.

• Deployed smart disaster recovery software to replicate its mission-critical systems and data to a BusinessContinuityOffice/Datacenter,toprovidetheBankwithbusinesscontinuitycapabilities.

• Deployed a number of videoconference capabilities to reach out to its clients and stakeholder to increasecollaboration.

IT Contribution in 2020

Year2020hasbeenachallengingoneforeveryoneduetoCOVID-19pandemicthathasaffectedhowbusinessoperates,creatinganewoperatingmodelbasedmostlyonteleworking.Sincestaffhealthwasthehighestpriority in theBank,COVID-19hasputpressureon the IT to reactquickly, toprovide staffwith theneeded tools to carryout theirworkfunctionswhileworkingremotely.

SinceBSTDBwasoperatingusingVirtualDesktops(VDI)foritspremiseanditsdisasterrecoveryenvironment,workingremotely inasecureway,capitalizingonthistechnological investment,andexpandingthisservicetoallstafftoworkremotelywhenthepandemicstarted.Allstaffuseatwo-factorauthenticationtoremotelyaccesstheirVDIs,allowingthem to carry out their business task as usual.

AlsotheBankhadinplaceanumberofconferencedevicesandaccounts(WebEx)whichitallowedtheManagementoftheBanktocommunicatewithandholdonlinemeetingwithstaff,clients,and itsshareholders(Boardsmeetings)forkeepingtheorganizationrunningduringthepandemic.

In itsMedium-TermStrategyfor2019-2022, IThadprovisionedtodeploycloud-basedapplications,suchasMicrosoftOffice365(O365),andduetothepandemic,thisprojectwasaccelerated.SotheBankbeforetheendof2020hadalreadyimplementedO365acrosstheorganizationandanumberofbusinessservicesareoperatedviaO365.MovingtoO365,increasedthecollaborationamongstaff,usinganumberoftheO365tools(OneDrive,Teams,SharePoint)tocarryouttheBank’s business.

Toprovideflexibilitytostaffinteleworking,theBankprovidedeachstaffwithaBankownedlaptop,deployingonthemtheappropriatesecuritysoftwareandcontrols,toextendtheBank’ssecurityperimeter,providingabetteruserexperienceworkingremotely.

Atthesametime,theBankimplementedaSecurityInformationandEventManagement(SIEM)solution,managedbyaSecurityOperationsCenter(SOC),tomanageitsinternalrisksanditssecurityposture.

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Workwasalsoundertaken to safeguard theSWIFTpayment systemaccording to SWIFTCybersecurity FrameworkbyisolatingtheSWIFTnetworkfromtheBank’sbusinessonebydeployingtheappropriateinfrastructureandanumberofsecurity controls and monitoring tools.

AnumberofsecurityactionshavebeentakeninordertohardenthesecurityprofileoftheBankbyimplementingdifferentsecuritysolutionsbutalsoautomatingcentrallythedeploymentofsoftware,softwareupdates,andpatchedtoallsystemsanddevices,andmitigatingvulnerabilities.

E X T E R N A L R E L A T I O N S

In 2020, the External Relations andCommunicationsDepartment (DER) supported the implementationof theBank’sMedium-TermStrategyandBusinessPlanadoptedfortheperiodof2019-2022andworkedtoimprovetheBank’simage,publicvisibilityandbusinesspromotionintheregionandbeyond.TheCovid-19pandemicrequiredaswiftadjustmentoftheBank’sactivities,andDERhasactivelycontributedtotheinstitution’sresponsetothecrisis.

Supporting the Bank’s Response to the Pandemic Crisis

AspecialpromotionalplanhasbeendevelopedtosupporttheBank’sactivitiesinthecontextoftheinternationalpandemicresponse.ApressreleaseontheBSTDB’spositionandresponsetothepandemic(March24)waswidelydistributedandgeneratedmultipleindependentpublicationsinmembercountries.

InMay,BSTDBsignedaEUR30million facilitywiththeDevelopmentBankofAustriaaimedtofinanceprivatesectorprojectsandinvestmentprogramsintheindustry,agricultureandservicesectors,aswellastoprovideworkingcapitalandexportfinancinginAlbania,Armenia,Azerbaijan,Georgia,MoldovaandUkraine.Themainbeneficiariesofthefacilityaresmallandmedium-sizedenterprises(SMEs),whichisthecategorymostaffectedbytheimpactoftheCovid-19pandemicandassuchprioritizedbyBSTDB.

InJune,BSTDBsignedaMemorandumofCooperationwiththeHellenicDevelopmentBank(HDB)initiatingafinancingprogram aimed to support the post-pandemic recovery of Greek SMEs. InJuly,BSTDBhostedahigh-levelwebinarco-organizedwiththeInternationalCentreforBlackSeaStudiesonthepost-pandemicrecoveryoftheBlackSeaeconomiesbasedonananalyticalpaperpreparedbytheBank.Apanelofprominentinternationalexpertsdiscussedtherecentdevelopmentsandchallengestore-starteconomiesandre-establishtrade,investmentandfinancinglinks,aswellastheexpectedimpactofthepandemiconthelong-termeconomictrendsintheBlackSeaRegion.Thewebinarattracteda150-strongbusinessaudiencefrom26countriesacrosstheglobe.

OvertheperiodofSeptember-December,BSTDBhostedthreewebinarsforthebusinesscommunitiesofBulgaria,RomaniaandUkrainepresentingtheBank’sproductsandservicesaimedatassistinglocalbusinessesinpost-pandemicrecoveryinclosecollaborationwiththenationalbusinessassociationsandmedia.

Duringtheyear,theBankissuedspecialbrandedPPE, includingfacemasks,sanitizers,etc.,thatwereofferedtostateauthorities,partnersandparticipantsintheBank’sbusinessmeetingspromotionalevents,aswellastoBank’sManagementandstaff.

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Strengthening Cooperation with Partners in Development Contributing to the Implementation of the BSTDB Long-Term Strategy 2010-2020

TheBSTDB’sLong-TermStrategicFrameworkfor2010-2020 identifiedthestrengtheningnetworksofcooperationandpartnershipwithpeerIFIs,bilateralassistanceinstitutionsandotherstakeholdersoperatingintheregionamongitskeystrategic goals for the decade.

EnhancedcooperationwithIFIs,donorsandotherexternalactorsbecameanincreasinglyimportantmodeofoperationfor BSTDB, as it sought to develop partnerships. Partnerships helped achieve greater access to extra-regional funding, leveragedtheBank’sresources,improvedrisksharingandestablishednewnetworksoffinancing.TheycontributedtotheBank’sgreatervisibilityandtransparencyofoperations,andimprovedinformationsharingandpolicycoherence.

Over the period, four leading development banks – the European Bank for Reconstruction and Development, AsianDevelopmentBank, IslamicCorporationfor theDevelopmentof thePrivateSector,andVnesheconombankofRussia-appliedandreceivedObserverStatusatBSTDB,enablingthemtoestablishcloseandregularbusinessandinstitutionalinteraction.ThetotalnumberofBSTDBObserverinstitutionsincreasedtotwelve,includingallmajorIFIs.

Duringthedecade,theBank’sestablishedcooperationwithObserverinstitutionshelpedattractoverEUR500millionfromoutsidetheregionthroughcreditlinesfromtheEuropeanInvestmentBank,NordicInvestmentBank,KfWofGermany,AustrianDevelopmentBankandProparcoofFrancetosupportregionalSMEs,renewableenergy,agriculture,andothersectors in the BSTDB member countries.

BSTDB has also intensified its cooperation with the global development community through signingMemoranda ofUnderstanding (MoUs) with international development institutions worldwide, including European Investment Fund,the Global Infrastructure Hub, the Bank of China, the Eurasian Development Bank, theOPEC Fund for InternationalDevelopment, Import-Export Bank of China, etc.

TheBank’soutreacheffortsintheBlackSeaRegionledtoconcludingMoUswithnationaldevelopmentinstitutionsandbusinessassociations,includingtheBulgarianDevelopmentBank,theUnionofChambersandCommodityExchangesofTurkey,theForeignInvestorsAssociationofAlbania,theFederationofIndustriesofNorthernGreece,theChambersofCommerceandIndustryofUkraineandMoldova,theRussianPublicOrganization“BusinessRussia”andothers.

Apart fromimplementing itsbusinessdevelopmentmandate,BSTDBcontributedtotheregionalcooperationthroughsupporting cultural and social links amongmember countries. The Bank has initiated and hosted at its premises artexhibitionsofartistsfromBulgaria,TurkeyandGreece.In2020,theBanksignedaFrameworkCooperationAgreementwiththeThessaloniki-basedInternationalHellenicUniversitytojointlysupportandimprovegraduatestudiesandprofessionaldevelopment of young people in the countries of the Black Sea Region and beyond.

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O P E R A T I O N A L D E V E L O P M E N T S

Throughtheapprovalofanew“ProcedureontheUseofFunds”,asolidprocedurewasputinplacetoensuretheeffectiveutilizationoffundsdisbursedbytheBank,seekingtoenhancethedevelopmentimpactofitsoperations,inlinewithitsmandate.

A D M I N I S T R A T I V E S E R V I C E S

Contribution to the 10-Year Strategy Implementation

Duringthedecadeto2020,theAdministrativeServicesDepartmentcontinuedeffortstoimprovetheoverallefficiencyof thedepartmentandprovidehigherqualityofservicetotheBankstaff.Outsourcingofnon-essentialservices,staffredeployments,andenhancedteambehaviourallowedforgreaterflexibilityinworkprogramsandincreasedproductivityatthestaffandunitlevelby28%.Furthermore,thedepartment:

• Introducedaproactivedriveforthereductionoftheuseofpaperinitswork,eventuallyeliminatingcompletelypaperarchivesandfacilitatingthetransitiontoworkingremotelymandatedattheendofthedecadebythepandemic.

• IntroducedsubstantialenhancementstothetelecommunicationscapabilitiesoftheBank’spersonnel,throughtheintroductionofextendeddataandcallroamingfacilities,whicheffectedincreasedproductivityofbusinesstravellersandoptimaluseoftheBank’sresources.

• Implementedsignificant improvements inthemanagementof facilities, includingenhancedsecurity, thecreationof specialized areas (for archives, meetings, catering, gym, cultural events, etc.), and space rationalization. Thisimprovedvastlytheinfrastructureforstaffandvisitorsandpermittedtheaccommodationofadditionalpersonneland functions.Buildingmaintenanceactivitieswerecentralized to induceaccountabilityandswiftresponsetime,whilethecostofheatingfueldroppedby45%andthatofotherutilitiesby15%,reducingaccordinglyitsparticipationinthecarbonfootprintoftheorganization’sactivitiesinitspremises.

• Spearheadedtheresolutionofmanypendingissueswiththeprivilegesandimmunitiesoftheexpatriatepersonnel,such as residency rights, duty-free purchases, etc.

Contribution to the Bank’s Activities in 2020

During2020,theAdministrativeServicesDepartmentconcentrateditseffortsontheseamlessperformanceofpurchasingprocessesduringpandemic-inducedlockdownsandteleworking,onpromotingeffortsfortheacquisitionofnewpremises,onresolvinglong-standingissuesrelatedtotheexpatriatestaff’sprivilegesandimmunities,onadaptingallregulationstoGDPRrequirementsandonincorporatingarestructuringofactivitiesmadenecessarybychangesinitshumanresources.It’smostsubstantialachievementswereasfollows:

• Teleworking: Thedepartment introduced a remote approval system for purchases and relatedpayment,while itdevelopedasystemofexchangeofelectronicdocumentationforpaymentswithnoadditionalITinfrastructureorinvestment.

• Newpremises:Thedepartmentproceededwithduediligenceofpromisingproperties,whilecompletingthetermsofthefuturecallfortendersforafinishedbuildingtohousetheBank’spermanentpremises.

F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D3 1 D E C E M B E R 2 0 2 0

Together with Auditor’s Report

F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D3 1 D E C E M B E R 2 0 2 0

Together with Auditor’s Report

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Internal Controls over External Financial ReportingR E S P O N S I B I L I T Y F O R E X T E R N A L F I N A N C I A L R E P O R T I N G

Management’s responsibilityManagement’s report regarding the effectiveness of internal controls over external financial reporting

ThemanagementoftheBlackSeaTradeandDevelopmentBank(“theBank”)isresponsibleforthepreparation,integrity,andfairpresentationofitspublishedfinancialstatements.ThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)issuedbytheInternationalAccountingStandardsBoard.

Thefinancialstatementshavebeenauditedbyanindependentauditingfirm,whoweregivenunrestrictedaccesstoallfinancial recordsandrelateddata, includingminutesofallmeetingsof theBoardofDirectorsandcommitteesof theBoard.Managementbelievesthatall representationsmadetotheexternalauditorsduringtheirauditwerevalidandappropriate.Theindependentauditors’reportaccompaniestheauditedfinancialstatements.

ManagementisresponsibleforestablishingandmaintainingeffectiveinternalcontrolsoverexternalfinancialreportingforfinancialstatementpresentationsinconformitywithIFRS.Managementmaintainsacomprehensivesystemofcontrolsintendedtoensurethattransactionsareexecutedinaccordancewithmanagement’sauthorisation,assetsaresafeguardedandfinancialrecordsarereliable.Thesystemofinternalcontrolscontainsmonitoringmechanisms,andactionsaretakentocorrectdeficienciesidentified.Managementbelievesthatinternalcontroloverexternalfinancialreporting,whicharesubjecttoscrutinyandtestingbymanagementandinternalaudit,andarerevisedasconsiderednecessary,supporttheintegrityandreliabilityofthefinancialstatements.

Thereareinherentlimitationsintheeffectivenessofanysystemofinternalcontrols,includingthepossibilityofhumanerrorandthecircumventionofoverridingcontrols.Accordingly,aneffective internalcontrolssystemcanprovideonlyreasonable,asopposedtoabsolute,assurancewithrespecttothefinancialstatementspresentationandpreparation.Furthermore,theeffectivenessofaninternalcontrolssystemcanchangeovertime.

TheBank’sBoardofDirectorshasappointedanAuditCommittee,whichassiststheBoardinitsresponsibilitytoensurethesoundnessoftheBank’saccountingpracticesandtheeffectiveimplementationoftheinternalcontrolsthatmanagementhasestablishedrelatingtofinanceandaccountingmatters.TheAuditCommitteeiscomprisedentirelyofmembersoftheBoardofDirectors.TheAuditCommitteemeetsperiodicallywithmanagementinordertoreviewandmonitorthefinancial,accountingandauditingproceduresoftheBankandrelatedfinancialreports.Theinternalauditorsregularlymeetwith theAudit Committee, to discuss the adequacy of internal controls over financial reporting and any othermatterswhichtheybelieveshouldbebroughttotheattentionoftheAuditCommittee.

TheBank’sassessmentoftheeffectivenessofitsinternalcontrolsoverexternalfinancialreportingwasbasedonthecriteriasetforthinthe“InternalControl–IntegratedFramework”(2013)issuedbytheCommitteeofSponsoringOrganisationsoftheTreadwayCommission(COSO).Baseduponthisassessment,managementconcludedthatasof31December2020,itsinternalcontroloverfinancialreportingwaseffective.

Inadditiontoprovidinganauditopiniononthefairnessofthefinancialstatementsfortheyearended31December2020,theexternalauditorsoftheBankconductedanindependentassessmentoftheBank’sinternalcontroloverfinancialreportingasof31December2020andtheirassurancereportispresentedseparatelyinthisfinancialreport.

Dmitry Pankin Valeriy PiatnytskyiPresident Vice President, Finance

Black Sea Trade and Development BankThessaloniki20 May 2021

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ANNUAL REPORT 2020

DeloitteCertifiedPublicAccountants S.A. 3aFragkokklisias&Granikoustr. Marousi Athens GR 151-25Greece Tel:+302106781100 www.deloitte.gr

INDEPENDENT REASONABLE ASSURANCE REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Governors and the Board of Directors of Black Sea Trade and Development Bank

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 theBankasofDecember31,2020, in the formofanindependent reasonableassuranceconclusionaboutwhether the internal controloverfinancial reporting iseffectivebased on criteria established in Internal Control — Integrated Framework (2013) issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).

Bank’s Responsibilities

The Bank’s management is responsible for maintaining effective internal control over financial reporting and for itsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingAnnualReport.

Our Responsibility

OurresponsibilityistoexpressareasonableassuranceconclusionontheBank’sinternalcontroloverfinancialreportingbased on the evidence obtained.

WehavecompliedwiththeindependenceandotherethicalrequirementsoftheCodeofEthicsforProfessionalAccountantsissued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles ofintegrity,objectivity,professionalcompetenceandduecare,confidentialityandprofessionalbehavior.

ThefirmappliesInternationalStandardonQualityControl1and,accordingly,maintainsacomprehensivesystemofqualitycontrol including documented policies and procedures regarding compliancewith ethical requirements, professionalstandards and applicable legal and regulatory requirements.

WeconductedourengagementinaccordancewiththeInternationalStandardonAssuranceEngagements(ISAE)3000(Revised).Thisstandardrequiresthatweplanandperformourprocedurestoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Theproceduresselecteddependonourjudgementandincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,testingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk,andperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethat our procedures provide a reasonable basis for our conclusion.

Wecommunicatedanyfindings importantenoughtomeritattentionby thoseresponsible foroversightof theBank’sfinancialreporting,tothosechargedwithgovernance.

61


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,andthatreceiptsandexpendituresoftheBankarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsoftheBank;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,asof31December2020,basedoncriteriaestablishedinInternalControl—IntegratedFramework(2013) issued by COSO.

Athens, 20 May 2021

TheCertifiedPublicAccountant

AlexandraKostaraReg. No SOEL:19981DeloitteCertifiedPublicAccountantsS.A.3aFragkokklisias&Granikoustr.,GR151-25Marousi,Athens,GreeceReg. No SOEL: E 120

ThisdocumenthasbeenpreparedbyDeloitteCertifiedPublicAccountantsSocieteAnonyme.DeloitteCertifiedPublicAccountantsSocieteAnonyme,aGreekcompany,registeredinGreecewithregisterednumber0001223601000anditsregisteredofficeatMarousi-Attica,3aFragkokklisias&Granikoustr.,15125,isoneoftheDeloitteCentralMediterraneanS.r.l.(“DCM”)Countries.DCM,acompanylimitedbyguaranteeregisteredinItalywithregisterednumber09599600963anditsregisteredofficeatViaTortonano.25,20144,Milan,ItalyisoneoftheDeloitteNSELLPGeographies.DeloitteNSELLPisaUKlimitedliabilitypartnershipandmemberfirmofDeloitteToucheTohmatsuLimited,aUKprivatecompanylimitedbyguarantee(“DTTL”).DTTLandeachofitsmemberfirmsarelegallyseparateandindependententities.DTTL,DeloitteNSELLPandDeloitteCentralMediterraneanS.r.l.donotprovideservicestoclients.Pleaseseewww.deloitte.com/abouttolearnmoreaboutourglobalnetworkofmemberfirms.

62

ANNUAL REPORT 2020

INCOME STATEMENTFor the year ended 31 December 2020

Presented in thousands of EUR Note 2020 2019

Interest and similar incomeInterest and similar expenseNetinterestincome(expense)onderivatives

789

97,856(61,048)

7,427

93,969(53,274)

(4,113)

Net interest income

Net fees and commissionsDividend incomeNetgainsfromequityinvestmentsthroughprofitorlossNet(losses)gainsonderecognitionofdebtinvestmentsecuritiesat fair value through other comprehensive incomeNet(losses)onderecognitionoffinancialliabilitiesatamortizedcostUnrealizednetfairvaluegainsonderivativeinstrumentsFair value (losses) gains on loans measured at fair value throughprofitorlossFair value (losses) on equity investments measured at fair valuethroughprofitorlossForeign exchange income (losses)Other (losses) income

101616

2014

15

16

44,235

2,040164284

(1,752)(2,049)

7,410

(229)

(7)78(4)

36,582

967-

268

119--

477

(217)(1,067)

4

Operating income

Personnel expensesAdministrativeexpensesDepreciationandamortization

11,2611

18,19

50,170

(16,097)(4,161)

(525)

37,133

(15,758)(5,187)

(572)

Income before impairment

Impairment (losses) on loansImpairment(losses)ondebtinvestmentsecuritiesmeasuredat fair value through other comprehensive income

12

29,387

(12,894)

(2,278)

15,616

(1,841)

(111)

Income for the year 14,215 13,664

Theaccompanyingnotes,onpages67to127areanintegralpartofthesefinancialstatements.

