Bankieri No. 22 - January 2017

Publication of the Albanian Association of Banks

No. 22, January 2017

Bankieri

BANKS' HUMAN CAPITAL

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Content

BANKS' HUMAN CAPITAL Bankieri is the official publication of the Albanian Association of Banks which mainly focuses on the Albanian banking industry. Bankieri provides readers with valuable information on the financial industry's developments in general, and of commercial banks in particular.

Bankieri No.22, January 2017 Publication of the Albanian Association of Banks

EDITORIAL TEAM:

Message from the New AAB Chairman Periklis DROUGKAS

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Editorial Banks’ human capital: Remaking the staff Prof.Asoc.Dr. Elvin MEKA

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Elvin Meka Editor-in-Chief Eftali Peçi Coordinator Junida Tafaj (Katroshi) Collaborator Andis Rado Photographer Design & Layout: FCB Afirma Printed by:

Frontline Albanian Banking Sector: A model for developing and using human capital Prof. Dr. Ahmet CENI Human Capital in the Albanian Banking System: Challenges and opportunities (Interview) Valbona ZENELI Ariana TUSHI Entela ZIGORI

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Journalist Corner The new growth cycle and local human factor Ersuin SHEHU

Silvio PEDRAZZI AAB Vice Chairman & CEO of Intesa Sanpaolo Bank Albania

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Special Banks: The best brand in Albania Dr. Spiro BRUMBULLI

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Dritan MUSTAFA AAB Executive Committee Member & CEO of Tirana Bank

Banking System Collateral enforcement - Some significant amendments Albina HASANAJ Card payments A digital revolution for purchases and borrowing Irida HUTA Experts' Forum Alternative investments, A road towards the development of real economy Fatmira KOLA Economist Corner Monetary policies challenges Where next beyond “quantitative easing” measures?

Prof.Dr. Adrian CIVICI Social Capital ASD Announcement AAB Activities AAB Trainings

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EDITORIAL BOARD: Periklis DROUGKAS AAB Chairman & CEO of Alpha Bank Albania

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Frederic BLANC AAAB Executive Committee Member CEO of Societe Generale Albania

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Andi BALLTA AAB Executive Committee Member CEO of American Bank of Investments

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Bozhidar TODOROV AAB Executive Committee Member & CEO of FIBank Albania

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Spiro BRUMBULLI Secretary General, Albanian Association of Banks Hysen ÇELA Chairman of Albanian Institute of Authorized Chartered Auditors (IKEA) Adrian CIVICI President of European University of Tirana Enkeleda SHEHI Chairwoman of Albanian Financial Supervision Authority

ALBANIAN ASSOCIATION OF BANKS Street "Ibrahim Rugova" SKY TOWER, 9/3, Tirana Tel: +355 4 2280371/2 Fax: +355 4 2280 359 E-mail: bankieri@aab-al.org; www.aab.al

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Message from The New AAB Chairman Dear reader, Despite Albania’s banking sector weathered the 2008 financial turmoil quite successfully, the recent economic slowdown is driving banks to reassess the lending appetite. After many years of expansion, the sector has entered a period of contraction with assets growth set to slow, to 5% year on year. Nevertheless, the financial sector in the country has remained stable and recently has shown improving trends, albeit it continues to face important risks, especially external ones. Banks remain sound, despite the large non-performing loans (NPLs), having an overall capital adequacy ratio of 16.01% at the end of 2016 H1, which remains far above Basel requirements, indicating that the sector has sufficient assets to withstand this negative trend. In the given period, the banking sector continued to be profitable, with Return on Assets (RoA) and Return on Equity (RoE) being 0.8% and 8%, respectively.

It is therefore our main concern providing the needed stimulus to the Albanian economy, for granting a stable and sustainable long-term growth and development. I am confident that, by having a close and well ordinated stand and respond, in collaboration with the Bank of Albania, the Government, as well as other important relative actors, we will attain and promote new opportunities for the overall growth and development of the Albanian economy. For the upcoming years, the priority for the banking sector shall and will be the retail segment crediting, as a mean of rising private individuals’ standards of living, as well as offering the appropriate financial services to small and medium enterprises, the backbone of the Albanian economy. By supporting start-up initiatives of emerging entrepreneurs, we will fulfill our role as provider of the needed financial leverage, as well as have our engagement in terms of overall employment.