63


STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2020


Income for the year

Other comprehensive income (expense):Itemsthatwillnotbereclassifiedsubsequentlytoprofitorloss:Actuarial(losses)gainsondefinedbenefitschemeGains(losses)onequityinvestmentsfinancialassetsItemsthatareormaybereclassifiedsubsequentlytoprofitorloss:Gains(losses)oninvestmentsecuritiesfinancialassets

2424

24

14,215

(2,036)(3,577)

4,697

13,664

(3,020)4,219

12,518

Other comprehensive (expense) income (916) 13,717

Total comprehensive income 13,299 27,381


64

ANNUAL REPORT 2020

STATEMENT OF FINANCIAL POSITIONAt 31 December 2020

Presented in thousands of EUR Note 2020 2019(as Restated)

AssetsCash and due from banksDeposits in margin accountsDebtinvestmentsecuritiesatfairvaluethrough other comprehensive incomeDerivativefinancialinstruments–assets

Loansatamortizedcost Less: deferred income Less: impairment lossesLoansatfairvaluethroughprofitorlossLoans

Equityinvestmentsatfairvaluethroughprofitorloss Equity investments at fair value through other comprehensive incomeEquity investments at fair value

Accrued interest receivableOther assetsProperty and equipmentIntangible assetsRight of use assets

25

13

34,32826,240

687,961

81,2715,900

419,82614

5,1515

5,1215

26,701

2,030,396(13,813)(55,937)

12,525

3,128

1,808,187(8,170)

(43,314)12,754

5,16

5,16

1,973,171

791

25,519

1,769,457

798

29,588

17181922

26,310

23,5129,490

429298579

30,386

24,33411,519

489422

1,255

Total Assets 2,809,019 2,347,987

Liabilities Short-termAmountsduetofinancialinstitutionsDebtevidencedbycertificates Accrued interest payable

202020

111,120315,992

1,465,2189,384

83,675240,206

1,161,27411,652

BorrowingsMargin accountsDerivativefinancialinstruments–liabilitiesOtherliabilitiesLease liability

1,901,71422,92028,93511,359

383

1,496,8074,5506,5528,6101,059

Totalliabilities

Members’ EquityAuthorizedsharecapital Less: unallocated share capital

2323

1,965,311

3,450,000(1,161,500)

1,517,578

3,450,000(1,161,500)

Subscribed share capital Less: callable share capital

2323

2,288,500(1,601,950)

2,288,500(1,601,950)

Paid-in share capital

ReservesRetained earnings

24

686,550

58,29898,860

686,550

54,00989,850

Total members’ equity 843,708 830,409

Total Liabilities and Members’ Equity 2,809,019 2,347,987

Off-balance-sheet items Commitments 5 274,031 353,496


65


STATEMENT OF CHANGES IN MEMBERS’ EQUITYFor the year ended 31 December 2020

Share capital

Presented in thousands EURSubscribed Callable Payable Reserves

RetainedEarnings Total

At 31 December 2018

Income for the yearOther comprehensive income: Net gains (losses) onfinancialassetsatfair value reserve through OCI Actuarial (losses) gains ondefinedbenefitscheme

2,288,500

-

-

-

(1,601,950)

-

-

-

(1,428)

-

-

-

32,957

-

16,737

(3,020)

83,521

13,664

-

-

801,600

13,664

16,737

(3,020)

Total comprehensive income for the year

Members’contributionsTransfer to general reserve

-

--

-

--

-

1,428-

13,717

-7,335

13,664

-(7,335)

27,381

1,428-

Totalcontributions - - 1,428 7,335 (7,335) 1,428

At 31 December 2019

Income for the yearOther comprehensive income: Net gains (losses) onfinancialassetsatfair value reserve through OCI Actuarial (losses) gains ondefinedbenefitscheme

2,288,500

-

-

-

(1,601,950)

-

-

-

-

-

-

-

54,009

-

1,120

(2,036)

89,850

14,215

-

-

830,409

14,215

1,120

(2,036)

Total comprehensive income for the year

Members’contributionsTransfer to general reserve

-

--

-

--

-

--

(916)

-5,205

14,215

-(5,205)

13,299

--

Totalcontributions - - - 5,205 (5,205) -

At 31 December 2020 2,288,500 (1,601,950) - 58,298 98,860 843,708


66

ANNUAL REPORT 2020

STATEMENT OF CASH FLOWSFor the year ended 31 December 2020


Cash flows from operating activitiesIncome for the year

Adjustmentforitemsinincomestatement:Depreciationandamortization Impairment losses on loansImpairmentlossesoninvestmentsecurities Fair value losses on loans at FVTPL Fair value (gains) losses on equity investments at FVTPL Net interest incomeRealizedlossesfromdebtissuedRealizedgainsondisposalinvestmentsecuritiesatFVTOCICashgeneratedfrom(usedfor)operations: Proceeds from repayment of loans Proceeds from repayment of equity investments Funds advanced for loans Funds advanced for equity investmentsNetmovementinderivativefinancialinstrumentsWorkingcapitaladjustments: Interest income received Interest income paid Decrease (increase) in deposit margin accounts Decrease (increase) in other assets Increase (decrease) in margin accountsIncrease(decrease)inotherliabilities Increase (decrease) in deferred income

14,215

52512,623

2,278229

7(36,808)

2,0491,752

13,664

5721,841

111(477)

217(40,695)

-(119)

561,7151,231

(783,932)(732)

(1,190)

372,4762,096

(871,130)(825)

(15,965)

98,678(63,316)(20,340)

2,02918,370

7135,643

89,804(52,117)

16,910(2,147)

4,5504,1915,118

Netcashfrom/(usedin)operatingactivities

Cash flows from investing activitiesProceedsinvestmentsecuritiesatFVTOCIPurchaseofinvestmentsecuritiesatFVTOCIPurchaseofproperty,softwareandequipment

(184,261)

1,227,280(1,459,327)

(341)

(471,925)

812,753(761,067)

(379)

Netcashfrom/(usedin)investingactivities

Cash flows from financing activities Proceeds received from share capitalProceedsfromborrowingsRepaymentofborrowings

(232,388)

-944,201

(539,074)

51,307

1,4281,267,253(736,128)

Netcashfromfinancingactivities

Net increase (decrease) in cash and cash equivalents

405,127

(11,522)

532,553

111,935

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year 25

284,188

272,666

172,253

284,188


67


NOTES TO THE FINANCIAL STATEMENTS

1. ESTABLISHMENT OF THE BANK

1.1 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.

AsatfinancialpositiondatetheBank’sshareholderscomprisedofthefollowing11countries:Albania,Armenia,Azerbaijan,Bulgaria,Georgia,Greece,Moldova,Romania,theRussianFederation,TurkeyandUkraine.

1.2 Headquarters Agreement

Thestatus,privilegesandimmunitiesoftheBankandpersonsconnectedtherewithintheHellenicRepublicaredefinedintheHeadquartersAgreementbetweentheGovernmentoftheHellenicRepublicandtheBank(‘HeadquartersAgreement’)signed on 22 October 1998.

1.3 Governing Bodies

EachoftheMemberStatesoftheBank isrepresentedontheBoardofGovernors(BoG),withallpowersoftheBankvestedintheBoG.Withtheexceptionofcertainreservedpowers,theBoGhasdelegatedtheexerciseofitspowerstotheBoardofDirectors(BoD),whileretainingoverallauthority.

BoGandBoDmemberscanbechangedatanytimeuponthediscretionoftherespectiveMemberState.

1.3.1 Board of Governors

Country Governor

AlbaniaArmeniaAzerbaijanBulgariaGeorgiaGreeceMoldovaRomaniaRussiaTurkeyUkraine

Ms.AdelaXhemaliMr.ArthurJavadyanMr. Samir SharifovMs. Marinela PetrovaMr.KobaGvenetadzeMr. Adonis-Spyridon GeorgiadisMr. Serghei PuscutaMr.SebastianloanBurdujaMr. Timur MaksimovMr. Bulent AksuMr. Ihor Petrashko

68

ANNUAL REPORT 2020

Notes to the Financial Statements

1.3.2 Board of Directors

Country Director


Mr.OltjonMuzakaMr. Andranik GrigoryanMr. Famil IsmayilovMs.PetyaKuzevaMr.NikolozGaguaMr. Ioannis TsakirisMs. Elena MatveevaMs. Diana BlinduMr. Evgeny StanislavovDr.SerhatKoksalMr.TarasKachka

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

2.1 Basis of Preparation

ThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)asissuedbytheInternationalAccountingStandardsBoard(IASB).

Thesefinancial statements for theyearended2020weresubmittedby theManagementCommitteeto theBoardofDirectors(BoD)forapprovalon20May2021andwereapprovedforissuanceonthatdate.

PursuanttoArticle23oftheEstablishingAgreement,thesefinancialstatementsshallbesubjecttoapprovalbytheBoardofGovernors(BoG)intheirAnnualMeetingtobeheldon25June2021.

Basis of measurement

Thefinancialstatementshavebeenpreparedonahistoricalcostbasisexceptforthebelowassetsandliabilitieswhichhavebeenmeasuredatfairvalue:• Debtinvestmentsecuritiesatfairvaluethroughothercomprehensiveincome;• Loansatfairvaluethroughprofitorloss;• Equityinvestmentsatfairvaluethroughprofitorloss;• Equityinvestmentsatfairvaluethroughothercomprehensiveincome;• Derivativefinancialinstruments;and• Plan assets.

Thecarryingvaluesofrecognizedassetsandliabilitiesthatarehedgeditemsinfairvaluehedges,andotherwisecarriedatamortizedcost,areadjustedtorecordchanges infairvalueattributabletotherisksthatarebeinghedged.

Functional and presentation currency

TheBank’sfunctionalcurrency istheEuro(EUR)asdefinedbytheEuropeanCentralBank(ECB).TheEuro ismostrepresentativeoftheBank’soperationsandenvironmentasasignificantpercentageoftheBank’slendingoperationsare inEuro,and theadministrativeexpensesandcapitalexpendituresareprimarilydenominatedandsettledinthiscurrency.TheBank’spresentationcurrencyistheEURandvaluesareroundedtothenearestthousandunlessotherwisestated.

Use of Estimates and Judgments

ThepreparationofthefinancialstatementsinconformitywithIFRSrequiresmanagementtomakejudgmentsanduseofestimatesandassumptionsthataffecttheapplicationoftheaccountingpoliciesandthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatements and the reported amounts of revenues and

69



expensesduringthereportingperiod.Actualresultsmaydifferfromthosereported.Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoestimatesarerecognizedprospectively.

The areas where the Bank has applied judgement and used estimates and assumptions are: estimation ofexpectedcreditlossesofloans-and-receivables,valuationoffinancialinstrumentsnotquotedinactivemarkets,including OTC derivatives and certain debt securities, impairment of investment securities, estimation ofretirementbenefitsobligation,andcontingenciesfromlitigation.

TheareasinvolvingahigherdegreeofjudgmentorareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedintheNote“Useofestimates”.

2.2 Going Concern

Thefinancialstatementshavebeenpreparedonagoingconcernbasis.ThisyearbeganwiththeoutbreakofanewstrainofCoronavirus(Covid-19)pandemicthatwasannouncedbytheWorldHealthOrganization(WHO)inMarch2020andhasalreadynegativelyimpactedtheeconomiesofthecountriesthattheBankworkswith.FollowingtheWHOannouncementsaswellasthemeasurestakenbytherespectivegovernmentsasaresponse,theBankhasproceededwiththefollowing:

• TheBankhasactivatedtheinternalPandemicResponsePlan,andstaffcanmoveto‘remoteworking’,whichmaybeextendedaccordingtohowthesituationunfoldsinthehostcountry.Intermsofitseverydayoperations,theBankhastakenallrequisitestepstoensurebusinesscontinuity,thesafetyofitsstaff,andtocomplywiththeemergency measures imposed by the host country.

• TheBankmonitorscountrybycountrymeasurestakenbyeachgovernmentandtheirimpactonitsloanportfolio.Itmaintains contactswith clients andwewill continuewith thepreparationofprojects, but themain focusis theoutstanding loanportfoliowhich is carefullyanalyzedand regularly reviewed in lightof thevery rapiddevelopments.

• TheBankcloselymonitorsitsliquiditypositionandispreparedtotakeshorttermmeasuresasandifrequiredinorder to safeguard its interests andmaintain key ratios at comfortable levels. Suchmeasures can includeaccess toshort-termborrowingsathighercosts thannormallyaccepted,delayingdraw-downstooperationswithcustomerconsentandcurtailingadministrativeexpensesasnecessary.Additionally,theBankhasreducedundertakingnewcommitments temporarily, thuscommitment levelsareexpectedtoremainsteady,oreventemporarily decline as a result.

• Moreover,theBankwillmonitordevelopmentsinthefinancialmarketsforassessingtheimpactonitsinvestmentportfolioaswellasforsuitablefundingopportunities.

Overall, the Bank is assessing the virus pandemic in the region the Bank operates in and has a robust mechanism and processinplacetofollowupdevelopmentsandadjustitsoperationsaccordinglyinordertoensureeffectiveandefficientmanagementofthisdifficultsituation.AstheBankmaintainsitsoperationalcapacityandretainsitsstrongcapitalandliquiditypositions,theBoardofDirectorsisoftheviewthattheBankwillcontinuetooperateasagoingconcernforthenext12monthsfromthedateofapprovalofthefinancialstatements.

70

ANNUAL REPORT 2020


3. SIGNIFICANT ACCOUNTING POLICIES

AsummaryoftheBank’saccountingpoliciesappliedinthepreparationofthesefinancialstatementsarepresentedinthissection.ThesepolicieshavebeenarethesameasthoseappliedforthecomparativeperiodpresentedtakingintoaccounttheamendmentstostandardswhichwereissuedbytheInternationalAccountingStandardsBoard(IASB),whicharefurtheranalyzedbelow:

3.1 Adoption of New and Amended Standards (IFRS)

New standards and amendments to standardswhichwere issued by the International Accounting Standards Board(IASB),appliedon1January2020:

• IFRS 17: Insurance Contracts

IFRS17requiresinsuranceliabilitiestobemeasuredatacurrentfulfillmentvalueandprovidesamoreuniformmeasurement and presentation approach for all insurance contracts. These requirements are designed toachievethegoalofaconsistent,principle-basedaccountingfor insurancecontracts. IFRS17supersedes IFRS4InsuranceContractsasof1January2023.TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.

• Amendments to References to the Conceptual Framework in IFRS Standards

TogetherwiththerevisedConceptualFrameworkpublishedinMarch2018,theIASBalsoissuedAmendmentstoReferencestotheConceptualFrameworkinIFRSStandards.ThedocumentcontainsamendmentstoIFRS2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Notallamendments,howeverupdatethoseronouncementswithregardtoreferencestoandquotesfromtheframeworksothattheyrefertotherevisedConceptualFramework.Somepronouncementsareonlyupdatedtoindicatewhichversionoftheframeworktheyarereferencingto(theIASCframeworkadoptedbytheIASBin2001,theIASBframeworkof2010,orthenewrevisedframeworkof2018)ortoindicatethatdefinitionsinthestandardhavenotbeenupdatedwiththenewdefinitionsdevelopedintherevisedConceptualFramework.Annualreportingperiodsbeginningonorafter1January2020.TheadoptiondidnothaveanymaterialimpactontheBank’sfinancialstatements.

• Definition of a Business (Amendments to IFRS 3)

TheamendmentsinDefinitionofaBusiness(AmendmentstoIFRS3)arechangestoAppendixADefinedterms,the applicationguidance, and the illustrativeexamplesof IFRS3only. They: clarify that tobe considered abusiness,anacquiredsetofactivitiesandassetsmustinclude,ataminimum,aninputandasubstantiveprocessthattogethersignificantlycontributetotheabilitytocreateoutputs;narrowthedefinitionsofabusinessandof outputs by focusing on goods and services provided to customers and by removing the reference to an ability toreducecosts;addguidanceandillustrativeexamplestohelpentitiesassesswhetherasubstantiveprocesshasbeenacquired;removetheassessmentofwhethermarketparticipantsarecapableofreplacinganymissinginputsorprocessesandcontinuingtoproduceoutputs;andaddanoptionalconcentrationtestthatpermitsasimplifiedassessmentofwhetheranacquiredsetofactivitiesandassets isnotabusiness.Annual reportingperiodsbeginningonorafter1 January2020.Theadoptiondidnothaveanymaterial impacton theBank’sfinancialstatements.

• Definition of Material (Amendments to IAS 1 and IAS 8)

TheamendmentsinDefinitionofMaterial(AmendmentstoIAS1andIAS8)clarifythedefinitionofmaterial’andalignthedefinitionusedintheConceptualFrameworkandthestandards.Annualreportingperiodsbeginningonorafter1January2020.TheadoptiondidnothaveanymaterialimpactontheBank’sfinancialstatements.

71



• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

The amendments in Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) clarify that entities would continue to apply certain hedge accounting requirements assuming that the interest ratebenchmarkonwhichthehedgedcashflowsandcashflowsfromthehedginginstrumentarebasedwillnotbealteredasaresultofinterestratebenchmarkreform.Annualreportingperiodsbeginningonorafter1January2020.TheadoptiondidnothaveanymaterialimpactontheBank’sfinancialstatements.

• Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)

The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilitieswith an uncertain settlement dateshouldbeclassifiedascurrent (dueorpotentiallyduetobesettledwithinoneyear)ornon-current.Annualreportingperiodsbeginningonorafter1 January2023.Theadoption isnotexpected tohaveanymaterialimpactontheBank’sfinancialstatements.

• Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)

Theamendmentsprohibitdeductingfromthecostofanitemofproperty,plantandequipmentanyproceedsfromsellingitemsproducedwhilebringingthatassettothelocationandconditionnecessaryforittobecapableofoperatinginthemannerintendedbymanagement.Instead,anentityrecognizestheproceedsfromsellingsuchitems,andthecostofproducingthoseitems,inprofitorloss. Annualreportingperiodsbeginningonorafter1January2022.TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.

• Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)

Theamendmentsspecifythatthe‘costoffulfilling’acontractcomprisesthe‘coststhatrelatedirectlytothecontract’.Coststhatrelatedirectlytoacontractcaneitherbeincrementalcostsoffulfillingthatcontract(exampleswouldbedirect labor,materials)oranal locationofothercoststhatrelatedirectlyto fulfillingcontracts (anexamplewouldbetheallocationofthedepreciationchargeforanitemofproperty,plantandequipmentusedinfulfillingthecontract).Annualreportingperiodsbeginningonorafter1January2022.TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.

• Annual Improvements to IFRS Standards 2018–2020

Makesamendmentstothefollowingstandards:IFRS 1 –TheamendmentpermitsasubsidiarythatappliesparagraphD16(a)ofIFRS1tomeasurecumulativetranslationdifferencesusingtheamounts reportedby itsparent,basedontheparent’sdateof transitiontoIFRSs.IFRS 9 –Theamendmentclarifieswhichfeesanentityincludeswhenitappliesthe‘10percent’testinparagraphB3.3.6of IFRS9 inassessingwhether toderecognizeafinancial liability.Anentity includesonly feespaidorreceivedbetweentheentity(theborrower)andthelender,includingfeespaidorreceivedbyeithertheentityor the lender on the other’s behalf.IFRS 16 –The amendment to IllustrativeExample13 accompanying IFRS16 removes from theexample theillustrationof the reimbursementof leasehold improvementsby the lessor inorder to resolveanypotentialconfusion regarding the treatment of lease incentives thatmight arise because of how lease incentives areillustrated in that example.IAS 41 –Theamendmentremovestherequirementinparagraph22ofIAS41forentitiestoexcludetaxationcashflowswhenmeasuringthefairvalueofabiologicalassetusingapresentvaluetechnique.

Annual reporting periods beginning on or after 1 January 2022. The adoption is not expected to have anymaterialimpactontheBank’sfinancialstatements.

72

ANNUAL REPORT 2020


• Covid-19-Related Rent Concessions (Amendment to IFRS 16)

TheamendmentprovideslesseeswithanexemptionfromassessingwhetheraCOVID-19-relatedrentconcessionisaleasemodification.Annualreportingperiodsbeginningonorafter1June2020.TheadoptiondidnothaveanymaterialimpactontheBank’sfinancialstatements.

• Amendments to IFRS 17

AmendsIFRS17toaddressconcernsandimplementationchallengesthatwereidentifiedafterIFRS17InsuranceContractswaspublishedin2017.Themainchangesare:

- DeferralofthedateofinitialapplicationofIFRS17bytwoyearstoannualperiodsbeginningonorafter1January2023.

- Additional scope exclusion for credit card contracts and similar contracts that provide insurancecoverageaswellasoptionalscopeexclusionforloancontractsthattransfersignificantinsurancerisk.

- Recognition of insurance acquisition cash flows relating to expected contract renewals, includingtransitionprovisionsandguidanceforinsuranceacquisitioncashflowsrecognizedinabusinessacquiredinabusinesscombination.

- ClarificationoftheapplicationofIFRS17ininterimfinancialstatementsallowinganaccountingpolicychoiceatareportingentitylevel.

- Clarificationoftheapplicationofcontractualservicemargin(CSM)attributableto investmentreturnservice and investment related service and changes to the corresponding disclosure requirements.

- Extension of the risk mitigation option to include reinsurance contracts held and non-financialderivatives.

- Amendments to require anentity that at initial recognition recognizes lossesononerous insurancecontractsissuedtoalsorecognizeagainonreinsurancecontractsheld.

- Simplifiedpresentationof insurancecontracts in the statementoffinancialposition so thatentitieswouldpresentinsurancecontractassetsandliabilitiesinthestatementoffinancialpositiondeterminedusingportfoliosofinsurancecontractsratherthangroupsofinsurancecontracts.

- Additional transition relief forbusiness combinationsandadditional transition relief for thedateofapplicationoftheriskmitigationoptionandtheuseofthefairvaluetransitionapproach.

Annual reporting periods beginning on or after 1 January 2023. The adoption is not expected to have anymaterialimpactontheBank’sfinancialstatements.

• Classification of Liabilities as Current or Non-current — Deferral of Effective Date (Amendment to IAS 1)

TheamendmentdeferstheeffectivedateoftheJanuary2020amendmentsbyoneyear,sothatentitieswouldberequiredtoapplytheamendmentforannualperiodsbeginningonorafter1January2023.TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.

• Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

TheamendmentsinInterestRateBenchmarkReform—Phase2(AmendmentstoIFRS9,IAS39,IFRS7,IFRS4andIFRS16)introduceapracticalexpedientformodificationsrequiredbythereform,clarifythathedgeaccountingisnotdiscontinuedsolelybecauseoftheIBORreform,andintroducedisclosuresthatallowuserstounderstandthenatureandextentofrisksarisingfromtheIBORreformtowhichtheentityisexposedtoandhowtheentitymanagesthoserisksaswellastheentity’sprogressintransitioningfromIBORstoalternativebenchmarkrates,andhowtheentityismanagingthistransition.Annualreportingperiodsbeginningonorafter1January2021.TheBankiscurrentlyreviewingtheimpactofthisstandard.

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• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)

The amendments require that an entity discloses its material accounting policies, instead of its significantaccounting policies. Further amendments explain how an entity can identify a material accounting policy.Examples ofwhen an accounting policy is likely to bematerial are added. To support the amendment, theBoardhasalsodevelopedguidanceandexamplestoexplainanddemonstratetheapplicationofthe‘four-stepmaterialityprocess’described in IFRSPracticeStatement2.Annualreportingperiodsbeginningonorafter1January2023.TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.

• Definition of Accounting Estimates (Amendments to IAS 8)

Theamendments replace thedefinitionof a change in accountingestimateswithadefinitionof accountingestimates.Underthenewdefinition,accountingestimatesare“monetaryamountsinfinancialstatementsthataresubjecttomeasurementuncertainty”.Entitiesdevelopaccountingestimatesifaccountingpoliciesrequireitemsinfinancialstatementstobemeasuredinawaythatinvolvesmeasurementuncertainty.Theamendmentsclarifythatachangeinaccountingestimatethatresultsfromnewinformationornewdevelopmentsisnotthecorrectionofanerror.Annualperiodsbeginningonorafter1January2023.TheadoptionisnotexpectedtohaveanymaterialimpactontheBank’sfinancialstatements.

• Editorial Corrections (various)

TheIASBperiodically issuesEditorialCorrectionsandchangesto IFRSsandotherpronouncements.Sincethebeginningofcalendar2018,suchcorrectionshavebeenmadeinDecember2018,February2019,May2019,December2019,July2020,September2020,October2020,andNovember2020.Asminoreditorialcorrections,thesechangesareeffectivelyimmediatelyapplicableunderIFRS.TheadoptiondidnothaveanymaterialimpactontheBank’sfinancialstatements.