The challenges for the banking system for the year 2017 remain almost the same. The macroeconomic risks, such as the predicted low growth rate, the fluctuation of the exchange rates for the major currencies, the lack of the clarity over the future for interest rates, sometimes the artificial unfavorable business climate etc., remain on the banking system, creating an ambiguity for short and long - term decision making. Regulations continue to be a challenge for banking industry, since the system should put a sizeable amount of time, effort and money into meeting new established standards. A diverse and healthy banking sector is an essential component of our financial system and critical for a thriving economy. And while some regulation is needed, its goal should be, first and foremost, to ensure the safety and soundness of our financial institutions. The technology risk remains a concern for the banking system. We are aware that banks which fail in technology innovation, risk losing a significant amount of business. This is especially true for banks that struggle with core legacy systems that are unable to facilitate the kind of experience, service, and product selection customers expect.

As the newly-elected chairman of the Albanian Association of Banks, I want to confirm my best engagement in strengthening further the ties of cooperation between Albanian Association of Banks and stakeholders, for tackling challenges and issues that the banking system faces.

Last but not least, I would like to heartedly thank my predecessor, Mr. Canacaris, for the professionalism and active management of the Albanian Association of Banks during the last years.

Sincerely, Periklis Drougkas www.aab.al

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Editorial

Banks’ human capital: Remaking the staff Surely, banking will not die, but technology and external competition will ask for a quasi-total reshape of the banking job. New skills will be needed to develop and maintain the new technologies. They have to redesign the overall workflow, retrain and reassign staff to other parts of the organization and try to build a workforce of the future, by understanding the expectations of a new generation of technologyenabled bankers and technology – heavy customers.

Prof. Asoc. Dr. Elvin MEKA1 Editor in Chief

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ince its reconstitution, commercial banking in Albania has always been appreciated as the best place to work for and banker has been, and continues to be, the most sought occupation among graduates. Working as a banker in Albania has long gained the position of a status symbol in society, and this is so for many reasons. Banking is perceived as an elite and attractive occupation, a professional job, fully formalized, with above average financial compensation and as a good place for career advancement, compared to other jobs in private entrepreneurship in Albania. On the other hand, banks in Albania has got the luxury of picking crème de la crème of most talented students and professionals, not only because of the above-mentioned reasons, which used to be and still are a fact of life in the Albanian labor market, but because of real needs to employ skilled and high performing staff, to carry out and accomplish professional duties and works, compared to those executed in banks’ countries of origin. So far, banking industry has lived up to overall

expectations of people who have joined, or still aspire and seek to join it in the future. Although banking industry faced a global whiplash in its pride and elitist status, due to the tremors and shockwaves, the last global financial and economic crises of 2008 caused in economy, business activity and personal finances, both in global, national and local level, banks in Albania managed to remain almost unscathed and free of reputational risk. They still remain as one of the best places to work for and the banker is still the most sought occupation among students, and not only.

Nevertheless, banking is changing and is changing a bit fast, thanks to the Fourth Industrial Revolution, or the digitization and digitalization.

Such wind of change is blowing even in Albania and banks are feeling the urgent need to adapt to the new era of digital revolution and technology.

A recent study of McKinsey in 2016, showed that “currently demonstrated technologies could automate 45 percent of the activities people are paid to perform and that about 60 percent of all occupations could see 30 percent or more of their constituent activities automated, again with technologies available today”. Keeping this in mind and the facts of operating in ultra-low

interest rates environments with modest economic growth, one way to offset them is accomplishing strict cost-cutting objectives i.e. by possibly automating more tasks, laying-off employees, closing branches, etc. Surely, banking will not die, but technology and external competition will ask for a quasi-total reshape of the banking job. New skills will be needed to develop and maintain the new technologies. They have to redesign the overall workflow, retrain and reassign staff to other parts of the organization and try to build a workforce of the future, by understanding the expectations of a new generation of technology-enabled bankers and technology – heavy customers.

Put it simply, the time has come for banks in Albania to join the obligatory business of remaking their own staff!

Vice Rector for Academic Process, UET-EUT

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Frontline

Albanian Banking Sector: A model for developing and using human capital The instruments of growing and using human capital, as well as measuring its productivity in the banking sector are a universal theory and practice, which should be studied constantly and implemented by bank’s managers in charge, in order to increase profitability on one hand and to implement the social responsibilities, either towards depositors, borrowers or other stakeholders.

Prof. Dr. Ahmet CENI Faculty of Economy UNIVERSITY OF TIRANA

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ccording to definitions by many authors, and also by OECD, the human capital "is the set the knowledge, skills, competencies and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being” (OECD, 2001). Human capital represents an intangible asset, which makes possible to increase or support productivity, innovation, employment and competitive advantage. According to some studies, in any person would add one year of study, then the country's economic productivity per capita would increase, in the long run, within a 4 – 6% range. By realizing the importance of such connection, banks’ executives have implemented a strategy that seeks to make, maintain and develop the most appropriate and quality people and motivate them high. In case of Albania, required skills and specialties by the banking sector are approximately the same and it has given the recruiting

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process there some distinct features, compared to other sectors. On the other hand, the same nature of skills and competencies has not prevented banks to maintain ethics and individualism in recruiting people, but also to cooperate in recruitment differentiation, by way of accumulating, individually, the most relevant human capital, to meet short-term and strategic objectives.

Recruitment sources for banks were mostly higher education institutions, bachelor and master programs (but not excluding third cycle). Recruitment procedures are characterized by transparency and emphasis was placed upon individual abilities and potential to accomplish the task, today and in perspective, by coping with forecasted career steps and remuneration nets. The average number of staff recruited in the year, is approximately 440 people, or 7% of staff, which served to invigorate the overall staff, in terms of age, potential, etc. As a result, the average age of staff stands at 35.3 years and the median value is 35.0 years, while the interval, from minimum to maximum average age of employees, according to banks, ranges from 33 to 37 years. Such process has increased the potential, but

it also has become more diversified, in terms of specialties, qualifications and people who possess it, thus providing banks with guarantees for a long-term success.

As regards the recruitment process, training has been and continues to be instrumental in increasing human capital, which impacts the competencies of the existing employees. Training plans are built taking into consideration the individual needs of employees, to meet the requirements arising from creation of new jobs and the modernization of existing ones. These are accomplished through a catalog, which identifies individual needs or requirements, either in the short term, or in strategic ones.

During 2015 the number of days spent on average for training per employee is 2.1, while some banks spent between 6 to 13 days. Even training expenses, by using various training forms, in-house or outside banks, are significant, where the average costs for one trained person, for all banks, amounts to ALL 19.433.

Meanwhile, a correlation between training and financial results of banks is also observed, an evident phenomenon in the experience of other banks in the world and Europe, which make training

expenses up to 4% of salaries’ fund.

Therefore, the number of qualified and competent specialists, capable to carry out works with maximum standard, has been increasing, not only in high managerial levels, but also at lower hierarchical levels. The number of employees at head office levels with the highest classification varies across banks, ranging from 50% to 60% of the number of employees. On the other hand, the analysis of banking and nonbanking staff structure, it is found that over 99% of employees are directly attributable to the banking sector, due to the outsourcing of services, which has contributed to a specialization of employees and managers who conduct banking operations.

The growth of human capital in banks is accompanied by measures and programs to increase the motivation and commitment levels of employees, to enable an increase of the efficiency of such capital, while respecting ethical and economic criteria. Many studies have concluded that motivation level of employees in the banking system is higher, compared with that in other sectors of the economy. The average salary for an employee in the banking system is about 47% greater than the average wage in national level.

Such situation is explained by the new development of the sector and its priority to employ various specialists with high standards. The situation today, especially following the financial crisis, has also changed the financial industry in Albania. Banks in Albania have been developing under a tough competition, both domestically and abroad. The compensation offered to bank employees has been, to a great extent, dependent on the reward the market offers for the human capital.

On the other hand, the compensation structure in the banking sector is significantly more diverse than in other sectors. Besides base salary, fixed for respective jobs at banks, bank employees also benefit extra payments, in relation to the performance level of the job, or the sector s/he heads, as well as various benefits, such as:

health and social insurance, according to legislation, mortgage loans at preferential rates, trainings, both domestically and in foreign countries, etc. The ratio between basic salary and bonuses for performance and other social benefits that are not paid in other sectors, stands approximately at 30% of the average wage1 . Such remuneration structure is implemented in almost 90% of employees in the banking sector, which is considered a constant structure and not a "dumping" of the compensation process, as they aim to attract and develop human capital, at the fullest possible.

Besides the increase of motivation and commitment level, as instruments of management process, the banking sector has an advantage in comparison with other sectors, in human resources, which means that methods applied for managing people are more modern and more effective, by treating people as an asset that creates precious value.