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3.2 Foreign Currencies Translation

ForeigncurrencytransactionsareinitiallyrecordedinEURbyapplyingtotheforeigncurrencyamounttheexchangeratebetweentheEURandtheforeigncurrencyattherateprevailingatthedateoftransaction.

Whenpreparingthefinancialstatementsexchangegainsandlossesarisingfromthetranslationofmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesatyearendarerecognizedintheincomestatement.

MonetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintoEuroattheexchangerateatthereportingdate.TheforeignexchangegainorlossonmonetaryitemsisthedifferencebetweentheamortizedcostinEuroatthebeginningoftheyear,adjustedfortheeffectiveinterest,impairmentandprepaymentsduringtheyear,andtheamortizedcostintheforeigncurrencytranslatedattheexchangerateattheendoftheyear.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at thedateofthetransaction.Foreigncurrencydifferencesaregenerallyrecognizedinincomestatementexceptforforeignexchangedifferencesonnon-monetaryitemswhichareatFVTOCIasequityinvestmentswhicharerecognizedinothercomprehensive income.

TheBankusestheofficialexchangeratespublishedfortheEURbytheEuropeanCentralBank(ECB).TheexchangeratesusedbytheBankatthefinancialpositiondatewereasfollows.

31 December2020

31 December2019

1 EUR

=======

United States dollarPound sterlingRussian rubleAzerbaijanmanatGeorgian lariArmenian dramRomanian leu

1.227100.89903

91.467102.089004.02330

641.110004.86830

1.123400.85080

69.956301.903503.20950

537.260004.78300

3.3 Cash and Cash Equivalents

Forthepurposesofthestatementofcashflows,cashandcashequivalentsconsistofcashonhand,placementswithotherfinancialinstitutionsanddebtsecuritieswithmaturitiesofthreemonthsorlessfromthefinancialpositiondate.Thesearehighlyliquidassetsthatarereadilyconvertibletoaknownamountofcashandaresubjecttoinsignificantriskofchangein value due to the movements in market rates.

3.4 Recognition and Initial Measurement, and Derecognition of Financial Instruments

TheBankrecognizesafinancialassetorfinancialliabilityinitsstatementoffinancialpositionwhenitbecomesapartytothecontractualrightsorobligations.

3.4.1 Date of recognition

Financial assets and liabilities,with the exception of loans and advances to customers and balances due tocustomers,areinitiallyrecognizedonthetradedate,i.e.,thedateonwhichtheBankbecomesapartytothecontractual provisionsof the instrument. This includes regularway trades, i.e., purchaseor sale of financialassetsthatrequiredeliveryofassetswithinthetimeframegenerallyestablishedbyregulationorconventioninthemarketplace.Loansandadvancestocustomersarerecognizedwhenfundsaretransferredtothecustomer’saccount.

Financial assetsandfinancial liabilitiesaremeasured initiallyat fair valueplus, for an itemnotat FairValueThroughProfitandLoss(“FVTPL”),transactioncoststhataredirectlyattributabletoitsacquisitionorissue.Thefairvalueofafinancialinstrumentatinitialrecognitionisgenerallyitstransactionprice.

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3.4.2 Date of derecognition

TheBankderecognizesafinancialassetoraportionofafinancialassetwhen(i)thecontractualrightstothecashflowfromthefinancialassetexpire,(ii)losescontrolofthecontractualrightsthatcomprisethefinancialassetoraportionofthefinancialassetor(i)theBankretainstherighttoreceivecashflowsfromtheasset,buthasassumedtheobligationtopayitinfullwithoutmaterialdelaytoathirdpartyundera‘passthrough’arrangement.TheBankderecognizesafinancialliabilitywhenaliabilityisextinguished,thatiswhentheobligationspecifiedinthecontractisdischarged,cancelledorexpires.Theevaluationofthetransferofrisksandrewardsofownershipprecedestheevaluationofthetransferofcontrolforderecognitiontransactions.

Onderecognitionofafinancialasset,thedifferencebetweenthecarryingamountoftheasset(orthecarryingamount allocated to the portion of the asset derecognized) and the sum of (i) the consideration received(includinganynewassetobtainedlessanynewliabilityassumed)and(ii)anycumulativegainorlossthathadbeenrecognizedinOCIisrecognizedinincomestatement.

Anycumulativegainor lossrecognizedinOCI inrespectofequity investmentsecuritiesdesignatedasatFairValuethroughOtherComprehensiveIncome(“FVTOCI”)isnotrecognizedinincomestatementonderecognitionofsuchsecurities.

3.5 Financial Assets

Theclassificationoffinancialassetsdefineshowexistinginformationisreflectedinthefinancialstatements.Inparticular,the valuationmethod and the impairment calculation are defined by this classification, which are based on criteriaestablished by the Bank.

3.5.1 Classification and subsequent measurement

TheBankclassifiesafinancialassetinitsfinancialstatementsinoneofthebelowthreemeasurementcategories:

1. Financial assets measured at amortized cost (AC): this category includes each asset or group of assets forwhichtheBank’sbusinessmodelconstitutesitsholdingforthepurposeofcollectingcontractualcashflows.FinancialassetsareclassifiedatAConlyifbothofthefollowingcriteriaaremet:- The objective of the Bank’s businessmodel is to hold financial assets in order to collect the

contractualcashflows;and- Thecontractual termsof thefinancialassetgive riseonspecifieddates tocashflowsthatare

solely payments of principal and interest on the principal outstanding:

TheBankincludesinthiscategoryfinancialassetswhicharenon-derivativewithfixedordeterminablepayments andwith fixedmaturitiesmeeting the above criteria. They are initially recognized at fairvalueplusanytransactioncostsandincludinganypremiumordiscountthatmayariseonthedateofacquisition.Thirdpartyexpenses,suchaslegalfees,incurredinsecuringaloanaretreatedaspartofthecostofthetransaction.TheyaresubsequentlymeasuredatACusingtheeffectiveinterestmethod,lessanyallowance forexpectedcredit losses.All suchfinancialassetsare recognizedonsettlementdate.

Thesefinancialassetsincludecashandduefrombanks,loansandreceivablesaccruedthatmeettheabove criteria.

2. Financial assets measured at fair value through other comprehensive income (FVTOCI),withgainsorlossesreclassifiedonprofitor lossonderecognition.TheBankclassifiesdebt instruments(includingeurocommercialpaper(ECP))atFVTOCIwhenbothofthefollowingconditionsaremet:- The instrument is held within a business model, the objective of which is achieved by both

collectingthecontractualcashflowsandsellingfinancialassets;and- The contractual terms give rise on specified dates to cash flows that are solely payments of

principal and interest on the principal outstanding.

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FVTOCIdebtinstrumentsaresubsequentlymeasuredatfairvaluewithgainsandlossesthatarisefromfluctuationsinfairvaluerecognizedinOCI.Theirfairvalueisdeterminedbyreferencetoquotedmarketbidprices.OnderecognitioncumulativegainorlosspreviouslyrecognizedinOCIarereclassifiedfromOCI to income statement. Foreign exchange gains or losses and interest income calculated using the effectiveinterestratemethodarerecognizedinincomestatement.

Allsuchfinancialassetsarerecognizedontradedate.

TheExpectedCreditLosses(“ECL”)fordebtinstrumentsmeasuredatFVOCIdonotreducethecarryingamountof thesefinancial assets in the statementoffinancialposition,which remainsat fair value.Instead,anamountequaltotheallowancethatwouldariseiftheassetsweremeasuredatamortizedcostisrecognizedinOCIasanaccumulatedimpairmentamount,withacorrespondingchargetotheprofitorloss.TheaccumulatedlossrecognizedinOCIisrecycledtotheprofitandlossuponderecognitionof the assets.

3. Financial assets (equity instruments) measured at FVTOCI, with no reclassification of gains or losses to profit or loss on derecognition.OninitialrecognitiontheBankcanmaketheirrevocableelection,onaninstrument-by-instrumentbasis,todesignateinvestmentsinanequityinstrumentwhicharenotheldfortradingnorcontingentconsiderationrecognizedbyanacquirerinabusinesscombination,asafinancialassetmeasuredatFVTOCI.Thosenotelected,whichareprimarilylisted,aremeasuredatFairValueThroughProfitorLoss(“FVTPL”).Dividendsreceivedarerecordedintheincomestatement.

Afterinitialrecognitionatcost,thesefinancialassetsaresubsequentlymeasuredatfairvaluewithallgainsandlossesarisingfromchangesinfairvalue(realizedandunrealized),includingforeignexchangegains and losses, recognized in other comprehensive income, and are not reclassified to incomestatement.Forthosefinancialinstrumentsthereisnoimpairmentassessment.Thefairvalueforthosenotpurchased fromanactivemarket isdeterminedusingacceptedvaluation techniqueswhichuseunobservable inputs. These valuation techniquesusedarenet asset value,when this is deemed toapproximatefairvalue,andearnings-basedvaluationsusingcomparableinformationanddiscountingcashflows.TheBank’sequity investmentsare included in thiscategory.All suchfinancialassetsarerecognizedonsettlementdate.

4. Financial assets measured at FVTPL:thiscategoryincludesfinancialassetsthatdonotmeetthecriteriatobeclassifiedinanyoftheabovecategoriesaswellasfinancialassetsthattheBankholdsfortrading.Their classificationdependsprimarilyon the following two important factors (i) theBank’sbusinessmodelfortheseassetsand(ii)thecharacteristicsofthecontractualcashflowsoftheasset.

Thesefinancialassetsareinitiallymeasuredattheirfairvalueandsubsequentlycarriedatfairvalueonthestatementoffinancialpositionwithallchangesinfairvaluegainsandlossesandforeignexchangegainsand losses,recognized inthe incomestatement intheperiod inwhichtheyoccur.Transactioncostsonthesefinancialassetsareexpensedintheincomestatement.Thiscategoryincludesderivativefinancialinstruments,equitysecuritiesaswellasanyloansforwhicheitherofthecriteriaforrecognitionatACisnotmet.ItcanalsoincludeadebtinstrumentoranequityinstrumentthatisnotwithinthecategorynormeasuredatFVTOCI.Allsuchfinancialassetsarerecognizedontradedate.

Inaddition,adebtinstrumentthatcouldmeetACcriteriacanbedesignatedatinitialrecognitionasat FVTPL. This classificationoption,which is irrevocable, is usedwhen thedesignationeliminates ameasurementorrecognitioninconsistency,referredtoasan‘accountingmismatch’,whichwouldarisefrommeasuringfinancialassetsandliabilitiesonadifferentbasisinrelationtoanotherfinancialassetor liability.

AsatthereportingdatetheBankhasnotdesignated,at initialrecognition,anyfinancialassetasatFVTPL.

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3.5.2 Measurement

TheBankmeasuresfinancialassetsatfairvalueoninitialrecognition,asdetailedabove.IntheeventtheBankconsidersthatthefairvalueoninitialrecognitiondiffersfromthetransactionprice,thatdifferenceisrecognizedasagainorlossoninitialrecognitionbutonlyifthefairvalueisbasedonarequestedactivemarketpriceforidenticalassetsorisbasedonavaluationtechniqueusingdatasolelyfromidentifiedmarkets.Inallothercases,thedifferencebetweenthetransactionpriceandthefairvalueisdeferredandisonlyrecognizedintheincomestatementwhentheinputsbecomeobservable,orwhentheinstrumentisderecognized.

Financial assets that are subsequentlymeasuredat eitherACordebt instruments at FVTOCI, are subject toprovisions for impairment.

BasedontheBank’screditpolicy,theBankdoesnotoriginatecredit-impairedfinancialassets,nordoestheBankpurchasecredit-impairedassets,exceptionbeingthoseloanswouldbeacquiredatadeepdiscount.

Financialassetsarenotreclassifiedsubsequenttotheirinitialrecognition,exceptintheperiodaftertheBankchangesitsbusinessmodelformanagingfinancialassets.

3.5.3 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 regulatoryguidelines are not included in the assessment.

Ingeneral,theBankhasincludedthemajorityofitsloanportfoliosinthehold-to-collectbusinessmodel.TheassessmentofabusinessmodelismadewithinthedefinitionofoperationalobjectivesasdefinedbytheBank’sManagement,aswellas intheoperationalmanagementof itsassets.Theassessmentiseffectedatportfoliolevel rather than at individual asset levels.

TheBusinessModelappliedtoloanportfolio,treasuryportfolioandequityinvestmentportfolioisreassessedateachreportingperiod.ThereassessmentoftheBusinessModelhasbeenestablishedinordertodetermineifevidenceinitiallyusedhaschanged.

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3.5.4 Loans

LoansoriginatedbytheBank,iswheremoneyisprovideddirectlytotheborrower.Loansareinitiallyrecordedatfairvalue,whichisusuallythenetamountdisbursedatinceptionincludingdirectlyattributableoriginationcostsandcertaintypesoffeesorcommission(e.g.syndicationcommission,front-end,commitmentfeesandhandlingcharges) thatare regardedasanadjustment to theeffective interest rateof the loan,andare subsequentlymeasuredatamortizedcostusingtheeffectiveinterestratemethod.

TheBankclassifiesinloancategorybondswhicharepurchasedwithaviewofadevelopmentimpactandsuchpurchases areperformedbasedon theBank’s loanfinancing criteria and follow the thoroughappraisal andapprovalprocessoftheBank.Suchbondsat31December2020wereagrossamountofEUR277,588thousand(2019:EUR175,367thousand).Managementhasconcludedthatpresentationwithin loanspresentfairlytheBank’sfinancialposition.

LoansthataredesignatedasatFVTPLarerecognizedatavaluearrivedatbyusingacombinationofdiscountedcashflowmodels.Thesemodelsincorporatemarketdatapertainingtointerestrates,aborrower’screditrating,andunderlying assets.Whereunobservable inputs havebeenused, a sensitivity analysis has been includedunder‘fairvaluehierarchy’describedwithinthe‘RiskManagement’sectionofthisreport.

3.6 Impairment

3.6.1 Financial assets

The Bank records an allowance for expected credit loss for all loans and loans receivables, and other debtinstrumentsheld at amortized cost, togetherwithoffbalance sheet items (loan commitments andfinancialguaranteecontracts).Inthissection,allreferredtoas‘financialinstruments’.Equityinstrumentsarenotsubjectto impairment under IFRS 9.

i) Calculation of expected credit loss

ECLsareaprobability-weightedaverageestimateofcreditlossesthatreflectsthetimevalueofmoney.Uponinitialrecognitionofthefinancialinstrumentsinscopeoftheimpairmentpolicy,theBankrecordsalossallowanceequalto12-monthECL,beingtheECLthatresultfromdefaulteventsthatarepossiblewithinthenexttwelvemonths.Subsequently,forthosefinancialinstrumentsthathaveexperiencedasignificantincreaseincreditrisk(SICR)sinceinitialrecognition,alossallowanceequaltolifetimeECLisrecognized,arisingfromdefaulteventsthatarepossibleovertheexpectedlifeoftheinstrument.Theexpectedcreditlossesareweightedonthebasisof three macroeconomic scenarios (adverse, basic and favorable).

Forthepurposesofcalculatingexpectedcreditlosses,thefinancialinstrumentsareclassifiedinthreestagesasfollows:

• Stage1:Stage1includesperformingexposuresthatdonothavesignificantincreaseincreditrisksinceinitial recognition.Stage1also includesexposures forwhichcredit riskhasbeen improvedand theexposurehasbeenreclassifiedfromStages2or3.Inthisstageexpectedcreditlossesarerecognizedbasedontheprobabilityofdefaultwithinthenext12months.

• Stage2:Stage2includesperformingexposuresforwhichtherehasbeenasignificantincreaseincredit

risksince initial recognition.Stage2also includesexposures forwhichthecredit riskhas improved,andtheexposurehasbeenreclassifiedfromstage3.Inthisstage,lifetimeexpectedcreditlossesarerecognized.

• Stage3: Stage3 includesnon-performing/credit-impairedexposures. In this stage lifetimeexpectedcreditlossesarerecognized.

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TheBankcalculatesimpairmentlossesonaportfoliobasis,exceptforfinancialassetsthatarecredit-impairedinwhichcasetheyarecalculatedonanindividualbasis.TheBankappliesthreemaincomponentstomeasureexpectedcreditlosseswhichareaLGD,PDandEAD,andassignsgeneralmarketscenariosforpotentialcreditriskdeterioration.Therecanbetransfersofexposuresfromonestagetoanother,dependingonwhetherthereisachangeinthecreditriskofthatexposure.Probabilityofdefaultisanestimateofthelikelihoodofdefaultoveragiventimehorizon.

TheBankusesinformationobtainedfromtheGlobalEmergingMarkets(GEMs)databaseinordertoassignLGDtoitsloanassetclasses.GEMsisanInternationalFinancialInstitution(IFI)wideinitiativedesignedtopooldefaultand recovery rates experienced by IFIs in emerging markets. Treasury asset classes derive their PDs from the assigningratingagency.LGDisanestimateofthelossarisingondefault.TheBankusesinformationobtainedfrom the GEMs database to assign LGDs to its lending asset classes, and treasury asset classes derive their LGDs fromtheassigningratingagency.

ii) Basic parameters used for the calculation of expected credit loss

Thecalculationofexpectedcreditlossesisbasedonthefollowingparameters:

• ProbabilityofDefault(PD)representstheprobabilitythatadebtorwilldefaultonhisdebtobligationseitheroverthenexttwelvemonthsorovertheremainingmaturityofhisdebt.InaccordancewithIFRS9,theBankusesnon-discriminatorypoint-in-timePDsthatadjusttomacroeconomicassumptionsusingthe Expected Credit Loss.

• ExposureatDefault(EAD)isdefinedastheestimateoftheexposureatafuturedefaultdate,takingintoaccountexpectedchangesintheexposureafterthereportingdate,includingrepaymentsofprincipalandinterest,andundrawncommitmentsbasedontheBank’sownexperience.

• Loss Given Default (LGD) represents the extent of the loss that the Bank expects for exposures that are indefaultandisdefinedasthedifferencebetweenthecontractualcashflowsandthosethattheBankexpectstocollect,includingcollateralamounts.LGD,whichisusuallyexpressedasapercentageoftheEAD, varies according to the category of the counterparty, the category and priority of the claim, the existence of collateral and other credit enhancements.

TheBank assigns credit rating to each loan at inceptionbased on the internal scorecardmethodologies forFinancial Institutions,CorporatesorProjectFinanceandall loansaresubject toannualcredit review if ratedtoacategoryuptoBB+,whileallloansbelowthatratingaresubjecttosemi-annualcreditreview.ThecreditratingisprimaryinputtothePDwhichiscalculatedbasedonstatisticalmodelandincorporatesmacroeconomicprojections.

The LGD estimates are according to values and determined estimatesmainly by geography and by type ofcounterparty, with threemain exposure classes: sovereign, public and private sectors. In case of sovereigndefaultofmembercountries,theBankbelievesthatitspaymentwouldremainuninterrupted,benefittingfromitspreferredcreditor status resulting inno credit riskof impairment loss fromsovereignexposuresor loansguaranteed by sovereign.

TheBankcalculatesexpectedcreditlossesbasedontheweightedprobabilityofthreescenarios.MorespecificallytheBankusesastatisticalmodeltoproduceforecastsofthepossibleevolutionofmacroeconomicvariables(GDPandunemploymentrate)thataffectthe levelofexpectedcredit lossesof loansunderabaselinesandunderalternative macroeconomic scenarios (adverse and favorable) and also assigns the cumulative probabilitiesassociatedwiththesescenarios.ThebaselinescenarioisthemostlikelyscenarioandisinlinewiththeBank’sinformationforstrategicplanningandbudgetingpurposes.

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iii) 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.

Inordertodeterminewhethertherehasbeenasignificantincreaseinthecreditrisksinceorigination,andhencetransitiontoStage2,acombinationofquantitativeandqualitativeriskmetricsareused.Allloanswithatleasta3-notchdowngradeinPDontheBank’sinternalratingsscalesinceorigination,allloansforwhichthecontractualpaymentsareoverduebybetween31and90daysinclusive,aswellasallloansplacedonthe‘watchlist’aretransitionedtoStage2.

Forfinancialguaranteecontracts,thedatetheBankbecomesapartytotheirrevocablecommitmentisconsideredtobe thedateof initial recognition for thepurposeofassessing thefinancial instrument for impairment. Inassessing whether there has been a significant increase in credit risk since initial recognition of a financialguaranteecontract,theBankconsiderstheriskthatthespecifieddebtorwilldefaultonthecontractinlinewiththeabovedeterminationforloans.

Generally,therewillbeasignificantincreaseincreditriskbeforeafinancialassetbecomescredit-impairedoranactualdefaultoccurs.TheassessmentofsignificantincreaseincreditriskiskeyintransferringanexposurefromStage1toStage2andtherespectivechangeintheECLmeasurementfrom12-monthtolifetimeECL.

iv) Credit-impaired

Afinancialassetiscredit-impairedwhenoneormoreeventsthathaveadetrimentalimpactontheestimatedfuturecashflowsofthatfinancialassethaveoccurred.Evidencethatafinancialassetiscredit-impairedincludesobservabledataaboutthefollowingevents:- Significantfinancialdifficultyoftheissuerortheborrower;- Abreachofcontract,suchasadefaultorpastdueevent;- Thelender(s)oftheborrower,foreconomicorcontractualreasonsrelatingtotheborrower’sfinancial

difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwiseconsider;

- Itisbecomingprobablethattheborrowerwillenterbankruptcyorotherfinancialreorganization;- Thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancialdifficulties;or- Thepurchaseororiginationof afinancial asset at adeepdiscount that reflects the incurred credit

losses.

Itmaynotbepossibletoidentifyasinglediscreteevent–instead,thecombinedeffectofseveraleventsmayhavecausedfinancialassetstobecomecredit-impaired.

v) Definition of default

Thedefinitionofdefaultusedfordeterminingtheriskofadefaultoccurringshallbeappliedconsistentlytoallfinancialinstrumentsunlessinformationbecomesavailablethatdemonstratesthatanotherdefaultdefinitionismoreappropriateforaparticularfinancialinstrument.TheBank’sdefinitionofdefaultisbasedontheregulatorydefinitionunderArticle178ofthe‘Regulation(EU)No575/2013oftheEuropeanParliamentandoftheCounciloftheEuropeanUnionof26June2013onprudentialrequirementsforcreditbanksandinvestmentfirmsandamendingRegulation(EU)648/2012’(CRR).Adefaultisconsideredtohaveoccurredwheneitherofthefollowingconditionshadtakenplace.