On the other hand, they are also a high value that costs a bit, so it is necessary for banks to measure the indicators of human capital productivity, and along with other recommended indicators, three principal indicators must be calculated and analyzed by banks, on an annual basis, or even on a shorter period. These indicators are: (i) productivity measured by the added value; (ii) the establishment and growth of image and (iii) the implementation scale of a globalized culture.

The productivity index is expressed by the ratio between the added value created and salaries’ expenditures.

When it comes to the Albanian banking sector such report presents an average of 2.2, while the median indicator is 1.0, which means that there are deviations, as a result of differentiated activities by banks. This indicator is negative for some banks (- 0.2 and 0.7), while the group with the highest productivity stands at +6.3 +5.8 and +4.0, but the largest group of banks appear in the range of +0.9 to +1.9.

All these indicators are satisfactory, except for negative productivity, which is affected by decisions to restructure

non-performing loans.

Another indicator, related to productivity, is the percentage of non-performing loans, whose growth affects productivity. The non-performing loans index reached 21.3% at the end of September 2016; therefore a careful analysis is needed regarding the procedures implemented and the relation of such phenomenon with the status and quality of human capital.

Another important indicator is banks’ image and creditworthy, which has never been questioned, despite information about risks of deposits in other countries and the possible consequences on Albanian banks on deposits. Creditworthy is a consequence of banks’ image with customers and it is considered as an intangible asset, which banks should strive to preserve and increase in furtherance. In this regard, and in the frame of new conditions created after the financial crisis, banks must work carefully and specifically with the loan-making process, client’s analysis (borrower), as well as deposits’ proper management. According to this point of view, human capital productivity can be measured by the index of the number of customers from one year to another, which in the case of Albania has always been improving.

Regarding the degree of using a globalized and advanced culture, it may be necessary to measure the number of operational management procedures that apply according to worldwide best practices, as well as the implementation of international reporting standards, the quality and effect of human resource management procedures, the technology and information processing technology level, etc.

The instruments of growing and using human capital, as well as measuring its productivity in the banking sector are a universal theory and practice, which should be studied constantly and implemented by bank’s managers in charge, in order to increase profitability on one hand and to implement the social responsibilities, either towards depositors, borrowers or other stakeholders.

1 Calculations are those of the author, based upon banking reports and practices.

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Frontline

Human Capital in the Albanian Banking System: Challenges and opportunities Interview of BANKIERI’s Editor-in-Chief with several banks’ heads of Human Resources units BANKIERI: How do you evaluate the role and importance of the employees of Albanian banking system and how challenging it is to retain and develop an appropriate human capital in banking industry, particularly after the recent global financial crisis?

Valbona Zeneli Human Resources Director, Raiffeisen Bank of Albania: The biggest challenge today for the Human Resources departments of Albanian banks are recruitment, employees’ retention and motivation, developing managers and the corporate culture. In a time when human resources are opting to take a more strategic role, addressing such issues is an ongoing

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process that is time consuming and above all, requires a deeper awareness form senior management. Employees’ retention and motivation has turned into one of the most sensitive and delicate issues during recent years. Creating a work environment where employees feel motivated is a challenge faced by the all human resource professionals. Rapid developments in labor market have prompted human resource departments to develop continuity plans and put emphasis on developing future leaders.

Successful companies that are committed to develop their managers, implement, at the same time, other supporting plans for a longer retention of their employees.

This requires processes and plans based on a clear purpose and long-term vision.

Unfortunately, companies often have difficulties to allocate relevant budgets to organize training and development programs, which are necessary for the professional growth of their employees.

The best employers and most successful one are those who have a good corporate culture. They have much less staff turnover than their competitors and are capable to recruit talented people that suit best to their needs and culture. In conclusion, this brings a better quality service to customers and creates innovative products that ensure company’s financial success. Many firms pay little attention to the organization's culture, but it is proven that culture’s creation and management through recruitment, retention and employee

development can significantly improve performance, profitability and growth of an organization.

Ariana Tushi Head of Human Resources Department Banka Kombëtare Tregtare: In a rapidly changing and evolving world, Human Capital has been and remains the most important factor in accomplishing BKT’s strategic objectives of keeping the competitive advantage in the banking market. Employees’ evaluation, as the most precious asset of the bank, it is a well – known and tangible reality by all our employees. It is not a surprise that one of the highest values at BKT is: "People First", which means for all of us having the highest caution, to get

satisfied Clients and Employees! BKT's performance is based first and above all, upon its employees. The activities of the of talent development are focused on three priorities: building leadership capacities; maintaining an environment that supports sustainable performance; and promoting professional and personal development of all employees. Bank’s positive and stable results during the last two decades show that we are on the right track at retaining a well-educated, well-trained, dedicated and motivated

The annual evaluation of employee’s commitment and job satisfaction through their anonymous questionnaire, organizational communication is an organizational communication tool that helps in identification of and focusing on prospective priorities, for the coming year.

Our attention in the future will be focused on our transformation task as an agent of change and business partner to implement the strategy of the bank in digital era, maximizing human capital’s impact by way of increasing efficiency, new skills, professionalism based on continuous training and learning, creating added value and finding balance between three key paths: clientemployer-results.

work force. Over the years, BKT, as well as in 2016, is regarded as the winner of 3 most important international banking industry awards, such as: The Best Bank in Albania, from prestigious magazines like "EMEA Finance", "Euromoney"

and recently by "The Banker ". Also, the bank is rated with maximum AAA (Alb) for Corporate Governance by JCR Eurasia Rating, in November 2016, which evaluates, inter alia, Human Resources and their Performance, with grade: "Excellent" for implementation of contemporary best practices in the field of human resources. The implementation of international best practices in strategic management of human resources, has integrated naturally bank's interests with those of employees, along with increased staff stability and employees’ job satisfaction. Investing throughout the whole employee’s life cycle, a correct and transparent, prescription, understanding and implementation of career development policies, rewards and recognition, motivation, encouraging packages for financial and non-financial benefits, beyond legal rights, aimed for their financial, physical and emotional welfare, in accordance with individual performance and work experience, etc., has created a confidence in each employee that BKT is the right place for any employee who aspires to be realized in his/her professional career.

In this context, I think that even periodic analysis of 20 key performance indicators (KPI) of human capital for the whole banking system at the Human Resources Committee, have helped in making comparisons with best practices and with benchmark (not only with the itself over the years), as well taking measures to improve them, where necessary.

The annual evaluation of employee’s commitment and job satisfaction through their anonymous questionnaire, organizational communication is an organizational communication tool that helps in identification of and focusing on prospective priorities, for the coming year. Our attention in the future will be focused on our transformation task as an agent of change and business partner to implement the strategy of the bank in digital era, maximizing human capital’s impact by way of increasing efficiency, new skills, professionalism based on continuous training and learning, creating added value and finding balance between three key paths: clientemployer-results.

Entela Zigori Head of Human Resources & Organization Department Intesa Sanpaolo Bank Albania: Banking System, as an important factor in the country’s financial system, plays a crucial role in the development of Albanian economy and nowadays banks are absolutely aware that in a crowded marketplace, highly competitive and rather challenging, human capital is the most valuable asset that makes the difference. We all know that, despite the size of the company, when you manage to build a team of motivated hardworking professionals and experts, you own the key that opens the doors to guaranteed business success. Attracting and retaining the right people, in the right time, to perform properly related tasks and duties, is not an easy challenge to tackle, and this becomes much more difficult after the recent global financial crisis, exercising its pressure on the economy. It is true that money is a tool to motivate employees, but it is also true that in this global scenario of increasing complexity and competitiveness, employees render a very important value to other forms of recognition and reward, which very often contribute to reinforce the sense of self-realization and self-esteem. However, the staff is wellmotivated if employers support and give them a clear vision and perspective for the future.

Therefore, the big challenge for banking system is to keep the workforce

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motivated, goal-oriented and flexible towards continuous changes.

In our vision, motivation for innovation, sharing of ethical values, diffusion of the Bank’s culture, and commitment to improve the processes and customer service are crucial elements not only to get the best results and output from our employees, but also to retain our best employees.

BANKIERI: What are the main difficulties and obstacles in recruiting qualitative employees in commercial banks?

Valbona Zeneli Në një klime pozitive të ndryshimit dhe In a positive changing and improving economic conditions climate, banks seem to regain confidence at employing people. Employers are looking for new recruits, professionals are applying for vacancies, but there are still a number of difficulties which hinder a full accomplishment of such common demands, as follows: Limited budgets. The economy is growing, but managers of various companies have a distrusting approach to what is expected to change.