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a. Qualitative

Unlikeliness to Pay (UTP) criterion: the Bank considers that the obligor is unlikely to pay its credit obligationstotheBankwithoutrecoursebytheBanktoactionssuchasrealizingsecurity.Belowtherearesomeelementsthataretakenasindicationsofunlikelinesstopay(inlinewithCRR(Article178)). - TheBankputsthecreditobligationonnon-accruedstatus.- TheBankrecognizesaspecificcreditadjustmentresultingfromasignificantperceiveddecline

increditqualitysubsequenttotheinstitutiontakingontheexposure.- TheBankhasfiled for theobligor’sbankruptcyorasimilarorder in respectofanobligor’s

creditobligationtotheBank,theparentundertakingoranyofitssubsidiaries.- The obligor has sought or has been placed in bankruptcy or similar protectionwhere this

wouldavoidordelayrepaymentofacreditobligationtotheBank,theparentundertakingorany of its subsidiaries.

b. Quantitative

Pastduecriterion:theexposureispastduemorethan90daysonanycreditobligationtotheBank.

Impairment lossesforguaranteesarerecognizedwhileaguaranteeis ineffectandtheamountsaredeterminedbasedonthelevelofutilizationoftheguarantee.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 thediscount is treated as income and remaining provision is then reassessed.

3.6.2 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.Therecoverableamountisthehigheramountbetweenthefairvaluelesscostsofdisposalandofthevalueinuse(ascalculatedfromthenetcashflows).Ifthecarrying value of an intangible asset exceeds its recoverable value, then an impairment loss is recorded in the income statement.

3.6.3 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.Some modifications result in derecognition of the existing asset and recognition of a new asset with thedifferencerecognizedasaderecognitiongainorloss,totheextentthatanimpairmentlosshasnotalreadybeenrecorded,whileothermodificationsdonotresult inderecognition.Modificationsthatresult inderecognitionareconsideredtobesubstantialmodifications.Asignificantorsubstantialchangeisdefinedwhenthecustomerentersintoanewloancontract(i.e.completelynewproductandnewpricing)thathasadifferentinterestratetype, loan amount, term period (temporary term extension is excluded), and/or customer (e.g. from singlecustomertojointorchangeinoneofthejointcustomernames).

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Adistressed restructuring is an indicationofunlikeliness topaywhere this is likely to result in adiminishedfinancialobligationcausedbythematerial (change in thenetpresentvalueof theassetbymorethan10%)forgiveness,orpostponementofeitherprincipal,interestor,whererelevantfees.Distressedrestructuringoccurswhenforbearancemeasureshavebeenextendedtowardsadebtor.Therefore,thoseforborneexposureswheretheforbearancemeasuresarelikelytoresultinadiminishedfinancialobligationareclassifiedasdefaulted.

Restructuredoperationswillbeconsideredcuredandnormalizedaftertwosuccessfulrepayments(averageof6monthsperrepayment)andcouldthereforebesubjecttoaStagemovement.

ForloansthataremodifiedtheBankrecalculatesthegrossbookvaluebasedontherevisedcashflowsonthefinancialassetandrecognizestheprofitorlossfromthemodificationinincomestatement.Thenewgrossbookvalueisrecalculatedbydiscountingthemodifiedcashflowsattheoriginaleffectiveinterestrate.

3.6.4 Write-offs

AccordingtotheIFRS9(B5.4.9),thegrosscarryingamountofafinancialassetmaybedirectlyreducedwhenthereisnoreasonableexpectationofrecoveringthefinancialassetinitsentiretyoraportionofit.Assuch,theBankmayrecordawrite-offofStage3loans.TheBankmayalso,onanad-hocbasis,examinetheneedforanyfurtherwrite-offsofStage2loansifthereisrelevantevidence.

3.6.5 Write-backs

Recoveries(write-backs)ofanasset,orpartthereof,arecreditedtotheincomestatementifpreviouslywrittenoff.

3.7 Financial Liabilities

TheBankrecognizesafinancialliabilityinitsfinancialstatementsatthetimeofthearisingfromtheitem(thatis,thedaythetransactiontookplace).Financialliabilitiesprimarilyinclude(a)borrowingsand(b)otherliabilities.

3.7.1 Borrowings

Borrowingtransactionswhichareamountsduetofinancialinstitutionsanddebtsevidencebycertificates,arerecognized inthestatementoffinancialpositionatthetimethefundsaretransferredtotheBank.Theyaremeasuredinitiallyatthefairvalueofthefundstransferred,lessanytransactioncosts.Theyaresubsequentlymeasuredatamortizedcostunlesstheyqualifyforhedgeaccountinginwhichcasetheamortizedcostisadjustedforthefairvaluemovementsattributabletothetotherisksbeinghedged.Interestexpenseisaccruedintheincomestatementwithin“Interestexpense”usingtheeffectiveinterestratemethod.

3.7.2 Other liabilities

OtherliabilitiesthatarenotderivativesordesignatedatFVTPL,arerecordedatamortizedcost.Theamountsincludeaccruedfinancechargesonborrowingsandotheraccountspayable.

3.8 Offsetting of Financial Assets and Liabilities

Offsettingof financial assets and liabilities in thefinancial statements is permitted if, andonly if, there is a currentlyenforceablelegalrighttooffsettherecognizedamountsandthereisanintentiontosettleonanetbasis,ortorealizetheassetandsettletheliabilitysimultaneously.

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3.9 Derivatives

In theordinarycourseofbusiness, theBankenters intovarious typesof transactions that involvederivativefinancialinstruments.Aderivativefinancialinstrumentisafinancialcontractbetweentwopartieswherepaymentsaredependentuponmovementsinpriceinoneormoreunderlyingfinancialinstruments,referenceratesorindices.

TheBankprimarilymakesuseofderivativesforthebelowstrategicpurposes:- ManyoftheBank’sissuedsecurities,excludingcommercialpaper,areindividuallypairedwithaswapto

convert the issuance proceeds into the currency and interest rate structure sought by the Bank.- Tomanagethenet interestraterisksandforeignexchangerisksarisingfromallfinancialassetsand

liabilities.- Throughcurrencyswaps,tomanagefundingrequirementsfortheBank’sloanportfolio.

Derivativescanincludeinterestrateandcrosscurrencyswaps,forwardforeignexchangecontracts,interestratefuturecontracts,andoptionsoninterestratesandforeigncurrencies.Suchfinancialinstrumentsareinitiallyrecognizedinthestatementoffinancialpositionatcostandarecarriedasassetswhenfairvalueispositiveandasliabilitieswhenfairvalueisnegative.Changesinfairvalueofderivativesareincludedintheincomestatement.Fairvaluesareobtainedfromquotedmarketprices,totheextentpubliclyavailable,discountedcashflowsandoptionspricingmodelsasappropriate.

3.9.1 Economic Hedge

Included inthisclassificationareanyderivativesentered intobytheBank inordertoeconomicallyhedge itsexposuresforriskmanagementpurposesthatarenotdesignatedinhedgerelationshipsastheydonotmeettheIAS39hedgeaccountingcriteria.

TheBankentersintosuchderivatives,toprotecttheBankfromfinancialriskssuchascurrencyrisk,marketpricerisk and interest rate risk. Such hedges are entered into to lessen or eliminate economic exposure.

TheBank’spoliciesonriskmanagementaretonottakesignificantinterestrateorforeignexchangerisks,andtoaimwherepossibletomatchassetsandliabilitiesandderivativesthatcanonlybeusedforeconomichedge.ThemajorityoftheBank’slendingactivitiesisatfloatingrateslinkedtoUSDLibororEuribor.WhenlendingatafixedratetheBankwilloftenuseinterestrateswapstoproducefloatingrateinterestpayments.TheBank’sborrowings,particularlybybondissuance,tendtobefixedrateandsometimesnotinEURorUSDandtheBankwilluseeitherinterestrateswapsorcrosscurrencyinterestrateswapstoproducefloatingrateliabilitiesinUSDorEUR.AlltheBank’sinterestrateorcrosscurrencyswapsareexplicitlytiedtoabalancesheetassetorliability.Typically, thefixed rateon the swapand thematchingassetor liabilityhave the samecharacteristics (term,payment dates etc.).

Foreignexchangeforwards(pairedpurchasesandsalesofcurrenciesondifferentdates)ofmaturitiestypicallylessthanthreemonthsarenottiedtospecificassetsorliabilities.TheseareundertakentomanagesurplusesandshortfallsinEURandUSDandarenotundertakenforspeculativepurposes.

All derivatives are documentedunder International Swaps andDerivativesAssociation (ISDA)master nettingagreementwithCreditSwapAnnexes(CSAs)andmarkedtomarketandcollateralizeddaily.

The Department of Treasury, under the guidance of ALCO, is responsible for the primary usage and managing interestrateandcurrencyrisksintheBank’sstatementoffinancialposition.

3.10 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.

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3.11 Property and Equipment

Property and equipment include leasehold improvements and transportation and other equipment. Property andequipmentareinitiallyrecordedatcost,whichincludesallcoststhatarerequiredtobringanassetintooperatingcondition.Subsequently to initial recognition,propertyandequipmentaremeasuredatcost lessaccumulateddepreciationandaccumulated impairment losses.

Costsincurredsubsequentlytotheacquisitionofanasset,whichisclassifiedaspropertyandequipmentarecapitalized,onlywhenitisprobablethattheywillresultinfutureeconomicbenefitstotheBankbeyondthoseoriginallyanticipatedfortheasset,otherwisetheyareexpensedasincurred.

AteachreportingdatetheBankassesseswhetherthereisanyindicationthatanitemofpropertyandequipmentmaybeimpaired.Ifanysuchindicationexists,theBankestimatestherecoverableamountoftheasset.Wherethecarryingamountofanassetisgreaterthanitsestimatedrecoverableamount,itiswrittendownimmediatelytoitsrecoverableamount. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining net income or loss.

Depreciation isprovided towriteoff thecostofeachasset to their residual valuesona straight-linebasisover theirestimatedusefullives.Theannualdepreciationratesappliedwereasfollows:

- Expenditure on leasehold buildings and improvements are depreciated over the remaining term of the lease

- Transportationvehicles- Furnitureandofficeaccessories- Personal computers- Officeandtelecommunicationequipment

-20.0%20.0%33.3%20.0%

3.12 Intangible Assets

Intangibleassetscomprisesoftwareexpendituresandotherintangibleassets.Theseassetsareamortizedonastraight-linebasisoverthebestestimateoftheirusefullives,whichissoftwarefordesktopsofthreeyearsandsoftwareforserversoffiveyears.Ateachreportingdate,managementreviewsintangibleassetsandassesseswhetherthereisanyindicationof impairment. If such indicationsexistananalysis isperformed toassesswhether thecarryingamountof intangibleassetsisfullyrecoverable.Awrite-downismadeifthecarryingamountexceedstherecoverableamount.

3.13 Right of Use Assets

Right-of-use assets comprise those assets that the Bank, as the lessee, has control of the underlying assets during the term of the lease. Control is considered to exist if the Bank has:

- Therighttoobtainsubstantiallyalloftheeconomicbenefitsfromtheuseofanidentifiedasset;and- The right to direct the use of that asset.

TheBankprovidesfortherecognitionofaright-of-useassetandaleaseliabilityuponleasecommencementincasethatthereisacontract,orpartofacontract,thatconveystotheBanktherighttouseanassetforaperiodoftimeinexchangeforaconsideration.MoredetailsareprovidedwithintheleaseaccountingpolicyNote3.21.

3.14 Taxation

InaccordancewithArticle52oftheEstablishingAgreement,theBank,itsassets,property,incomeanditsoperationsandtransactionsareexemptfromalltaxationandallcustomsdutiesinallmembercountries.

The Bank is also exempt from any obligation for payment,withholding or collection of any tax or duty. Also, no taxshallbeleviedonsalariesoremolumentspaidbytheBanktoemployees.ThesetaxexemptionsarealsoincludedandelaborateduponinArticle12oftheHeadquartersAgreementwiththeHellenicGovernment,ratifiedbyGreekLaw2380/No.38/7.3.1996.

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3.15 Provisions

The Bank records provisions for present obligations and riskswhen the following circumstances exist (a) there is anexistinglegalorconstructiveobligationasaresultofpastevents(b)fortheobligationtobesettledanoutflowofresourcesembodyingeconomicbenefitsispresentand(c)areliableestimateoftheamountoftheobligationcanbemade.

3.16 Share Capital and Dividends

InaccordancewithArticle36oftheEstablishingAgreement,theBoardofGovernorsshalldetermineannuallywhatpartofnetincomeorsurplusoftheBankfromoperationsshallbeallocatedtoreserves,providedthatnopartofthenetincomeorsurplusoftheBankshallbedistributedtomembersbywayofprofituntilthegeneralreservesoftheBankshallhaveattainedthelevelof10%ofthesubscribedcapitalincludingallpaid,unpaidbutpayable,andunpaidbutcallablesharecapital.

3.17 Reserves and Retained Earnings

InaccordancewiththeEstablishingAgreementoftheBankthegeneralreserveiscreatedfromtheprofitsoftheBankformeetinganyunforeseeablerisksorcontingencies.

Therevaluationreserverepresentstheaccumulatedchangeinfairvalueofthosefinancialassetsthataremeasuredatfairvalue through other comprehensive income of the Bank.

The retained earnings of the Bank is the accumulated undistributed and unallocated net income over the years.

3.18 Income and Expense

Interestincomeandexpensearerecognizedintheincomestatementusingtheeffectiveinterestmethod.Theeffectiveinterestrate(EIR)istheratethatexactlydiscountsestimatedfuturecashpaymentsorreceiptsthroughtheexpectedlifeofthefinancialinstrument(or,whereappropriate,ashorterperiod)to:

- Thegrosscarryingamountofthefinancialasset;or- Theamortizedcostofthefinancialliability.

WhencalculatingtheEIRforfinancialinstrumentsotherthanpurchasedororiginatedcredit-impairedassetstheBankestimatesfuturecashflowsconsideringallcontractualtermsofthefinancialinstrument,butnottheECL.Forpurchasedororiginatedcredit-impairedfinancialassets,acredit-adjustedEIRiscalculatedusingestimatedfuturecashflowsincludingthe ECL.

ThecalculationoftheEIRincludestransactioncostsandfeespaidorreceivedthatareanintegralpartoftheeffectiveinterest rate.Transactioncosts include incrementalcosts thataredirectlyattributable to theacquisitionor issueofafinancialassetorfinancialliability.

i) Amortized cost (AC) and gross carrying amount

TheACofafinancialassetorfinancialliabilityistheamountatwhichthefinancialassetorfinancialliabilityismeasuredoninitialrecognitionminustheprincipalrepayments,plusorminusthecumulativeamortizationusingtheeffectiveinterestmethodofanydifferencebetweenthatinitialamountandthematurityamountand,forfinancialassets,adjustedforanyECLallowance.

ThegrosscarryingamountofafinancialassetistheACofafinancialassetbeforeadjustingforanyECLallowance.

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ii) Calculation of interest income and expense

Interestincomeandexpensearerecognizedintheincomestatementforallinterestbearinginstrumentsusingthe effective interest rate method. Interest income includes interest on loans and advances to customers,couponsearnedonfixedincomeinvestmentsecuritiesandaccrueddiscountandpremiumontreasurybillsandother instruments.

Feesanddirectcostsrelatingtoaloanoriginationoracquiringaninvestmentsecurity,financingorrestructuringandtoloancommitmentsaredeferredandamortizedtointerestincomeoverthelifeoftheinstrumentusingtheeffectiveinterestratemethod.

Onceafinancialassetoragroupofsimilarfinancialassetshasbeenwrittendownasaresultofanimpairmentloss, interest income is recognized using the rate of interest used to discount the future cash flows for thepurpose of measuring the impairment loss.

TheEIRofafinancialassetorfinancialliabilityiscalculatedoninitialrecognitionofafinancialassetorafinancialliability.Incalculatinginterestincomeandexpense,theEIRisappliedtothegrosscarryingamountoftheasset(whentheassetisnotcredit-impaired)ortotheACoftheliability.TheEIRisrevisedasaresultofperiodicre-estimationofcashflowsoffloatingrateinstrumentstoreflectmovementsinmarketratesofinterest.

However,forfinancialassetsthathavebecomecredit-impairedsubsequenttoinitialrecognition,interestincomeiscalculatedbyapplyingtheeffectiveinterestratetothenetbalanceofthefinancialasset. Iftheassetisnolongercredit-impaired,thenthecalculationofinterestincomerevertstothegrossbasis.

Forfinancialassetsthatwerecredit-impairedoninitialrecognition,interestincomeiscalculatedbyapplyingthecredit-adjustedEIRtotheACofthefinancialasset.Thecalculationofinterestincomedoesnotreverttoagrossbasis,evenifthecreditriskofthefinancialassetimproves.

Otherinterestincome/expenseincludesinterestonderivativesineconomichedgeusingthecontractualinterestrate.

iii) Fees and commissions

Feeandcommission incomeandexpensethatare integraltotheEIRonafinancialassetorfinancial liabilityare included in the EIR. Other fee and commission income – including account servicing fees, investment managementfees,salescommission,placementfeesandsyndicationfees–isrecognizedastherelatedservicesareperformed.Ifaloancommitmentisnotexpectedtoresultinthedraw-downofaloan,thentherelatedloancommitmentfeeisrecognizedonastraight-linebasisoverthecommitmentperiod.

AcontractwithacustomerthatresultsinarecognizedfinancialinstrumentintheBank’sfinancialstatementsmaybepartiallyinthescopeofIFRS9andpartiallyinthescopeofIFRS15.Ifthisisthecase,thentheBankfirstapplies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual. 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,whichareexpensedastheservices are received.

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iv) Interest rate benchmark reform

AtpresenttheBankiscontinuingtheusageofLiborastheinterestratebenchmarkofwhichtheBankisexposedto,asthereisuncertaintytothetimingandpreciseformofthenewbenchmarkthathasyettobefinalized.TheadoptionwillnothaveanymaterialimpactontheBank’sfinancialstatements.

3.19 Staff Retirement and Termination Benefits

TheBankhasestablishedapensionplan,wherethefund’sassetsareheldseparatelyfromtheBank’sownassets,forallitseligibleemployees,consistingofthreepillars:

a. Thefirstpillarisadefinedpost-employmentbenefitschemefinancedentirelybytheBank.Thescheme’sfundinglevelandtheBank’scontributionsaredeterminedonthebasisofactuarialvaluationsperformedbyqualified,independentactuariesonanannualbasisattheendofeachannualreportingperiod.Theactuarialvaluationusestheprojectedunitcreditmethodandanumberoffinancialanddemographicassumptions. Themost significant assumptions include age, years of service or compensation, lifeexpectancy, the discount rate, expected salary increases and pension rates. The actuarial liability is the presentvalueofthedefinedbenefitobligationasatthereportingdateminusthefairvalueoftheplanassets.TheBankisundertheobligationtomaintaintheschemefullyfunded,andtothiseffect,hasalwaysliquidatedanypastservicedeficitoverthecourseoftheyearfollowingtherelevantactuarialvaluation.

Actuarialandassetgainsorlossesarerecognizedin‘Othercomprehensiveincome’,andnetgainsorlossesareincludedinremeasurementswhereanychangeintheeffectoftheassetceiling,excludingthose amounts that have been already included in personnel expenses, are also included.

b. The second pillar is a defined post-employment contribution scheme towhich both the employeeandtheBankcontributeequallyatarateof0-12%ofbasicsalary.TheBankhasnoobligationtopayfurthercontributioniftheemployeediscontinuestheircontribution.Eachemployeedetermineshis/hercontributionrateandthemodeofinvestmentofthecontributions.

c. Thethirdpillarisadefinedcontributionschemefundedentirelybyeachemployee,upto40%ofbasicsalaryandisrecordedintheBank’sfinancialstatements.

Asanalternative,staffareentitledtoretirementbenefitsfromtheGreekStateSocialInsuranceFund(EFKA),whichisadefinedcontributionscheme.

Currentservicecostsinrespectofboththepensionplan(a)and(b)andEFKAarerecognizedasanexpenseintheperiodwhichtheyrelateandareincludedin‘Personnelexpenses’.

TheBankmayofferterminationbenefitstoemployeesthatareseparatedbasedontheBank’sseparationpolicy.Thesebenefits,includingindemnitiesandanyrelatedretirementbenefits,arerecognizedinincomeasanexpenseinthesameperiod they are incurred.

3.20 Related Parties

Relatedpartiesincludeentities,whichtheBankhastheabilitytoexercisesignificantinfluenceinmakingfinancialandoperationaldecisions.Relatedparitiesincludekeymanagementpersonnel,andclosefamilymembersofkeymanagementpersonnel.

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3.21 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;anddoesnotleaseland,corporatevehicles,ortechnicalorITequipment,nordoestheBankhaveanysale-and-leasebacktransactions.TheBankelectedtoapplythemodifiedretrospectivetransitionapproach,withoutrestatementofcomparativefigures.Underthisapproach,theBankwasabletochooseonaleasebyleasebasistomeasuretheright-of-useassetatthesameamountastheleaseliability.

TheBank’s leases for right-of-useassetsare initially recognizedandmeasuredat cost similarly 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.

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4. SIGNIFICANT ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

ThepreparationoftheBank’sfinancialstatementsrequiresManagementtomakejudgements,estimatesandassumptionsthataffect the reportedamountsofassetsand liabilities, incomeandexpenseandaccompanyingnotes.Uncertaintyabout these assumptions and estimates could result in outcomes that require amaterial adjustment to the carryingamountofassetsandliabilitiesaffectedinfutureperiods.TheBankbelievesthatthesignificantjudgments,estimatesandassumptionsusedinthepreparationofitsfinancialstatementsareappropriategiventhefactualcircumstancesasofthedateofpreparation.Themostsignificantareas,forwhichcriticaljudgments,estimatesandassumptionsarerequiredinapplyingtheBank’saccountingpolicies,arethefollowing:

a. Fairvalueestimatesforfinancialsinstrumentscarriedatfairvalue

b. TheBank’smethodfordeterminingthelevelofimpairmentofloanoperationsisdescribedwithintheAccountingandfurtherexplainedinNote5RiskManagement–creditrisksection.InaccordancewithIFRS9,ECLrepresentstheaveragecreditlossesweightedbytheprobabilitiesofdefault(PD),wherebycreditlossesaredefinedasthepresentvalueofallcashshortfalls.TheECLiscalculatedforbothStage1 andStage2 loansby applying theprovision rate to theprojectedexposureatdefault (EAD), anddiscountingtheresultingprovisionusingthe loan’seffective interest rate (EIR).Theprovisionrate isgeneratedbymultiplyingthePDrateandthelossgivendefault(LGD)rateapplicabletotheloan.

Anumberofcriticalaccountingestimatesarethereforemadeinthecalculationofimpairmentofloanoperationsasfollows:

• Criteria used for staging assessment of loans and advances to customers.• Bank’sinternalcreditlossratingscale,whichassignsPDstoindividualgrades.• Assumptionsforfuturecashflowsofindividuallyassessedcredit-impairedexposures.• Theinputandassumptionsusedtoestimatetheimpactofmultipleeconomicscenarios.

ForloansthatareindividuallyassessedwhichhavealifetimeECLandthatarecredit-impairedinStage3,theimpairmentallowanceresultsfromtheimpairmenttestthatisconductedonthebasisofobjectiveevidenceobtained througha risk asset reviewprocess.An impairment test includesprojected cashin-flowsandout-flows,availablefordebtserviceuntilmaturity,whicharediscountedattheoriginaleffectiveinterestrate(EIR)toreachanetpresentvalueforaparticularoperation,lessanycollateralthatcanberealized.

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4.1 Covid-19

ThecontinuationoftheCovid-19pandemicmeansthattheBankcouldfaceadditionalcredit,marketandoperationalrisks.Thedurationofthepandemicisdifficulttopredictatthistime,asaretheextentandeffectivenessofeconomicinterventionsbythegovernmentsandcentralbanksintheregionoftheBank’soperations.TheBankcontinuestomonitorthedevelopmentsandtomanagetherisksassociatedwiththeBank’svariousportfolioswithinexistingfinancialpoliciesandconstraints.ThetwomainareasthataffecttheBank’sjudgementandestimatesare:

1. TheBank’sequityinvestmentswhichwilllikelyseeareducedfairvalueduetothedownwardpressure,although the Bank has a small portfolio of this and therefore its profitabilitywill not bemateriallyimpacted from these investments.

2. TheBank’sloanportfolioduetobusinessdisruptionineconomicactivityintheregionwillputpressureforborrowers,affectingthoseoperatingprimarilyintheserviceandconsumergoodsindustries.Thiscouldlikelyforcedebtrestructuringandanincreaseindefaultsamonglessrobustoperations.TheBank’sprofitabilityhasbeenimpactedbyasevereincreaseinECLonperformingloans,drivenbyworseningofthe macro-economic outlook scenarios.

WithregardoftheBank’soperationalrisktheinformationtechnology(IT)systemshaveproventheyarestable,powerfulandflexible,asthemajorityoftheBank’sstaffwereworkingsuccessfullyremotely.TheBankisalsoinvestinginnewITinfrastructuretoexpanddigitalandcloudtransformation,aswellasstrengtheningtheBank’scybersecurityandinternalcontrol systems.

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5. RISK MANAGEMENT

TheBank’sactivitiesaresubject toavarietyof risks, someofwhicharenotwithin theBank’scontrol: includingrisksrelatingtochangesininterestrates,foreignexchangerates,declinesinliquidityanddeteriorationinthecreditqualityofitsloanportfolio.TheBankmonitorsandmanagesthematuritiesofitsloans,itsinterestrateandexchangerateexposure,itsliquiditypositionandthecreditqualityofeachindividualloanandequityinvestmentinordertominimizetheeffectsofchangesinthemrelativetotheBank’sprofitabilityandliquidityposition.TheBoDhasapprovedriskmanagementpoliciesandguidelinesthataredelegatedtotheManagementoftheBankfortheidentificationandmeasurementofrisk,aswellasbeingsubjecttorisklimitsandcontrols.

TomanageriskstheBankhasestablishedanAssetandLiabilityCommittee(ALCO),aCreditCommitteethatimplementtheBank’screditandlendingpolicies,theOfficeoftheGeneralCounsel,theDepartmentofRiskManagementandtheDepartmentofFinancialAnalysis,whichtogetherareresponsiblefordevising,implementingandmonitoringtheBank’sriskmanagementpolicies,includingfinancial,creditandmarketrisks.

TheALCOisresponsibleformonitoringandmanagingtheBank’soverallassetandliabilitypositioninaccordancewiththeBank’streasurypolicies.ItmonitorsandmanagestheBank’sliquidityposition,maturitygaps, interestincomeandexpenseandtheconditionoftheinternationalfinancialmarketsandisresponsibleforassigningmarketrisklimits.TheALCO consists of members of the Bank’s Management and a member of the Department of Treasury and has regular monthlymeetings.

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 regularmeetingsasrequiredtomonitorandmanageoverallriskconcentrationbyreferencetoborrowerandindustryexposureandcriticallyreviewseachindividualloanandequityinvestmentproposalmadebythelendingbusinessareas.AmajorfunctionoftheCreditCommitteeistominimizethecreditriskpresentedbyeachindividualloanandequityinvestmentproposal,andtheoverallportfolioriskoftheBank.

Onceanoperationisapprovedanddisbursed,itisthenmonitoredtoensurethoroughandregularevaluationsofitscreditquality.OperationsaremonitoredaccordingtoaschedulecoordinatedbytheDepartmentofProject ImplementationandMonitoring,withinputsfromtheoriginatingOperationTeamsregardingtheavailabilityoffinancialdata.MonitoringreportsarecompletedbytheBank’sDepartmentofProjectImplementationandMonitoringbasedonfinancialanalysispreparedby theDepartmentofFinancialAnalysis.Riskasset reviews,basedonthepreviouslymentionedmonitoringreports, are performed by the Department of RiskManagement, andmay result in a downgrade or upgrade of anoperation’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’screditprocessseekstoensurethatthesignificantcreditrisksareproperlyidentifiedandmanagedwhileotherrisksresultingfromitsactivitiesaremitigatedtothe extent possible.

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(i)anassessmentofwhethertherehasbeenanychangeintheriskprofileoftheexposure(ii)recommendationsofactionstomitigateriskand(iii)reconfirmingoradjustingtheriskratings,andforequityinvestments,reviewingoffairvalue.Whererelevant,theleveloftheexpectedcreditlossisevaluatedandreconfirmedoradjusted.Responsibilityforoperationsconsideredtobeinjeopardymaybetransferredfromtheoriginallendingdepartmenttoacorporaterecoveryteaminordertomosteffectivelymanagetherestructuringandrecoveryprocess.

ForcreditrisksincurredbytheBank’sTreasuryinitsinvestmentandhedgingactivities,theBoDhasapprovedpoliciesandguidelinesforthedeterminationofcounterpartyandinvestmentexposurelimitsinbonds,thatincludesmemberstatebonds, and euro commercial paper. The Bank’s Risk Management Department assigns and monitors these counterparty andissuercreditrisklimits.TreasurycreditrisksarealsoreviewedonaregularbasisbytheBank’sALCO.

The tablebelow summarizes themaximumexposure to credit riskwithout taking into consideration collateral, othercredit enhancements or provisions of impairment.

Presented in EUR (000)

At31 December

2020

At31 December

2019

Cash and due from banksDeposits in margin accountsDebtinvestmentsecuritiesDerivativefinancialinstrumentsLoansEquity investmentsAccrued interest receivableOther assets

34,32826,240

687,96126,701

2,042,92126,31023,512

9,490

81,2715,900

419,8263,128

1,820,94130,38624,33411,519

On-balance-sheetUndrawncommitments

2,877,463274,031

2,397,305353,496

Total 3,151,494 2,750,801

93



a1. Analysis by rating agency

Thetablesbelowprovideananalysisoffinancialassets,excludingloanswhichareseparatelyprovidedbelowincreditriskanalysis,inaccordancewiththeirMoody’s(orifnotbyMoody’sthantheequivalentofStandardandPoor’sorFitch)rating,asfollows.

2020

Presented in EUR (000)Aaa –

Aa3A1 –

A3Baa1 –

Ba3 Unrated Total

AnalysisbyMoody’srating

Cash and bank balancesDeposits in margin accountsDebtinvestmentsecuritiesDerivativesfinancialinstrumentsEquity investmentsAccrued interest receivableOther assets

34,32826,24093,950

---

--

353,346----

--

240,665----

---

26,70126,31023,512

9,490

34,32826,240

687,96126,70126,31023,512

9,490

At 31 December 154,518 353,346 240,665 86,013 834,542

Ofwhichissuedby

Corporates/GovernmentsCash deposits at banksOther

93,95060,568

-

353,346--

240,665--

26,310-

59,703

714,27160,56859,703

At 31 December 154,518 353,346 240,665 86,013 834,542

Ofwhichclassifiedas

FairvaluethroughprofitorlossFair value through other comprehensive incomeAmortizedcost

-93,95060,568

-353,346

-

-240,665

-

27,49225,51933,002

27,492713,480

93,570

At 31 December 154,518 353,346 240,665 86,013 834,542

94

ANNUAL REPORT 2020


2019

Presented in EUR (000)Aaa –

Aa3A1 –

A3Baa1 –

Ba3 Unrated Total

AnalysisbyMoody’srating

Cash and bank balancesDeposits in margin accountsDebtinvestmentsecuritiesDerivativesfinancialinstrumentsEquity investmentsAccrued interest receivableOther assets

81,2715,900

177,917----

--

50,213----

--

191,696----

---

3,12830,38624,33411,519

81,2715,900

419,8263,128

30,38624,33411,519

At 31 December 265,088 50,213 191,696 69,367 576,364

Ofwhichissuedby

Corporates/GovernmentsCash deposits at banksOther

177,91787,171

-

50,213--

191,696--

30,386-

38,981

450,21287,17138,981

At 31 December 265,088 50,213 191,696 69,367 576,364

Ofwhichclassifiedas

FairvaluethroughprofitorlossFair value through other comprehensive incomeAmortizedcost

-177,917

87,171

-50,213

-

-191,696

-

3,92629,58835,853

3,926449,414123,024

At 31 December 265,088 50,213 191,696 69,367 576,364

95



a2. Credit risk analysis

ThetablesbelowprovideananalysisoftheBank’s internalexpectedcredit lossratingscalefrom1(lowestrisk)to15(highestrisk)andhowitcorrespondstotheexternalratingsofMoody’screditratingservice. Riskrating

Internal riskratingcategory

Externalratingequivalent

Grade ofinvestment

1123,4,56,7,89,10,1112,13,1415

ExcellentVery strongStrongGoodFairWeakSpecialattentionExpected loss

AaaAa1 – Aa3A1 – A3Baa1 – Baa3Ba1 – Ba3B1 – B3Caa1 –Caa3Ca – C

InvestmentInvestmentInvestmentInvestmentInvestmentInvestmentClassifiedClassified

a3. Credit risk in loans portfolio

Thetableprovidesoverviewoftheexposureamountandallowanceforcreditlossesbyfinancialassetclassbrokendowninto stages asper IFRS9 requirements, includingmovementsof credit-impaired. Internally, loans that arewithin the12-monthECLarecategorizedasstandard.

Creditriskfor2020isanalyzedasfollows:Presented in EUR (000)


12-monthECL

LifetimeECL not

credit impaired

LifetimeECL creditimpaired Total

ECLallowance

12-monthECL

LifetimeECL not

creditimpaired

LifetimeECL

creditimpaired Total

At1January2020 1,484,999 272,290 50,898 1,808,187 2,891 5,986 34,437 43,314

ExcellentVery strongStrongGoodFairWeakSpecialattentionExpected loss

---

4,906608,957

1,106,609--

-----

140,83290,700

-

------

50,72627,666

---

4,906608,957

1,247,441141,426

27,666

---1

1,25114,247

--

-----

1,2151,840

-

------

14,58522,798

---1

1,25115,46216,42522,798

At 31 December 2020 1,720,472 231,532 78,392 2,030,396 15,499 3,055 37,383 55,937

Creditriskfor2019isanalyzedasfollows:Presented in EUR (000)


12-monthECL

LifetimeECL not

credit impaired

LifetimeECL creditimpaired Total

ECLallowance

12-monthECL

LifetimeECL not

credit impaired

LifetimeECL

creditimpaired Total

At1January2019 1,050,830 225,851 41,737 1,318,418 3,520 4,274 26,981 34,775

ExcellentVery strongStrongGoodFairWeakSpecialattention

---

6,751645,612807,563

25,073

-----

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

96

ANNUAL REPORT 2020


a4. Non-performing loans (NPL)

FortheBankanassetisclassifiedasnon-performing/impairedwhentheborrowerispastdueonpaymentformorethan90days,orwhenRiskManagementDepartmentconsidersthatthecounterpartyisunlikelytopayitscreditobligationsinfulltotheBank.Normally,anNPLhasuncertainindicationofarecoveryorarestructuringplanandisfullyprovidedwithanimpairmentchargelessanyrealizablecollateral,whichisinthefinalstagetoenforcinglegalaction.Therewerenowrite-offsduringtheyear(2019:nil).

97



a5. Credit risk by country and sector

TheBankusesinternationalbestpracticesforlendingactivitiesinordertodiversifyriskbycountryandbysector,whilealsopreservingtheneedsoftheBank’sMemberStatesinaccordancewiththeBank’smandatetopromoteeconomicdevelopment in the Black Sea Region.

Theconcentrationofcreditriskinlendingportfoliosispresentedbelow,alsoincludingtheundrawnamounts.TheBankisgenerallywelldiversifiedbycountryandbysector.

At 31 December2020

At 31 December2019

Presented in EUR (000)Outstanding

balanceUndrawn

commitmentsOutstanding

balanceUndrawn

commitments

Concentrationbyinstrument

LoansEquity investmentsGuarantees

2,042,92126,310

-

245,1436,962

21,926

1,820,94130,386

-

335,9597,9059,632

At end of year 2,069,231 274,031 1,851,327 353,496

Concentrationbycountry


34,62491,269

105,366156,921100,979380,255

36,662121,246322,708478,820240,381

279812

124,25411,803

8,7884,464

72952,10749,74822,001

40,13692,731

121,519116,447116,119386,898

38,022136,841217,662420,399164,553

67387387

32,38628,71212,50318,555

68456,367

134,22969,219

At end of year 2,069,231 274,031 1,851,327 353,496

Concentrationbysector

ConsumerdiscretionaryConsumer staplesEnergyFinancialinstitutionsHealth careIndustrialsInformationtechnologyMaterialsReal estateTelecom servicesUtilities

77,272115,264194,763566,994

97,734363,011

4,056240,177

44,670-

365,290

10,00028,039

-9,678

19,014144,397

-12,22425,954

-24,725

59,67189,200

228,050612,049

91,060269,758

4,129123,231

3,480-

370,699

41,21428,856

-38,74326,138

102,000-

55,91932,000

-28,626

At end of year 2,069,231 274,031 1,851,327 353,496

Incurred by

SovereignNon-sovereign

354,9731,714,258

20,464253,567

354,2421,497,085

26,688326,808

At end of year 2,069,231 274,031 1,851,327 353,496

98

ANNUAL REPORT 2020


TheBankisrestrictedtooperatinginits11MemberStatesandindividualcountrylimitsaresetasamaximumat30%ofplannedcommitments.ThislimitiscalculatedonthebasisoftheBoDapprovedoperations,minusrepaymentsandcancellations. Individualoperationsare further constrainedby theSingleObligor Limit andbymonitoringof SectoralExposure.

a6. Collateral and credit enhancements

TheBankmitigatescreditriskbyholdingcollateralandothercreditenhancementsagainstexposuretocustomersandcounterpartieswhereitbelievessuchsecurityisnecessary.TheBankdefinessecurityasmechanisms,proceduresandassetsnegotiatedintransactionsthataremeanttoprotectitagainstlossincaseofnon-performance.Securityincludes,butisnotlimitedto,materialassets,financialinstruments,guarantees,covenantsandcomfortletters.

• Loansandadvances.TheBoDapprovedguidelinesfortakingsecurityunderlendingoperations,setthelevelsandtypesofcollateralandothercreditenhancementsrecommendedforagivenriskprofile.

ThemaintypesofcollateralthatmaybeobtainedbytheBankare:mortgagesonpropertiesandequipment,pledges of equity shares and investment instruments, assignment of rights on certain contracts, cash or blocked deposits and other third party guarantees. If necessary, the Bank reassesses the value of collateral in order to determineifadditionalcollateralisneededtobeprovidedbytheborrower.At31December2020thesecuredportfoliowas53.9%(2019:57.2%)oftheoutstandingloansbalance.

• Other financial instruments. Collateral held as security for financial assets other than loans and advances isdetermined by the nature of the instrument. Bonds and euro commercial paper held by the Bank as investment securitiesaregenerallyunsecured.TheBankmayholdcashorgovernmentsecuritiesascollateralagainst itsderivative contract counterparties. At 31 December 2020 the Bank had pledged as collateral for derivativetransactionsanetamountofEUR3,320thousand(2019:EUR1,350thousand).

• Forloansthatarecredit-impairedatthereportingdatetheBankhascollateralheldassecurity,anamountofEUR38,864thousandtomitigatecreditrisk.ThetypesofcollateralwithapproximatevaluesarerealestateEUR21,782 thousand, machinery and equipment EUR 6,175 thousand, and pledged shares EUR 10,907 thousand.

b) Liquidity risk

LiquidityriskarisesinthegeneralfundingoftheBank’sfinancingandinvestmentactivitiesandinthemanagementofpositions.ItconcernstheabilityoftheBanktofulfillitsfinancialobligationsastheybecomedueandisameasureoftheextenttowhichtheBankmayrequirefundstomeetthoseobligations.Itinvolvesboththeriskofunexpectedincreasesinthecostoffundingtheportfolioofassetsatappropriatematuritiesandratesandtheriskofbeingunabletoliquidateapositioninatimelymanneronreasonableterms.

TheBank’sliquiditypolicyaimstobalancethetermandcurrencystructureoftheBank’sassetsandliabilities.Liquiditymanagementisconcentratedonthetimingofcashin-flowsandout-flows,aswellastheadequacyofavailablecashandliquidsecurities.TheBankmaintainsliquidassetsatprudentiallevelstoensurethatcashcanquicklybemadeavailabletohonorallitsobligations,evenunderadverseconditionsandthattheBankhasaccesstothefundsnecessarytosatisfycustomerneeds,maturingliabilitiesanditsownworkingcapitalrequirements.Forthis,theBankestimatesallexpectedcashflowsfromassetsandliabilities.

TheBanktakes intoconsideration,totheextent feasible, theguidancedocuments issuedbytheBaselCommitteeonBankingSupervision.TheBanksetslimitstocontrol itsliquidityriskexposureandvulnerabilitiesandregularlyreviewssuch limits.The limit framework includesalsomeasuresensuring that inaperiodofmarket stress,available liquidityexceedsliquidityneedssothattheBankcancontinuetooperate.

99



TheBank’scommitmenttomaintainingastrongliquiditypositionisestablishedinpoliciesapprovedbytheBoD. TheliquiditypolicyrequiresthattheBankmaintainitsliquiditypositionataminimumof50%ofthefollowing12months’netcashrequirement,includingcommittedundisbursedprojectandtradefinanceloans.

TheBank’sliquiditypositionismonitoredregularly,andtheALCOisprimarilyresponsibleforthemanagementofliquidityriskandtheliquidityprofileoftheBank.TheBank’sliquidassetsaremaintainedinshort-termandnegotiablesecuritiesthat primarily are: (i) cash and bank balances (ii) short term deposits withinvestmentgraderatedcounterparties(iii)Euro-denominatedcommercialpaperissuedbyinvestmentgradepartiesand (iv) investment grade bonds.

Thetablebelowpresentsthematurityprofileoftheundiscountedcashflowsforfinancialliabilitiesplacedbasedontheremainingperiodfromthefinancialpositiondatetothecontractualmaturitydate.ItindicatestheearliestmaturitydatesthattheBank’scounterpartieshavetheabilitytodemandrepayment.

Thefiguresrepresentundiscountedcashflows,andincludeestimatedinterestamounts,andthereforedonotmatchtothestatementoffinancialposition.

Contractualmaturitiesforfinancialliabilitiesat31December2020and31December2019were:

Presented in EUR (000)Up to 1 month

From 1 month to 3

months

From 3 months to

1 year

From 1 year to5 years

Over 5 years Total

BorrowingsOtherandleaseliabilities

18,223-

60,9441,513

555,21210,229

1,167,718-

229,256-

2,031,35311,742

Financial Liabilities at 31 December 2020 18,223 62,457 565,441 1,167,718 229,256 2,043,095

BorrowingsOtherandleaseliabilities

6,603-

51,0952,133

136,4277,536

1,421,627-

19,769-

1,635,5219,669

Financial Liabilities at 31 December 2019 6,603 53,228 143,963 1,421,627 19,769 1,645,190

FortheBank’sfinancialassets,themajoritymaturefromoneyearandovertakingintoconsiderationthelatestpossiblerepayment date.

c) Market Risk

Marketriskistheriskthatchangesinforeignexchangerates,interestratesormarketpricesoffinancialinstrumentsmayresult in losses to the Bank. Market risk arises on such instruments that are valued at current market prices (mark to market basis) or those valued at cost plus any accrued interest (accruals basis).

TheBankfundsitsoperationsbyusingtheBank’sownsharecapitalandbyborrowingontheinternationalcapitalmarkets.TheBankaimstomatch,whereverpossible,thecurrencies,tenorsandinterestratecharacteristicsofitsborrowingswiththoseofitslendingportfolios.Whennecessary,theBankusesderivativeinstrumentstoreduceitsexposuretoexchangerate and interest rate risks.

TheBoardhasapprovedriskmanagementpoliciesandlimitswithinwhichexposuretomarketriskismonitored,measuredandcontrolled.TheALCOmonitorsandmanagestheseriskswhiletheassetandliabilityfunctionwithintheDepartmentofTreasuryhasprimaryresponsibilityforensuringcompliancewiththesepoliciesandlimits.

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.

100

ANNUAL REPORT 2020


TheBankregularlymonitors itsassetsandliabilities inordertoensuretheBanktakesnosignificantforeignexchangerisksand,afterswapactivities,adjuststhenetassetcurrencycompositiontotheBank’sfunctionalcurrencytomaintainamatchedforeignexchangeposition.Asamatterofpolicy,theBankaimstokeepforeignexchangeexposureasclosetozeroaspossible,withexceptionstothispracticerequiringapprovalfromtheALCO.ForlocalcurrencytransactionstheBankmatchestheoperation’scurrencywithborrowingsinthesamecurrency,assuchthereisnomaterialexposure.ThetablesbelowprovideacurrencybreakdownoftheBank’sassetsandliabilities,showingthattheeffectofanycurrencyfluctuationsonthenetexposureisminimal.