According to a Robert Half survey, 67% of financial executives will increase the number of employees should their lending be clearly improved, whereas 86% of respondents think that the increasing funding availability will lead to a reduction of unemployment.

Lack of skilled candidates. In banking industry, this is a thorny issue and finding people with proper level of required competences is becoming a real challenge. Companies are obviously affected by numerous technological developments, so that the level of expertise required for candidates are dictated by such developments.

Meanwhile, it is becoming increasingly difficult to recruit candidates who are equipped with necessary technical knowledge to meet vacant positions’ requirements.

Large number of applications.

Employers receive a large number of applications, which in most cases do not meet the required criterions of vacancies, which also increases the

difficulty to make a proper selection of available candidates. In some cases it may even cause lengthy delays for such processes, in a time when the selected candidates may have received other job offers. Today’s employers need to find innovative methods to attract new talents, through social networks, posting of vacancies in different bulletins, but also through more traditional methods, like job fairs or sending notice/advertisement to stimulate the general interest. Even in periods of high unemployment, companies that operate in the actual banking system and modern technology – oriented find a limited number of candidates with relevant skills and training to meet the criterions of required positions.

Ariana Tushi We pay attention to youth employment and support freshly graduated students based on merit and transparent recruitment practices, as they need support, employment to be able to faced challenges of the labor world.

The average age of bank employees is 33 years, with perfect generations’ harmony and exchange of knowledge/ experience between them, whereas 74% are millennials. However, the biggest difficulties are encountered in staff recruitment process for branches outside Tirana, where the number of applicants has been very low, despite numerous vacancy announcements through all relevant channels, that affect the quality of recruitment, or complicates bank staff’s needs. Also, due to recent year’s migration of senior IT staff with managerial experience has put the market in difficulties for a quick staff replacement and preparation.

Another difficulty is associated with high turnover of employees during the first year of work, reflecting their higher expectations in relation to performance, within a very short period with the bank. This calls for making more efforts to clarify their expectations, during the selection process, in order to reduce costs, time and energy. Anyone who chooses the bank as model prestigious employer institution and wants to build a long – term career there must be prepared for the secure path to

career according to performance/ merit approach, even starting from the honored position of teller, till the high position s/he aims. BKT experience speaks through hundreds of cases, in this regard. Also, the improvement of gender ratio in the bank, in favor of men still needs to be developed, as female staff constitutes 75% of bank personnel.

Entela Zigori Our intention is to hire not only professionals, but responsible and reliable employees too, so we can make our business more efficient, profitable and much more sustainable in long term perspective. Banks offer a wide variety of job positions mostly to those who graduate & specialize in economics, finance, IT engineering, math and many more fields. Our bank is continuously looking for candidates who have not only the required skills to perform the specific assigned duties, but the ones who are ready to be part of a transformation journey to meet today’s and anticipate tomorrow’s challenges.

Being part of ISPA, one of the biggest banking group, leads to an internal environment characterized by growing interdependencies between different structures, both at the bank and group level. And in order to develop such internal environment at its best, we need to find qualitative employees that have “transversal” abilities to work within the organization. The competencies such as “ability to manage customers’ relationship”, “ability to work in team” remain the most important ones, followed by other competencies like “flexibility and adaptation”, “capacity of written and oral communication”, “problem solving attitude”. The World of Banking with new risk management techniques and recent culture of integrated internal controls system, requires employees that possess extensive knowledge in that field, therefore Intesa Sanpaolo Bank Albania has decided to invest in young graduates through “dedicated professional training”. Furthermore, many employees are attracted to the idea of working abroad, but we really need to ensure they understand that opportunities in Albania are, all in all, greater compared to the ones they can find abroad (here

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they can be protagonists of changes, whereas abroad simply an employee).

BANKIERI: In today's era of rapid development of digital banking and fin-tech, how do you see the future of human capital progress and development in Albanian banking system?

Valbona Zeneli We live in the era of a completely brand – new type of staff and leadership, that is characterized by the ease and speed of an unprecedented digital communication, as well as by a desire to embrace the virtual work environment, where independence and flexibility in the working process is increasingly required by candidates. The pressure on HR to master the art human capital management has never been so high. The future belongs to digital environment and work experience.