At 31 December 2020

Presented in EUR (000) Euro

United Statesdollar

Swissfranc Other Total

Assets Cash and due from banks Deposits in margin accountsDebtinvestmentsecuritiesDerivativesfinancialinstruments Loans Deferred income Impairment losses on loans Equity investments Accrued interest receivable Other assets

6,50726,240

485,64026,701

1,275,916(9,336)

(48,495)10,851

7,5966,372

26,785-

202,321-

562,747(3,988)(3,083)15,374

9,5802,308

--------

16535

1,036---

204,258(489)

(4,359)85

6,320275

34,32826,240

687,96126,701

2,042,921(13,813)(55,937)

26,31023,512

9,490

Total

LiabilitiesBorrowings Margin accountsDerivativefinancialinstrumentsOtherandleaseliabilities

1,787,992

342,08722,92028,93511,742

812,044

1,042,201---

551

185,697---

207,126

331,729---

2,807,713

1,901,71422,92028,93511,742

Total 405,684 1,042,201 185,697 331,729 1,965,311

Currency balance at 31 December 2020 1,382,308 (230,157) (185,146) (124,603) 842,402

At 31 December 2019

Presented in EUR (000) Euro

United Statesdollar

Swissfranc Other Total

Assets Cash and due from banks Deposits in margin accountsDebtinvestmentsecuritiesDerivativesfinancialinstruments Loans Deferred income Impairment losses on loans Equity investments Accrued interest receivable Other assets

72,5985,900

148,5123,128

1,069,985(2,541)

(36,476)12,46311,994

7,515

7,776-

271,314-

590,485(4,854)(2,417)17,69110,008

2,957

---------

156

897---

160,471(775)

(4,421)232

2,332891

81,2715,900

419,8263,128

1,820,941(8,170)

(43,314)30,38624,33411,519

Total

LiabilitiesBorrowings Margin accountsDerivativefinancialinstrumentsOtherandleaseliabilities

1,293,078

97,4204,5506,5529,669

892,960

1,036,935---

156

184,410---

159,627

178,042---

2,345,821

1,496,8074,5506,5529,669

Total 118,191 1,036,935 184,410 178,042 1,517,578

Currency balance at 31 December 2019 1,174,887 (143,975) (184,254) (18,415) 828,243

101



c2. Interest rate risk

Interestrateriskistheriskthatthevalueofafinancialinstrumentwillfluctuate,favorablyorunfavorably,duetochangesinmarketinterestrates.Thelengthoftimeforwhichtherateofinterestisdeterminedonafinancialinstrumentindicatestowhatextentitisexposedtothatinterestraterisk.

TheBank’s interest rateriskmanagementactivitiesaimtoenhanceprofitability,by limitingtheeffectonassetvaluesof adverse interest rate movements in order to increase net interest income by managing interest rate exposure. The majorityoftheBank’sloanportfolioisvariableinterestrateandtheBankhasapolicyaimedatminimizinginterestratemismatchesbetweenitsassetsandliabilitiesthatseekstoensurethattheinterestratepaymentperiodsforitsliabilitiesarematchedascloselyaspossibletointerestratepaymentperiodsfortheBank’sassets.Asamatterofpolicy,theBankdoesnottakediscretionaryinterestratepositions.

ThetablesbelowprovideinformationoftheBank’sinterestrateriskexposureonnon-tradingfinancialassetsandliabilities.TheBank’sassetsandliabilitiesareincludedatcarryingamountandcategorizedeitheronthecontractualmaturitydateofthefinancialinstrumentsor,inthecaseofinstrumentsthatre-pricetoamarketrateofinterestbeforematurity,thenextre-pricingdateasatthefinancialpositiondate.

Interest bearing

Non- interest bearing Total

At 31 December 2020


From 1 month to 3

months

From 3 months to

1 year


Assets Cash and due from banks Deposits in margin accountsDebtinvestmentsecurities Loans Equity investments Accrued interest receivable Other assets

34,326-

98,267421,284

---

--

151,519338,931

---

--

220,532675,357

---

--

217,643607,349

---

226,240

--

26,31023,512

9,490

34,32826,240

687,9612,042,921

26,31023,512

9,490

Total

LiabilitiesBorrowings Margin accountsOtherandleaseliabilities

553,877

32,842--

490,450

126,128--

895,889

641,012--

824,992

1,092,348--

85,554

9,38422,92011,742

2,850,762

1,901,71422,92011,742

Total

Netfinancialassets(liabilities)

Derivativefinancialinstruments

32,842

521,035

60,176

126,128

364,322

(163,956)

641,012

254,877

(455,558)

1,092,348

(267,356)

559,338

44,046

41,508

(2,234)

1,936,376

914,386

(2,234)

Interest rate risk at 31 December 2020 581,211 200,366 (200,681) 291,982 39,274 912,152

102

ANNUAL REPORT 2020


Interest bearing

Non- interest bearing Total

At 31 December 2019


From 1 month to 3

months

From 3 months to

1 year


Assets Cash and due from banks Deposits in margin accountsDebtinvestmentsecurities Loans Equity investments Accrued interest receivable Other assets

81,267-

153,278274,438

---

--

55,000412,265

---

--

29,085648,712

---

--

182,463485,526

---

45,900

--

30,38624,33411,519

81,2715,900

419,8261,820,941

30,38624,33411,519

Total


508,983

189,828--

467,265

294,970--

677,797

153,646--

667,989

846,711--

72,143

11,6524,5509,669

2,394,177

1,496,8074,5509,669

Total

Netfinancialassets(liabilities)

Derivativesfinancialinstruments

189,828

319,155

(3,854)

294,970

172,295

(129,074)

153,646

524,151

(652,087)

846,711

(178,722)

785,015

25,871

46,272

(3,424)

1,511,026

883,151

(3,424)

Interest rate risk at 31 December 2019 315,301 43,221 (127,936) 606,293 42,848 879,727

c3. Sensitivity analysis

Currency risk sensitivity

TheBankismarginallysensitivetoexchangeratefluctuationsoftheUSdollarandtheEuro.TheBank’spaid-incapital isheld inEuroandtheBank’s loanportfolio istypicallydenominatedas60%Euro,30%USdollarand10%otherlocalcurrencies.Inaddition,theBank’sadministrativeexpensesaredenominatedinEuro,andtheBank’s income is typicallydenominatedas60%Euro,30%USdollarand10%other localcurrency.TheBankhasaddressedthissensitivitytocurrencyriskbyincreasingitspercentageofloansdenominatedinEuro,andtherefore increasing its Euro denominated income.

Interest rate sensitivity

TheBank’sinterestratesensitivityanalysiscomprisestwoelements.Firstly,thereisthedifferentialbetweentheinterestratetheBankearnsonitsassetsandthecostofborrowingtofundtheseassets.ForthiselementtheBankdoes,ascloselyaspossible,matchinterestrateperiods,thusminimizingoreveneliminatingsensitivity.Secondly, there is the absolute rate earned on assets that are funded by the Bank’s member’s equity resources. Themajority of the Bank’smember’s equity resources are currently invested in the Bank’s loan portfolio atfloatingrates;therefore,subjectingearningsonmember’sequityresourcestoaminordegreeoffluctuation.

Thetablebelowdetailsthere-pricinggapbycurrency.AparallelupwardordownwardshiftintheEURandUSDcurvesof50basispointswouldhavegeneratedthemaximumlossorgainrespectively.


At31 December

2020

At31 December

2019

EuroUnited States dollar

1,386,000(43,000)

1,124,000128,000

Total re-pricing gap 1,343,000 1,252,000

Shift of 50 basis points in the EUR curve 6,716 6,259

103



c4. Equity price risk

TheBankhasasmallequityinvestmentsportfolioandassuchdoesnothavesignificantmarketriskexposureconcerningforeignexchangeorequitypriceriskonthisportfolio.At31December2020theBank’sequityinvestmentsareclassifiedat FVTOCI, except for one, and are primarily unlisted.

TheBanktakesalong-termapproachofitsequityinvestmentsandhasnointentionofexitingfromany,thereforeacceptstheshort-termvolatilitiesinvaluefromexchangerateandpricerisk.TheBankexpectstheeffectonnetincometobeoflittletonoimpact.

AdditionalsensitivityinformationfortheBank’sequityinvestmentshasbeenincludedunder‘Fairvaluehierarchy’laterinthissectionandintheNote“Equityinvestments”.

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,analysesandreportsdataonthatincidenttoensuretheBankunderstandsthereasonsitoccurredandhowcontrolscanbeimprovedtoreduceorbetteravoidtheriskofanyfuture incident.

TheBank’sriskandcontrolassessmentsofthekeyoperationalrisksineachbusinessareaarecomprehensiveandprimarilybottom-up.TheyarebasedonBank-wideoperationalriskdefinitions,thatclassifyrisksunderastandardizeapproach,cover the inherentrisksofeachbusinessareaandcontrol function,provideanevaluationof theeffectivenessof thecontrols inplacetomitigatetheserisks,determinetheresidualriskratingsandrequireadecisiontoeitheracceptorremediate any remaining risk.

Concerningcybercrime,whichisriskoflossordamagetotheBank’sbusinessareasandcustomersasaresultofactionscommitted or facilitated through the use of networked information systems, the Bank’s Department of InformationTechnologies(DIT)andinformationsecuritypoliciesandproceduresensurethatallserversandcomputershaveuptodateantivirussoftware.Backupsaremaderegularlyandregularaccesscontrolchecks,systempenetrationandvulnerabilitytestsalongwithdisasterrecoverytestsareperformed.

TheBank’santi-cyberattackcontrolsarecheckedandalignedwithindustrybestpracticebytheDIT.

TheBankregularlyproducesmanagementinformationreportscoveringthekeyinputsandoutputsofoperationalrisk.Thesereportsareusedtomonitoroutcomesagainstagreedtargetsandtolerancelevels.TheBankutilizestheBank’sITsystemsandotherinformationtoolstoensureoperationalrisksareidentifiedandmanagedproperly.

104

ANNUAL REPORT 2020


Overall,theBankiscommittedtofollowthebestpracticesandmarketstandardsintheareaofaccountability,transparencyandbusinessethics.DuediligenceoncustomersandcounterpartiestakeintoconsiderationtheAnti-FraudCorruptionandMonetaryLaunderingPolicyandKnow-YourCustomerProcedures.TheBankalsohasacontingencyandbusinesscontinuityplans,andadisasterrecoveryoff-sitewhichaimstoensurethecontinuityofitsoperationsandprotecttheinterestsofallthekeystakeholdersoftheBank,namely,themembercountries,bondholdersandothercreditorsaswellasemployeesandtheirfamilies,intheeventofanydisturbanceinofficelocations.

Fair Value Hierarchy

Fortheabovefinancialinstrumentsmeasuredatfairvalue,theBankusesthefollowinghierarchyfordetermininganddisclosingthefairvalueoffinancialinstrumentsbyvaluationtechnique:

• Level1:Quotedmarketpricesinactivemarketsforidenticalassetsorliabilities;

• Level2:Othertechniquesforwhichallinputsthathaveasignificanteffectontherecordedfair valueareobservable,eitherdirectlyorindirectly;and

• Level3:Techniqueswhichuseinputsthathaveasignificanteffectontherecordedfairvalue that are not based on observable market data.

ThetablesbelowidentifytheBank’sfinancialinstrumentsmeasuredatfairvalue.

Presented in EUR (000) Level 1 Level 2 Level 3Carryingamount

Derivativefinancialinstruments–assetsFairvaluethroughprofitorloss: Loans Equity investmentsFair value through other comprehensive income:Debtinvestmentsecurities Equity investmentsDerivativefinancialinstruments–liabilities

-

--

687,961--

26,701

--

-

(28,935)

-

12,525791

-25,519

-

26,701

12,525791

687,96125,519

(28,935)

At 31 December 2020 687,961 (2,234) 38,835 724,562

TherehavebeennotransfersbetweenLevel1andLevel2duringtheyear.ForLevel1marketpricesareusedwhereasforLevel2thevaluationtechniquesusedarebrokerquotesandobservablemarketdata.ForLevel3thevaluationtechniquesusedarethenetassetvalue(NAV),andequitycalculationsbasedonEBITDAandmarketdata.


Derivativefinancialinstruments–assetsFairvaluethroughprofitorloss: Loans Equity investmentsFair value through other comprehensive income:Debtinvestmentsecurities Equity investmentsDerivativefinancialinstruments–liabilities

-

--

419,826--

3,128

--

--

(6,552)

-

12,754798

-29,588

-

3,128

12,754798

419,82629,588(6,552)

At 31 December 2019 419,826 (3,424) 43,140 459,542

105



Fair Value Measurement in Level 3

ThetableprovidesareconciliationofthefairvaluesoftheBank’sLevel3forloanfinancialassetsofthefairvaluehierarchy.


At31 December

2020

At31 December

2019

At1JanuaryTotalgains/(losses)recognizedintheincomestatement

12,754(229)

12,277477

At end of year 12,525 12,754

ThetableprovidesareconciliationofthefairvaluesoftheBank’sLevel3equityinvestmentsfinancialassetsofthefairvalue hierarchy.


At31 December

2020

At31 December

2019

At1JanuaryTotalgains/(losses)recognizedintheincomestatementTotalgains/(losses)recognizedinothercomprehensiveincomeDisbursementsRepaymentsForeignexchangeadjustments

30,386(7)

(3,577)732

(1,231)7

27,655(217)4,219

825(2,096)

-

At end of year 26,310 30,386

Sensitivity Analysis for Level 3

Thetablebelow illustrates thevaluationtechniquesused in thedeterminationof fairvalues forfinancial instrumentswithinLevel3ofthemeasurementhierarchy,andonanestimated5%increaseordecreaseinnetassetvalue.TheBankconsidersthatmarketparticipantswouldusethesameinputsinpricingthefinancialassets.Managementconsidersthatchangingtheunobservableinputsdescribedbelowtoreflectotherreasonablypossiblealternativeassumptionswouldnotresultinasignificantchangeintheestimatedfairvalue.

Presented in EUR (000) ValuationtechniquesCarryingamount

Favorablechange

Unfavorablechange

LoansEquity investments

DiscountedcashflowsmodelsNetassetvalueandEBITDAmultiplies

12,52526,310

6261,316

(626)(1,316)

At 31 December 2020 38,835 1,942 (1,942)

Presented in EUR (000) ValuationtechniquesCarryingamount

Favorablechange

Unfavorablechange

LoansEquity investments

DiscountedcashflowsmodelsNetassetvalueandEBITDAmultiplies

12,75430,386

6381,519

(638)(1,519)

At 31 December 2019 43,140 2,157 (2,157)

Loansatfairvaluethroughprofitor lossmainlycompriseconvertibleloansor loanswithanelementofperformance-based return. The inputs into the models could include comparable pricing, interest rates, discounts rates, average cost of capital, probability of default and loss given default.

Equity investments comprises the Bank’s equity funds and equity participations. Themain valuationmodels used todeterminethefairvalueofthesefinancialassetsareNAVandEBITDAmodels.

Although the Bank believes that its estimates of fair value are appropriate, the use of different methodologies orassumptionscouldleadtodifferentfairvalueresults.

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ANNUAL REPORT 2020


Financial Instruments not Measured at Fair Value

ThetablebelowclassifiestheBank’sfinancialinstrumentsthatwerenotcarriedatfairvalueintothreelevelsreflectingtherelativereliabilityofthemeasurementbases,withlevel1asthemostreliable.

At 31 December 2020

Presented in EUR (000) Level 1 Level 2 Level 3CarryingAmount

Fairvalue

Assets Cash and due from banks Deposits in margin accountsLoansatamortizedcost Accrued interest receivable Other assets

34,32826,240

267,588--

-----

--

1,762,80823,512

9,490

34,32826,240

2,030,39623,512

9,490

34,32826,240

2,040,56523,512

9,490

Total financial assets


328,156

315,99222,920

-

-

1,585,722-

11,742

1,795,810

---

2,123,966

1,901,71422,92011,742

2,134,135

1,925,64822,92011,742

Total financial liabilities 338,912 1,597,464 - 1,936,376 1,960,310

At 31 December 2019


FairValue

Assets Cash and due from banks Deposits in margin accountsLoansatamortizedcost Accrued interest receivable Other assets

81,2715,900

175,367--

-

---

--

1,632,82024,33411,519

81,2715,900

1,808,18724,33411,519

81,2715,900

1,821,76024,33411,519

Total financial assets


262,538

246,4374,550

-

-

1,250,370-

9,669

1,668,673

---

1,931,211

1,496,8074,5509,669

1,944,784

1,518,8144,5509,669

Total financial liabilities 250,987 1,260,039 - 1,511,026 1,533,033

Level 1 classifies financial instruments whose values are based on quoted prices for the same instrument in activemarkets.Level2classifiesfinancialinstrumentsthatcantradeinmarkets,whicharenotconsideredtobeactive,butarevaluedbasedoralternativelysupportedbyobservableinputs.Level3classifiesfinancialinstrumentsthathavesignificantunobservableinputs,andasobservablepricesarenotavailabletheBankwillusevaluationtechniquestoderivethefairvalue.

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.

107



PursuanttoResolution131oftheBoG,thatunanimouslyadoptedthefirstamendmenttotheEstablishingAgreement,whichbecameeffectiveon21June2013.Asof thiseffectivedate,andasperResolution131of theBoG,theunitofaccountoftheBankbecametheEURandalloftheBank’sauthorizedsharecapitalwasredenominatedfromSDRtoEUR.TheconversionrateappliedwasSDRtoEURfixedat1:1.15.

ThesharecapitalusageoftheBankisguidedbystatutoryandfinancialpolicyparameters.Article15oftheEstablishingAgreementlimitsthetotalamountofoutstandingloans,equityinvestmentsandguaranteesmadeforordinaryoperationsto150%oftheBank’sunimpairedsubscribedcapital,reservesandsurpluses,establishinga1.5:1 institutionalgearingratio.Additionally,disbursedequityinvestmentsshallnotatanytimeexceedanamountcorrespondingtotheBank’stotalunimpaired paid-in capital, surpluses and general reserve.

TheBankdeterminesrequiredsharecapitalasthepotentiallossestheBankmayincurbasedonprobabilitiesconsistentwiththeBank’screditrating.Themainriskcategoriesassessedunderthesharecapitaladequacyframeworkarecreditrisk,marketriskandoperationalrisk,andsuchtotalrisksaremanagedwithintheavailablesharecapitalbasethatexcludescallablesharecapital,whilemaintainingaprudentcushion.AmainobjectiveofthisframeworkistomanagetheBank’ssharecapitalbyprovidingaconsistentmeasurementofcapitalheadroomovertime.TheBankhasnoexpectationforcallablesharecapitaltobecalled,andwillpreventthisneedanduseonlyavailablerisksharecapitalasreserves,surplusand paid-in.

At the 36thmeetingoftheBoDin2008,theoperationalgearingratiowassetat100%oftheBank’sunimpairedpaid-upcapital,reservesandsurpluses,andtheusableportionofthecallablecapital.ThislimitonthetotalamountofoperationswhichincludesallcallablecapitalisapproximatelyEUR2.5billion.

Overall,theBankpreservesanactivelymanagedcapitalstocktoprudentlycoverrisksinitsactivities.Asamultilateralfinancial institution, the Bank is not subject to regulatory capital requirements. However, the Bank uses standardsproposedbytheBaselIICapitalAccordasabenchmarkforitsriskmanagementandcapitalframework.PursuanttoArticle5oftheEstablishingAgreement,theBoGshallatintervalsofnotmorethanfiveyearsreviewthecapitalstockoftheBank.Insubstance,theprimaryobjectiveoftheBank’scapitalmanagementistoensureadequatesharecapitalisavailabletosupporttheBank’soperations.

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ANNUAL REPORT 2020


6. OPERATING SEGMENTS

TheBank is amultilateral financial institution,which in accordancewith the EstablishingAgreement, is dedicated toacceleratingdevelopmentandpromotingco-operationamongtheBank’sshareholdercountries.TheBankoperatesinaspecificgeographicalareaandtheprimaryreportingformatforbusinesssegmentsaretheLendingandTreasuryoperations.Lendingactivitiesrepresentinvestmentsinprojectssuchasloans,equityinvestmentsandguarantees.Treasuryactivitiesincluderaisingdebtfinance,investingsurplusliquidity,andmanagingtheBank’sforeignexchange,liquidityandinterestraterisks.InformationonthefinancialperformanceoflendingandtreasuryactivitiesispreparedregularlyandprovidedtothePresident,theBank’schiefoperatingdecision-maker.


2020 2019

Lending Treasury Total Lending Treasury Total

Income statement

Interest incomeNet fees and commissionsOther income (expense)

88,3382,040

444

9,518-

(1,752)

97,8562,040

(1,308)

82,707947272

11,26220

119

93,969967391

Total segment revenuesInterest expenseNetinterestincome(expense)onderivativesGains(losses)onotherfinancialinstrumentsForeign exchangePersonnelandadministrativeexpensesDepreciationandamortization

90,822(60,442)

-7,174

-(18,697)

(515)

7,766(606)7,427

(2,049)78

(1,561)(10)

98,588(61,048)

7,4275,125

78(20,258)

(525)

83,926(52,762)

-260

-(19,474)

(563)

11,401(512)

(4,113)-

(1,067)(1,471)

(9)

95,327(53,274)

(4,113)260

(1,067)(20,945)

(572)

Segment income before impairmentLess:impairment/fairvalue(losses)

18,342(12,894)

11,045(2,278)

29,387(15,172)

11,387(1,841)

4,229(111)

15,616(1,952)

Net income for the year 5,448 8,767 14,215 9,546 4,118 13,664


31 December 2020 31 December 2019

Lending Treasury Total Lending Treasury Total

Financial position

Segment assets 2,033,789 775,230 2,809,019 1,837,862 510,125 2,347,987

At end of year 2,809,019 2,347,987

SegmentliabilitiesMembers’ equity

1,913,456-

51,855-

1,965,311843,708

1,506,476-

11,102-

1,517,578830,409

At end of year 2,809,019 2,347,987

109



Segment Revenues – Geographic

TheBank’srevenuesarisefromthefollowingareas:


Yearto31 December

2020

Yearto31 December

2019

Albania, Bulgaria and GreeceArmenia,Azerbaijan,GeorgiaandTurkeyMoldova,Romania,RussianFederationandUkraineTreasury

17,52241,69631,604

7,766

17,34837,05829,52011,401

Total segment revenues 98,588 95,327

7. INTEREST AND SIMILAR INCOME

Interestandsimilarincomeisanalyzedasfollows:


Yearto31 December

2020

Yearto31 December

2019

FromloansatamortizedcostFrom due from banksFromdebtsecuritiesatFVTOCI

87,82695

9,423

82,19541

11,221

Totalinterestincomeforfinancialinstrumentsnot measured at FVTPL

From loans at FVTPL

97,344

512

93,457

512

Interest and similar income 97,856 93,969

8. INTEREST AND SIMILAR EXPENSE

Interestandsimilarexpenseisanalyzedasfollows:


Yearto31 December

2020

Yearto31 December

2019

FromborrowedfundsFrom issued debtFrom other charges

7,19153,251

606

7,77044,992

512

Interest and similar expense 61,048 53,274

9. NET INTEREST ON DERIVATIVES

Netinterestonderivativesisanalyzedasfollows:


Yearto31 December

2020

Yearto31 December

2019

InterestonderivativesreceivableInterestonderivativespayable

51,223(43,796)

35,900(40,013)

Net interest on derivatives 7,427 (4,113)

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ANNUAL REPORT 2020


10. NET FEES AND COMMISSIONS

Netfeesandcommissionsisanalyzedasfollows:


Yearto31 December

2020

Yearto31 December

2019

Guarantee feesManagement feesAppraisal feesAdministrationfeesParticipationfeesSurveillance feesPrepayment/cancellationfeesOther fees

579448

854

12351

71859

356408

3026

-572070

Net Fees and commissions 2,040 967

11. PERSONNEL AND ADMINISTRATIVE EXPENSES

Administrativeexpensesisanalyzedasfollows:


Yearto31 December

2020

Yearto31 December

2019

SalariesandbenefitsStaffretirementplans

12,7613,336

12,8192,939

Personnel expenses 16,097 15,758

Professional fees and related expensesUtilitiesandmaintenanceOtheradministrative

1,3551,5571,249

1,3281,6062,253

Administrative expenses 4,161 5,187

Theaveragenumberofstaffemployedduringtheyearwas114(2019:112).Thenumberofstaffat31December2020was115(2019:113).FurtheranalysisofthestaffretirementplanispresentedintheNote“Employeebenefits”.

12. IMPAIRMENT LOSSES ON LOANS

Loansthataremeasuredatamortizedcostarestatednetofprovisionsforimpairment,whichincludesalsotheirrelatedprovisionsforimpairmentonundrawncommitments.Asummaryofthemovementsinprovisionsforimpairmentisasfollows:

Presented in EUR (000)Stage

1Stage

2Stage

3 Total

At 31 December 2018Charge/releasefortheyear

3,520(629)

4,2741,712

26,9817,456

34,7758,539

At 31 December 2019Charge/releasefortheyear

2,89112,608

5,986(2,931)

34,4372,946

43,31412,623

At 31 December 2020 15,499 3,055 37,383 55,937

111



Ateachreportingdate,theBankrecognizeslossallowancesbasedoneither12-monthECLorlifetimeECL,dependingonthe state of the loan.

TotalimpairmentlossesonloanswasEUR55,937thousandin2020,anincreaseofEUR12,623thousandcomparedto2019.The increasewasprimarilydrivenbynegative impacts fromtheCovid-19pandemic. Included in thisamount isapostmodeladjustmentofEUR7,538thousandwhichtheBankconsiderednecessaryduetotheCovid-19pandemicaffectingtheregionoftheBank’soperations.TheincreaseinExpectedCreditLoss(ECL)forStage1ismainlyattributedtotheimpactoftheCovid-19pandemic,drivenbythedeterioratingmacroeconomicscenariosusedforsomemembercountries.TheincreaseamountinStage3isduetothedeteriorationofafewloansreducingtheircarryingamount.

Staging Criteria 12-month ECL (Stage 1)

As IFRS9doesnotdistinguishbetween individuallysignificantornot individuallysignificantfinancial instruments,theBankmeasurespotentialcreditlossesforallnon-impairedoperations(Stage1andStage2)onanindividualoperationbasis.ProvisionsforimpairmentinStage1arethereforeaffectedbythespecificsofanyparticularoperationtogetherwithgeneralmarketscenarios.Theyaremeanttoprotectagainstpotentialrisksthatareconsideredpresent,orwithina12-monthhorizon,andderivedfrompotentiallyadversedevelopmentsinoperatingconditionsbeyondthecontrolofindividualborrowers.

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,thedateofthelatestcreditreviewisconsideredtherelevantdatetoassessifthereisanyincreaseincreditrisk,asatthatpointintime.Followingthis,theBankmayamendthetermsandconditionsoftheexposure.

Theestimateof theECLson irrevocable loancommitments is consistentwith itsexpectationsofdrawdownson thatloancommitment.Therefore,theBankconsidered(i)theexpectedportionoftheloancommitmentthatwillbedrawndownwithin12monthsofthereportingdatewhenestimating12-monthexpectedcredit lossesand(ii)theexpectedportionoftheloancommitmentthatwillbedrawndownovertheexpectedlifeofthereportingdatewhenestimatinglifetimeexpectedcreditlosses.At31December2020theamountofexpectedcreditlosseswasEUR983thousandforloan commitments of EUR 245,143 thousand (2019: EUR 311 thousand for loan commitments of EUR 335,959 thousand).

112

ANNUAL REPORT 2020


13. DEBT INVESTMENT SECURITIES

Debtinvestmentsecuritiesareanalyzedasfollows:


At31 December

2020

At31 December

2019

BondsCommercial papers

291,179396,782

216,909202,917

Debt investment securities 687,961 419,826

14. DERIVATIVE FINANCIAL INSTRUMENTS

ThetablebelowshowstheBank’soutstandingderivativefinancialinstruments.Thefirstcolumnshowsthesumofnotionalamounts,which is theamountof aderivative’snominal value, and is thebasisuponwhichchanges in thevaluearemeasured.Thesecondcolumnshowsthemarketvalueofthenotionalamountsandalsothenetvaluation.

At31 December

2020

Presented in EUR (000)Notionalamountofderivativecontracts

Fair value

Assets Liabilities

InterestrateswapsCrosscurrencyswapsForwardsCapfloors

801,225902,619

83,433160,000

1,62523,499

1,577-

(11,548)(16,397)

(990)-

Derivative financial instruments 1,947,277 26,701 (28,935)

The above derivative financial instrument contracts with financial counterparties have been documented underInternationalSwapsandDerivativeAssociation(ISDA)MasterAgreementswithCreditSupportAnnexes(CSAs).PursuanttosucharrangementstheBankiseligibletooffsetassetsandliabilitiesintheeventofacounterpartydefaultoccurrence.

113



15. LOANS

TheBankoffersarangeof loanfacilitiesdirectedto investmentsforbothprojectandtradefinancing,andtailoredtomeetanindividualoperation’srequirements.Loansmaybedenominatedinanyconvertiblecurrency,oracombinationofconvertiblecurrenciesinwhichtheBankisabletofunditself.


At31 December

2020

At31 December

2019

Loansatamortizedcost:At1JanuaryDisbursementsLess: repaymentsWrite-offsForeign exchange movements

1,808,187783,932

(482,661)-

(79,062)

1,318,418871,130

(381,756)-

395

Outstanding disbursementsLess: deferred incomeLess: impairment losses

Loans at fair value:Outstanding disbursementsFairvalueadjustment

2,030,396(13,813)(55,937)

14,939(2,414)

1,808,187(8,170)

(43,314)

14,939(2,185)

Loans net of impairment 1,973,171 1,769,457

At 31December 2020 the principal amount of outstanding disbursementswas EUR 2,045,335 thousand (2019: EUR1,823,126 thousand).

FortheyearendedtheamountofaccruedinterestreceivablepertainingtoloanswasEUR19,671thousand(2019:17,006thousand).

ThecarryingamountofloanswithrespecttotheirrelatedStagesandallowanceforimpairmentisanalyzedasfollows:


At31 December

2020

At31 December

2019

Stage 1Less: deferred incomeLess:allowanceforimpairment

1,720,472(13,813)(15,499)

1,484,999(8,170)(2,891)

Carrying amount

Stage 2Less:allowanceforimpairment

1,691,160

231,532(3,055)

1,473,938

272,290(5,986)

Carrying amount

Stage 3Less:allowanceforimpairment

228,477

78,392(37,383)

266,304

50,898(34,437)

Carrying amount

Fairvaluethroughprofitorloss

41,009

12,525

16,461

12,754

Carrying amount 1,973,171 1,769,457

Interest is generally based on Libor for USD loans and Euribor for EUR loans plus a margin. Margins are dependent on the riskcategoryofeachloanandtypicallyrangefrom1.5%to8.0%.FurtheranalysisoftheloanportfolioispresentedinNote“Riskmanagement”.

114

ANNUAL REPORT 2020


16. EQUITY INVESTMENTS

AprimaryfocusoftheBankistofacilitateaccesstofundingforthosesmallandmedium-sizeenterpriseswiththepotentialforpositiveeconomicdevelopmental impact.Withthisobjective inmind,theBank, togetherwithanumberofotherinstitutionshasinvestedintheentitiesasdetailedbelow.

At31 December

2020

At31 December

2019

Presented in EUR (000)%of

Investment CostFair

Value CostFair

value

Balkan Accession Fund 9.09 - 791 - 798

Atfairvaluethroughprofitorloss

SEAFCaucasusGrowthFundAccessBank,AzerbaijanA-ParkKaluga,Russia Emerging Europe Accession Fund Rusal ADM Ceecat Recovery Fund European Virgin FundTeamnetInternationalNatfood EOS Hellenic Renaissance Fund

21.390.06

19.9910.14

0.015.37

21.058.33

37.982.53

-

5,074722

1,7142,194

43,9016,2535,599

-1,055

791

4,95485

9405,685

1613,059

10,258--

377

-

5,423792

1,7142,204

44,2857,6735,599

-498

798

4,270232785

5,524185

4,96613,236

--

390

At fair value through other comprehensive income 26,516 25,519 28,192 29,588

Equity investments at fair value 26,516 26,310 28,192 30,386

Thevaluationofsuchinvestments,whichareunlisted,hasbeenestimatedusingthemostrecentmanagementaccountsor the latest audited accounts as of 31 December 2020, as Management considers that these provide the best available estimateoftheinvestments’fairvalue.Thetechniquesappliedtoperformthesevaluationsincludeequitycalculationsbased on EBITDA and market data.

DuringtheyeartheBankhadreceiveddividendincomeofEUR164thousandfromitsinvestmentintheA-ParkKalugaFund,andrealizedanetincomeofEUR284thousandfromitsinvestmentintheBalkanAccessionFund.

Ondisposalorexitofanequityinvestmentforthoseatfairvaluethroughothercomprehensiveincome,thecumulativegainorlossisrealizedwithacorrespondingreversaloftheunrealizedgainorlossthatwasrecordedpriortotheexitfromthat investment, and is not recycled to the income statement.

Asof31December2020theBankhasacommittedamountofEUR6,962thousandtowardsfurtherparticipationintheaboveentities.FurtheranalysisoftheequityinvestmentportfolioispresentedintheNote“Riskmanagement”.

Asof31December2020theBankhasfewequityinvestmentswhereitholdsslightlymorethan20percentoftheinvesteesharecapital,butdoesnotexertsignificantinfluence,hencetheinvestmentsarenotaccountedforasaninvestmentinan associate under IAS 28.

115



17. OTHER ASSETS

Otherassetsisanalyzedasfollows:


At31 December

2020

At31 December

2019

Advances and prepaid expensesOther prepaymentsOtherfinancialassetsGuarantee deposits

4,068187

5,16075

6,165187

5,09770

Other assets 9,490 11,519

18. PROPERTY AND EQUIPMENT

Propertyandequipmentisanalyzedasfollows:

Presented in EUR (000)Buildings

(leasehold) Vehicle

Furniture andoffice

accessories

Computers andoffice

equipment Total

Cost

At 31 December 2018AdditionsDisposals

8766-

10644

-

59333

(23)

1,805213

(243)

3,380296

(266)

At 31 December 2019AdditionsDisposals

8823-

150--

60340

-

1,775168

-

3,410211

-

At 31 December 2020 885 150 643 1,943 3,621

Accumulateddepreciation

At 31 December 2018ChargesDisposals

83623

-

5523

-

51133

(23)

1,523183

(243)

2,925262

(266)

At 31 December 2019ChargesDisposals

85915

-

7830

-

52140

-

1,463186

-

2,921271

-

At 31 December 2020 874 108 561 1,649 3,192

Net book value

At 31 December 2020 11 42 82 294 429

At 31 December 2019 23 72 82 312 489

At 31 December 2018 40 51 82 282 455

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ANNUAL REPORT 2020


19. INTANGIBLE ASSETS

Intangibleassetscomprisingcomputersoftwareisanalyzedasfollows:

Presented in EUR (000) Total

Cost

At 31 December 2018Additions

4,55983


4,642130

At 31 December 2020 4,772

Accumulatedamortization

At 31 December 2018Charges

3,906314


4,220254

At 31 December 2020 4,474

Net book value

At 31 December 2020 298



117



20. BORROWINGS

Borrowingfacilitiesandbondissuesdebtevidencedbycertificates,arrangedasatthefinancialpositiondate,areanalyzedbelow.Inadditiontomedium-orlong-termborrowingsandbondissuance,theBankutilizesshort-termfinancingintheformofECPissuanceorborrowingsfromcommercialbanksforcashmanagementpurposes.

At 31 December

2020

At 31 December

2019

Presented in EUR (000)Amount

usedAmount

arrangedAmount

UsedAmount

arranged

Borrowedby

Short-termFinancialinstitutionsEvidencedbycertificatesAccrued interest payable

111,120315,992

1,465,2189,384

111,120406,738

1,465,218-

83,675240,206

1,161,27411,652

83,675379,221

1,161,274-

Total 1,901,714 1,983,076 1,496,807 1,624,170

Denominationby

EuroUnited States dollarSwissfrancRomanian leiAzerbaijanmanatGeorgian lariArmenian dramCzechkorunaHungarian forintAccrued interest payable

339,5811,038,768

185,223173,046

4,84167,109

-34,29649,466

9,384

389,5811,079,514

185,223173,046

4,84167,109

-34,29649,466

-

96,4771,029,024

184,36682,023

5,41584,125

3,725--

11,652

146,4771,118,039

184,36682,023

5,41584,125

3,725---

Total 1,901,714 1,983,076 1,496,807 1,624,170

Maturity by

Short-term,withinoneyearLong-term, over one yearAccrued interest payable

579,7001,312,630

9,384

579,7001,403,376

-

124,7271,360,418

11,652

124,7371,499,433

-

Total 1,901,714 1,983,076 1,496,807 1,624,170

The interestrateonborrowingsfallswithinarangeofEuribororUSDLiborofplus0to485basispoints.There isnocollateralagainsttheaboveborrowedfunds.

During the year the Bank redeemed a part of an issued bond prior to maturity of approximately USD 92,353 thousand generatinganetlossofEUR2,049thousand(2019:nil)thatwasrecognizedintheincomestatement.

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ANNUAL REPORT 2020


21. OTHER LIABILITIES

Otherliabilitiesisanalyzedasfollows:


At31 December

2020

At31 December

2019

Socialinsurancefund(EFKA)contributionsPensionplanobligationSuppliers and other accrued expensesOther

310,229

1,06859

37,5361,012

59

Other liabilities 11,359 8,610

22. LEASE LIABILITY

The 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,togetherwiththemovementfor2020,isanalyzedasfollows:

Presented in EUR (000) Total

LeaseliabilityduetoinitialapplicationofIFRS16at1January2019Prepayment of rentalInterest expense on the lease liabilityLeasepaymentsrecognizedinadministrativeexpenses

1,931(196)

-(676)

Lease liability at 31 December 2019Leasepaymentsrecognizedinadministrativeexpenses

1,059(676)

Lease liability at 31 December 2020 383

IFRS16indicatesthatatthecommencementdate,thelessee(theBank)willdiscounttheleasepaymentusing(a)theinterestrateimplicitintheleaseor(b)thelessee’sincrementalborrowingrateiftheinterestrateimplicitintheleasecannotbedetermined.Theincrementalborrowingrateistherateofinterestthatalesseewouldhavetopaytoborrowthefundstoobtain(i)anassetofasimilarvaluetotheunderlyingasset(ii)overasimilarterm(iii)withsimilarsecurity(iv)in a similar economic environment. As the Bank has only one lease arrangement that is nearing maturity, Management concludedthatanyadjustmentoranysubsequentinterestdoesnothaveamaterialimpactonthefinancialstatements.

TheBankpresents right-of-useassets separatelyaspropertyandequipment, and the lease liability separatelywithinpayablesandaccruedinterest,inthestatementoffinancialposition.Consequently,theBankrecognizesleasepaymentsandinterest,ifanyontheleaseliabilityonastraight-linebasisovertheperiodoftheleaseterm,similarlytoanybenefitsreceived or that are receivable, in the income statement. When a lease is terminated before the lease period has expired, anypayments required tobemade to the lessor,bywayofpenalty, are recognizedas anexpense in theperiod theterminationtakesplace.

119



23. SHARE CAPITAL

From 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.

The Bank’s capital stock is divided into paid-in shares (fully paid and payable in installments) and callable shares. Payment forthepaid-insharessubscribedtobymemberswasmadeoveraperiodofyears inaccordancewithArticle6oftheEstablishingAgreementfortheinitialcapitalraisingpurposeoftheBank,andasdeterminedinadvancebytheBankforcapitalincreases(intheonlycapitalincreaseoftheBanksofar,thestructureofpaymentsspecifiedwassimilartotheoneinArticle6).ThesameArticlestatesthatpaymentoftheamountsubscribedtoinrespectofthecallablesharesissubjecttocallonlyasandwhenrequiredbytheBanktomeetitsobligations.

Under Article 37 of the Establishing Agreement anymembermaywithdraw from the Bank by transmitting a noticeinwritingtotheBankat itsHeadquarters.Withdrawalbyamembershallbecomeeffectiveand itsmembershipshallceaseonthedatespecifiedinitsnotice,butinnoeventlessthansixmonthsaftersuchnoticeisreceivedbytheBank.However,atanytimebeforethewithdrawalbecomesfinallyeffective,themembermaynotifytheBankinwritingofthecancellationofitsnoticeofintentiontowithdraw.UnderArticle39oftheEstablishingAgreementafterthedateonwhichamemberceasesmembership,itshallremainliableforitsdirectobligationstotheBank,andalsoremainresponsibleforitscontingentliabilitiestotheBank,incurredasofthatdate.Nomemberhaseverwithdrawnitsmembership,norhasanyeverindicatedtotheBankitmightdoso.WereamembertowithdrawfromtheBank,atthetimeamemberceasesmembership,theBankshallarrangefortherepurchaseofsuchamember’ssharesbytheBankaspartofthesettlementofaccountswithsuchamember,andbeabletoimposeconditionsandsetdatespursuanttothesameArticle39oftheEstablishingAgreement.Anyamountduetothememberforitssharesshallbewithheldsolongasthemember,includingitscentralbankoranyofitsagencies,hasoutstandingobligationstotheBank,whichmay,attheoptionoftheBank,beapplied to any such liability as it matures.

If lossesaresustainedbytheBankonanyguaranteesor loanswhichwereoutstandingonthedatewhenamemberceased membership and the amount of such losses exceeds the amount of the reserves provided against losses on the date,thememberconcernedshallrepay,upondemand,theamountbywhichtherepurchasepriceofitsshareswouldhavebeenreducedifthelosseshadbeentakenintoaccountwhentherepurchasepricewasdetermined.

UnderArticle42oftheEstablishingAgreementintheeventofterminationoftheoperationsoftheBank,theliabilityofmembersfortheunpaidportionofthesubscribedcapitaloftheBankshallcontinueuntilallclaimsofcreditors,includingallcontingentclaims,havebeendischarged.

AllparticipatingmembershadfullysubscribedtotheinitialauthorizedsharecapitalinaccordancewithArticle5oftheEstablishingAgreement.Subsequently,attheSixthAnnualMeetingoftheBoardofGovernorsheldon6June2004threeMemberStates,Armenia,GeorgiaandMoldovarequesteda50%reductionoftheirportionofsubscribedcapital,from2%to1%oftheinitialauthorizedcapitalandtheBoGapprovedtheirrequest.On5October2008thenewsharespursuanttothecapitalincreaseoftheBankwereofferedinthesamestructureastheinitialauthorizedsharecapital,intheamountofEUR1.15billion,andwerefullysubscribedbytheMemberStates.

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ANNUAL REPORT 2020


Furthermore,Azerbaijanalsosubscribedtothe3%oftheinitialauthorizedsharecapitalthatremainedunallocated,aftertheabovementionedparticipationreduction,whileRomaniasubscribedbothtotheirallocationofnewsharesandtothosethatwouldhavebeenallocatedtoGeorgiahaditchosentoparticipateinthecapital increase.ThissubscriptionprocessfollowedadecisiontakenbytheBoGinDecember2007totripletheBank’sauthorizedcapitaltoEUR3.45billionandtodoublethesubscribedcapitaltoEUR2.3billion,whileleavingauthorizedcapitalofEUR1.15billionunallocated.OnOctober2011theBoGapprovedtherequestfromMoldovafora50%reductionofitsportionofsubscribedcapital,from1%to0.5%,andthoseshareswerereleasedtounallocatedsharecapital.

Theabovesharecapitalisanalyzedasfollows:


At31 December

2020

At31 December

2019

AuthorizedsharecapitalLess: unallocated share capital*

3,450,000(1,161,500)

3,450,000(1,161,500)

Subscribed share capitalLess: shares not yet called

2,288,500(1,601,950)

2,288,500(1,601,950)

Paid-up share capitalAdvance against future call

686,550-

686,550-

Paid-in share capital 686,550 686,550

*SharesavailabletoneworexistingMemberStates.

Initial Capital

Inaccordancewithparagraph2underArticle5oftheEstablishingAgreement,theinitiallyauthorizedcapitalstockwassubscribedbyandissuedtoeachMemberasfollows:10%(EUR115million)fullypaidand20%(EUR230million)payablebypromissorynotesorotherobligationswhichwerenotnegotiableandnon-interestbearingineightequalsuccessiveannual installments in the years 1998 to 2005.

Capital Increase

The capital increase of EUR 1.15 billion is divided into EUR 345 million paid in capital and EUR 805 million callable capital. PursuanttotheBoardofGovernorsdecisioninOctober2008,theEUR345millionpaidinportionisdividedinto10%(EUR115million)fullypaidsharesin2010and20%(EUR230million)payablesharesbypromissorynotesorotherobligationissued by members in eight equal successive annual installments in the years 2011 to 2018. As of October 2011, the capitalincreasewasreducedbyEUR11.5millionofthesubscribedsharecapital,duetoanapprovedreductionbytheBoGinparticipationbyMoldova.

Theinitialandcapitalincreasethatwasissuedisanalyzedasfollows:


At31 December

2020

Initialcapital

Capitalincrease Total

AuthorizedsharecapitalLess: unallocated share capital

1,150,000(34,500)

2,300,000(1,127,000)

3,450,000(1,161,500)

Subscribed share capitalLess: shares not yet called

1,115,500(780,850)

1,173,000(821,100)

2,288,500(1,601,950)

Paid-up share capitalAdvance against future call

334,65040

351,900(40)

686,550-

Paid-in share capital 334,690 351,860 686,550

121



Statement of Subscriptions

Astatementofcapitalsubscriptions illustratingthenumberofsharesandtheamountsubscribedbyeachmember isshownbelow, including their respectivecallable,payableand theamountpaid.Thecapital subscriptionstatusat thecurrentfinancialpositiondateisanalyzedasfollows:

Subscribed Callable Payable Paid

Member Shares Presented in EUR (000)

AlbaniaArmeniaAzerbaijanBulgariaGeorgiaGreeceMoldovaRomaniaRussian Fed.TurkeyUkraine

40,00020,000

100,000270,000

10,000330,000

10,000280,000330,000330,000270,000

46,00023,000

115,000310,500

11,500379,500

11,500322,000379,500379,500310,500

32,20016,10080,500

217,3508,050

265,6508,050

225,400265,650265,650217,350

-----------

13,8006,900

34,50093,150

3,450113,850

3,45096,600

113,850113,850

93,150

Total 1,990,000 2,288,500 1,601,950 - 686,550

24. RESERVES

Reservesareanalyzedasfollows:

Presented in EUR (000) GeneralRevaluation

reserve Other Total

At 31 December 2018Gains(losses)onrevaluationofinvestmentsActuarial(losses)gainsondefinedbenefitschemeTransferred from retained earnings

66,051--

7,335

(32,374)16,737

--

(720)-

(3,020)-

32,95716,737(3,020)

7,335

At 31 December 2019Gains(losses)onrevaluationofinvestmentsActuarial(losses)gainsondefinedbenefitschemeTransferred from retained earnings

73,386--

5,205

(15,637)1,120

--

(3,740)-

(2,036)-

54,0091,120

(2,036)5,205

At 31 December 2020 78,591 (14,517) (5,776) 58,298

TheBank’sgeneral reserve ismaintained formeetinganyunforeseeable risksor contingencies thatdonotqualifyasprovisions for impairment and is normally built-up from those released impairment charges during the year. The other reserveprimarilycontainstheremeasurementsoftheBank’sdefinedbenefitpensionscheme.

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ANNUAL REPORT 2020


25. CASH AND CASH EQUIVALENTS

Cashandcashequivalentsisanalyzedasfollows:


At31 December

2020

At31 December

2019

Cash on handDue from banksInvestments maturing up to 1 month:AtfairvaluethroughothercomprehensiveincomeportfolioInvestment maturing from 1 month to 3 months:Atfairvaluethroughothercomprehensiveincomeportfolio

234,326

86,782

151,556

481,267

147,917

55,000

Cash and cash equivalents 272,666 284,188

ThecommercialpapersheldintheBank’sportfoliowereshorttermratedataminimumofA2byStandardandPoor’sorP2byMoody’sratingagencies,inaccordancewiththeBank’sinternalfinancialpolicies.

123



26. EMPLOYEE BENEFITS

Under the Defined Benefit Scheme

Ifseparatedorafterthenormalretirementage(60yearsold),astaffmemberwillbeentitledtoafullimmediatepensionequalto1%ofhisannualpensionablesalary(i.e.averageofthetwobestoutofthelastfiveyears)multipliedbyhis/heryearsofserviceattheBank.Ifseparatedatoraftertheearlyretirementage(55yearsold),astaffmemberwillbeentitledtoareducedimmediatepension,ordeferredpensionpayablefromanymonthuntilthestaffmember’snormalretirementage.Ifseparatedbeforetheearlyretirementage,astaffmemberwillbeentitledtoadeferredpensionpayablefromanymonthbetweenthestaffmember’searlyandnormalretirementage.Uponseparationatanyage,astaffmemberwillhaveachoicebetweentheappropriatetypeofpensionandalumpsumterminationbenefit.

Aqualifiedactuaryperformsanactuarialvaluationofthisschemeateachendofyearusingtheprojectedunitmethod,which is rolled forward to the following year accounts. Themost recent valuationdatewas31December2020. Thepresentvalueofthedefinedbenefitobligationandcurrentservicecostwascalculatedusingtheprojectedunitcreditmethod.


At31 December

2020

At31 December

2019

Amountsrecognizedinthestatementoffinancialposition

PresentvalueofthedefinedbenefitobligationsFair value of plan assets

34,427(24,198)

30,736(23,200)

Net liability at end of the year 10,229 7,536

Amountsrecognizedintheincomestatement

Service costNetinterestonthenetdefinedbenefitliability/(asset)Administrationexpense

2,1158449

1,7527049

Total included in personnel expenses 2,248 1,871

Remeasurementsrecognizedinothercomprehensiveincome

At 31 DecemberLiabilitygain(loss)duetochangesinassumptionsLiability experiences gain (loss) arising during the yearReturn on plan assets excluding income statement amounts

(7,327)(2,819)

319464

(4,307)(4,745)

(296)2,021

TotalamountrecognizedinOCIduringtheyear (2,036) (3,020)

Cumulative in other comprehensive income (expense) (9,363) (7,327)

Principalactuarialassumptionsused

Discount rateExpected return on plan assetsFuture salary increaseFuture pension increaseAverageremainingworkinglifeofemployees

0.80%0.80%1.00%1.50%

11 years

1.22%1.22%1.50%1.50%

11 years

The discount rate arises from the yield curves that use data from double A-rated iBoxx bond indices produced by the InternationalIndexCompany.

TheexpectedreturnonassetsasperprovisionoftherevisedIAS19,hasbeensetequaltothediscountrateassumption,i.e.at0.80%pa.

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ANNUAL REPORT 2020


Thefollowingtablepresentsthemajorcategoriesandreconciliationoftheplanassets(theFund):


At31 December

2020

At31 December

2019

Majorcategoriesofplanassets

Cash instrumentsFixed interestEquitiesOther

12%47%37%4%

17%43%36%4%

Reconciliationofplanassets

Marketvalueat1JanuaryExpected returnContributionspaidBenefitpensionsandlumpsumpaidtopensionersExpensesAsset gain (loss)

23,200290

1,591(1,298)

(49)464

20,474427

1,326(999)

(49)2,021

Fair value of plan assets 24,198 23,200

TheactualinvestmentreturnonassetsoftheFundfortheyearwas3.7%.TheexpectedreturnonplanassetshasbeenbasedonassetstructureallowedbytheFundaswellastheyieldofhighqualitycorporatebonds.TheBankestimateofcontributionstobepaidin2021willnotmateriallydifferfromthosepaidinthecurrentyear.

Thefundingstatusatyearendandattheendofthelastfouryearswasasfollows:

Presented in EUR (000) 2020 2019 2018 2017 2016

DefinedbenefitobligationsPlan assets

34,427(24,198)

30,736(23,200)

24,445(20,474)

27,111(21,879)

25,021(20,373)

Plandeficit(surplus) 10,229 7,536 3,971 5,232 4,648

Net experience adjustments on plan liabilities (assets) (319) 296 359 (419) 4,032

Sensitivity analysis

Reasonablepossiblechangesatthefinancialpositiondatetooneoftherelevantactuarialassumptions,holdingotherassumptionsconstant,wouldhaveaffectedthedefinedbenefitobligationbytheamountsshownbelow.

At31 December

2020

At31 December

2019

Presented in EUR (000) Increase Decrease Increase Decrease

Discountrate(1%movement)Futuresalarygrowth(1%movement)

(3,303)2,381

3,303(2,381)

(3,573)1,872

3,573(1,872)

Althoughtheanalysisdoesnottakeaccountofthefulldistributionofcashflowsexpectedundertheplan,itdoesprovideanapproximationofthesensitivityoftheassumptionsshownundertheDefinedBenefitScheme.

125



Under the Defined Contribution Scheme

Uponseparation,a staffmemberwillbeentitled to receive in cash the fullbalance standing to thecreditofhis/herindividualaccount for thesecondandthirdpillars.Thepensionexpenseunder thisschemewasEUR1,073thousand(2019:EUR1,050thousand)andisincludedin‘Personnelexpenses’.

Under the Greek State Social Insurance Fund

Thepensionexpenseofstaffthat isalternativelyentitledtoretirementbenefitsfromthis fundwasEUR15thousand(2019:EUR18thousand)andisincludedin‘Personnelexpense’.

27. RELATED PARTIES

TheBankhasthefollowingrelatedparties.

Key Management Personnel

Keymanagementpersonnelcomprise:thePresident,VicePresidentsandSecretaryGeneral.Theyareentitledtoastaffcompensationpackagethatincludesasalary,medicalinsurancecover,participationintheBank’sretirementschemesandareeligibletoreceiveothershort-termbenefits.TheamountspaidtokeymanagementpersonnelduringtheyearwereEUR1,257thousand(2019:EUR1,783thousand).Keymanagementpersonnelmayreceivepost-employmentbenefits,otherlong-termbenefitsandterminationbenefits,butdonotreceiveanyshare-basedpayments.

ThemembersoftheBoDarenotpersonneloftheBankanddonotreceiveanyfixedtermsalariesnoranystaffbenefits.ThegovernmentsoftheMemberStatesarenotrelatedparties.

Special funds

SpecialfundsareestablishedinaccordancewithArticle16oftheEstablishingAgreementandareadministeredunderthetermsofrulesandregulationsadoptedbytheBank.SpecialFundsareauditedonanannualbasisandtheirassetsandfundbalancesarenotincludedintheBank’sstatementoffinancialposition.DuringtheyeartheBankadministeredonespecialfund.ExtractsfromtheauditedfinancialstatementsareincludedundertheNote‘Summaryofspecialfunds’.

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ANNUAL REPORT 2020


28. RESTATEMENT OF PRIOR YEAR ACCOUNTS

TheBankhasrestatedtheprioryearaccountsforpresentationpurposesunderIAS1andIFRS7.

STATEMENT OF FINANCIAL POSITION

Presented in thousands of EUR Published Restatement Restated

AssetsCash and due from banksDeposits in margin accountsAll other assets

82,621-

2,260,816

(1,350)5,900

-

81,2715,900

2,260,816

Total Assets 2,343,437 4,550 2,347,987

LiabilitiesMargin accountsAllotherliabilities

-1,513,028

4,550-

4,5501,513,028

TotalliabilitiesTotal members’ equity

1,513,028830,409

4,550-

1,517,578830,409

Total Liabilities and Members’ Equity 2,343,437 4,550 2,347,987

29. EVENTS AFTER THE REPORTING PERIOD

Therehavebeennomaterialeventssincethereportingperiodthatwouldrequireadjustmenttothesefinancialstatements.

127



30. SUMMARY OF SPECIAL FUNDS

With the Hellenic Government

TheTechnicalCooperationSpecialFund’sobjectiveistocontributetotheeconomicdevelopmentoftheBlackSeaRegion’sMemberCountries.TheFundextendstechnicalassistancegrantsforpreparationofhighqualityprojectdocumentationincludingbusinessplans,feasibilitystudiesandfinancialreportingmethodsandstandards.ThemovementintheFundisshownbelow.


At31 December

2020

At31 December

2019

Statement of movements

BalancebroughtforwardNet income (loss) for the yearLess: disbursements

8--

8--

Balance of available funds 8 8

Financialposition

Placementswithotherfinancialinstitutions 8 8

Total Assets 8 8

Unallocated fund balance 8 8

Total Liabilities and Contributor Resources 8 8

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ANNUAL REPORT 2020

DeloitteCertifiedPublicAccountants S.A. 3aFragkokklisias&Granikoustr.Ma-rousi Athens GR 151-25Greece Tel:+302106781100 www.deloitte.gr

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and the Board of Governors of Black Sea Trade and Development Bank

Report on the Audit of the Financial Statements

Opinion

Wehaveaudited thefinancial statementsofBlackSeaTradeandDevelopmentBank (theBank),whichcomprise thestatement of financial position as at 31December 2020 and the statements of income and comprehensive income,changesinequityandcashflowsfortheyearthenended,andnotestothefinancialstatements,includingasummaryofsignificantaccountingpolicies.

Inouropinion,theaccompanyingfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionofBlackSeaTradeandDevelopmentBankasat31December2020,anditsfinancialperformanceanditscashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards(IFRSs).

Basis for Opinion

WeconductedourauditinaccordancewithInternationalStandardsonAuditing(ISAs)asthesehavebeenincorporatedintoGreeklegislation.Ourresponsibilitiesunderthosestandardsarefurtherdescribedinthe“Auditor’sResponsibilitiesfortheAuditoftheFinancialStatements”sectionofourreport.WehavebeenindependentoftheBankduringthewholeperiodofourappointmentinaccordancewiththeInternationalEthicsStandardsBoardforAccountants’CodeofEthicsforProfessionalAccountants(IESBACode)asincorporatedintoGreeklegislationandtheethicalrequirementsinGreecerelevanttotheauditofthefinancialstatementsandwehavefulfilledourethicalrequirementsinaccordancewiththeapplicablelegislationandtheabovementionedCodeofEthics.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

Key Audit Matters

Keyauditmattersare thosematters that, inourprofessional judgment,wereofmostsignificance inourauditof thefinancialstatementsofthecurrentyear.Thesemattersandtheassessedrisksofmaterialmisstatementswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

129


Key audit matter How the matter was addressed in our audit

Expected Credit Loss on Loans at amortized cost

Loans at amortized cost of the Bank amounted to EUR2,030 million as at 31 December 2020 (EUR 1,808 million as at 31 December 2019) and loss impairment to EUR 56 million (EUR 43 million as at 31 December 2019) as presentedontheStatementofFinancialPosition.

ΤheBankmeasuresExpectedCreditLosses(ECL)forloansat amortized cost both on an individual and a collectivebasis.

The estimation of ECL on loans at amortized cost isconsideredakeyauditmatterasitisacomplexcalculationthat involves the use of a number of assumptions andparameters such as probability of default (PD), Loss Given Default (LGD) and Exposure at Default (EAD) as well asassumptions around the inputs used and probabilityweightofthemultipleeconomicscenarios.

Significant Management judgements also relates tothe criteria used for the staging assessment of loans at amortizedcost.

Management provided further information aboutprinciples and accounting policies for determining theallowanceforimpairmentonloansatamortizedcostandthe management of credit risk in notes 3.6, 5, 12 and 15 to thefinancialstatements.

Based on our risk assessment and following a riskbased approach, we have evaluated the impairmentmethodologies applied and assumptions made byManagement in relation to this key auditmatter, whichincluded,interalia,thefollowingauditprocedures:

- weobtainedanunderstandingoftheproceduresandevaluatedthedesignandimplementationofrelevantinternalcontrolswithinthebusinessprocess.

- weassessedtheappropriatenessoftheBank’sIFRS9impairment methodologies.

- with the support of our internal financial riskmodelingspecialistsweassessedthereasonablenessof Management’s assumptions and input data usedin the model, including the analysis of the forecasted macroeconomic variables. We tested the mechanical elementsofthecalculationssuchastheEAD,thePDandstageallocationandreperformedthecalculationof the ECL on a sample basis.

- we tested the accuracy and completeness of criticaldatausedintheECLcalculationbyagreeingasampleof ECL calculation data points to source systems ordocumentation.

- onasamplebasisweassessedthereasonablenessoftheestimatedexpectedcreditlossfortheindividuallyassessed credit impaired exposures.

- weassessed the appropriateness of any postmodeladjustment.

We assessed the adequacy and completeness of the Bank’s disclosures in respect of credit risk, structure and quality ofloanportfolioandimpairmentallowanceinaccordancewithIFRS9.

Other Information

Managementisresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualreport,butdoesnotincludethefinancialstatementsandourauditor’sreportthereon.

Our opinion on the financial statements does not cover the other information andwewill not express any form ofassurance conclusion thereon.

Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhether theother information ismaterially inconsistentwith thefinancial statementsorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated. If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementinthisotherinformation,wearerequiredtoreportthatfact.Wehavenothing to report in this regard.

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ANNUAL REPORT 2020

Responsibilities of Management and Those Charged with Governance for the Financial Statements

ManagementisresponsibleforthepreparationandfairpresentationofthefinancialstatementsinaccordancewithIFRSs,andforsuchinternalcontrolasManagementdeterminesisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingthefinancialstatements,ManagementisresponsibleforassessingtheBank’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessManagementeitherintendstoliquidatetheBankortoceaseoperations,orhasnorealisticalternativebuttodoso.

TheAuditCommitteeoftheBankisresponsibleforoverseeingtheBank’sfinancialreportingprocess.

Auditor’s Responsibilities for the Audit of the Financial Statements

Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherdue to fraudorerror, and to issueanauditor’s report that includesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs,asthesehavebeenincorporatedintoGreeklegislation,willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscan arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

AspartofanauditinaccordancewithISAs,asthesehavebeenincorporatedintoGreeklegislation,weexerciseprofessionaljudgmentandmaintainprofessionalskepticismthroughouttheaudit.Wealso:

• Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheBank’s internal control.

• Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelated disclosures made by Management.

• ConcludeontheappropriatenessofManagement’suseofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheBank’sabilitytocontinueasagoingconcern.Ifweconcludethatamaterialuncertaintyexists, we are required to draw attention in our auditor’s report to the related disclosures in the financialstatements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidenceobtaineduptothedateofourauditor’sreport.However,futureeventsorconditionsmaycausetheBanktoceasetocontinueasagoingconcern.

• Evaluatetheoverallpresentation,structureandcontentofthefinancialstatements,includingthedisclosures,andwhetherthefinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.

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Wecommunicatewiththosechargedwithgovernanceregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringour audit.

Wealsoprovidethosechargedwithgovernancewithastatementthatwehavecompliedwithrelevantethicalrequirementsregarding independence, and to communicatewith themall relationshipsandothermatters thatmay reasonablybethoughttobearonourindependence,andwhereapplicable,relatedsafeguards.

Fromthematterscommunicatedwiththosechargedwithgovernance,wedeterminethosemattersthatwereofmostsignificanceintheauditofthefinancialstatementsofthecurrentperiodandarethereforethekeyauditmatters.

Athens, 20 May 2021

TheCertifiedPublicAccountant

Alexandra KostaraReg. No. SOEL: 19981DeloitteCertifiedPublicAccountantsSA3aFragkokklisias&Granikoustr.,GR 151-25 Marousi, Athens, GreeceReg. No SOEL:E120

ANNUAL REPORT 2020

132

A N N E X AO R G A N I Z A T I O N A L C H A R T


General Counsel

Evaluation

Internal Audit

Compliance and Operational Risk

Policy and Strategy

Special Advisor to the President

Board of Governors

Board of Directors

President

Vice President Banking

Vice President Operations

Vice President Finance

Secretary General

Financial Institutions

Project Implementation

& Monitoring

Accounting, Planning &

Budget

BoD-BoG

Procurement Risk Management

Human Resources

Corporate Recovery

ControllersExternal

Relations & Communications

General Industries I

Environment TreasuryAdministrative

ServicesGeneral

Industries II

Financial Analysis

ALMInformation Technologies

Senior Advisor to the Management

Committee

Audit Committee

Office of theEnergy and Infrastructure

Communications


A N N E X BC O N T A C T B S T D B

1 Komninon str. 54624 Thessaloniki ·Greece +30 2310 290400 I +30 2310 221796, [email protected] I www.bstdb.org

Dmitry PankinPresidentOffice: +30 2310 [email protected]

Office of the General CounselMichalis SpanopoulosGeneral Counsel+30 2310 [email protected]

Policy and StrategyGhinea Arminio IorgaHead+30 2310 [email protected]

Panayotis GavrasHead+30 2310 [email protected]

Evaluation Todor DimitrovHead+30 2310 [email protected]

Internal Audit Pavlos PavlidesHead +30 2310 [email protected]

Compliance & Operational Risk Management OfficeZinon ChatziantonoglouHead+30 2310 [email protected]

Hasan DemirhanVice President BankingOffice: +30 2310 [email protected]

Financial InstitutionsLarisa ManastirliDirector+30 2310 [email protected]

Energy & InfrastructureRoman MatkiwskyDirector +30 2310 [email protected]

General Industries,Transport and Tourism ILeonid SidorenkoDirector+30 2310 [email protected]

General Industries,Transport and Tourism IIOrhan AytemizDirector+30 2310 [email protected]

Ivaylo MoskovskiVice President OperationsOffice: +30 2310 [email protected]

Project Implementation & MonitoringAlexander MostovoyDirector+30 2310 [email protected]

Financial AnalysisFaidon ChatzakisDirector+30 2310 [email protected]

Environment and Social SustainabilityMircea CojocaruHead+30 2310 [email protected]

Valeriy PiatnytskyiVice President FinanceOffice: +30 2310 [email protected]

TreasuryStelios SousamoglouActing Treasurer+30 2310 [email protected]

Risk ManagementGeorge PahinisDirector+30 2310 [email protected]

Accounting, Planning & BudgetNikolas PapavramidesDirector+30 2310 [email protected]

ControllersGeorgeta BuzicaDirector+30 2310 [email protected]

Aristotelis SpiliotisSecretary GeneralOffice: +30 2310 [email protected]

Human ResourcesEduard KatmazowskiDirector+30 2310 [email protected]

Information TechnologiesChristos GeorgiouDirector+30 2310 [email protected]

External Relations & CommunicationsValery Aksenov Director +30 2310 290494 [email protected]

Administrative ServicesKostis ZevgaridisDirector+30 2310 [email protected]

133

annual report

Engaging in Times of Crisis

1 Komninon street, 54624 Thessaloniki, GreeceT +30 2310 290400 | F +30 2310 [email protected] | www.bstdb.org