Customers are turning toward digital communication networks and banks should follow. The issue is that many banks in the system are not yet ready; even in Europe banking institutions have digitalized some 20 – 40% of their processes; 90% of European banks invest less than 0.5% of their total expenditure on digitalization. Therefore, most of them still focus on providing and facilitating basic transactions for their clients. This is so because heads and managers in the banking system tend to assess digital changes through a narrow prism, just like applications that are not needed by the industry.

Some banks justify this with security issues and risk calculation, compared with other industries. However, as in case of airline industry, heavily oriented towards minimizing risk and therefore being automated in every aspect of its operation, banks can do the same, considering such these efforts will be worthwhile, regardless the price paid.

Ariana Tushi In view of ongoing digitalization in banking industry, the demand for digital skills in IT is growing incessantly. Employee and customer education with digital banking services remains a priority for us, reflecting the transformation of banking culture

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in a digital world. In the era of digital banking and workplace environment a radical transformation is required in

Our intention is to hire not only professionals, but responsible and reliable employees too, so we can make our business more efficient, profitable and much more sustainable in long term perspective.

Our bank is continuously looking for candidates who have not only the required skills to perform the specific assigned duties, but the ones who are ready to be part of a transformation journey to meet today’s and anticipate tomorrow’s challenges.

this aspect, and this is not just about IT and systems which facilitate access and banking service for each client, but an issue that is chiefly related to human capital and Human Resources. A bank, by creating an environment that allows employees to develop their careers within functions and the development of an organization oriented toward excellent digital service for customers, will need to employ a more diverse and flexible workforce, in terms of adapting to new roles, for which there is a constant need to recruit employees with a set of skills far more extensive, agile, productive, flexible to changes and experienced to cope with challenges.

As a partner in students’ preparation

process, BKT encourages the update of programs/curricula in accordance with banking developments, digital banking, including subjects related to modern banking and FinTechs, which will enhance professional and technical skills of future employees. The 9-year positive experience for supporting dual studies for Bank Management at the Faculty of Integrated Studies with Practice (FASTIP) of "Aleksandër Moisiu" University, which educates/ prepares the new generation of BKT staff, under the experience of German business academia is the best example in this regard. Today they make up to 9% of bank staff and some 44 students are in the process of preparation/education as employees, by integrating academic knowledge with organizational culture and working ethics, products/services understanding during internships at the bank. Human resources themselves are affected by digitalization, both inside and outside the bank, by adapting to global developments and new generation’s trends. The implementation of SAP ERP (Employee Self Service ESS, Manager Self Service MSS, E-Recruitment, Performance Management, E-Learning, etc.) innovative systems has digitalized human resources, provides complex, automated and integrated solutions, thus bringing access to HR for every employee and executive for their teams.

Entela Zigori Nowadays, technology is advancing very rapidly, redesigning and affecting our lives, the way we interact, we think and also the way we perform in our jobs. A new world of financial technology is on the horizon and digitalization is expected to involve more and more Banking system in crafting the employees’ experiences. The growing digitalization of customer interaction calls for new service models and an important evolution in the role of a Bank. This means that we are facing a new way of “doing business”! To support such goals, it is necessary to invest in ongoing development and enhancement of digital skills of our people and customers.

New initiatives must be defined with the aim of providing training activities that enrich traditional activities with

new methods of working models to increase the ability of employees to exploit and make use of digital services and technologies and, at the same time, to help customers become more familiar with the Bank’s digital services. Human capital always tends to align with rapid changes of technology; otherwise it’s difficult to remain in the labor market.

However, experience has revealed that new technological information changes are positively and vastly grasped by our employees, since they simplify the work processes. The Banking industry in the country is always attentive and the first to embrace innovation and technological advancement.

BANKIERI: What will be the role of banking, as part of the labor market?

Valbona Zeneli The role of banking as part of the labor market begins with formulating and implementing a clear vision for people. In today's digital reality such vision becomes even more indispensable to adapt to new roles and functions, employees should adopt. This requires two things: (i) a proper approach to the new way of thinking and working, and (ii) developing those skills that require the implementation of new technologies.

We live in the era of a completely brand – new type of staff and leadership, that is characterized by the ease and speed of an unprecedented digital communication, as well as by a desire to embrace the virtual work environment, where independence and flexibility in the working process is increasingly required by candidates.

The pressure on HR to master the art human capital management has never been so high. The future belongs to digital environment and work experience.

Digital transformation will make obsolete some roles so many people may perceive this as a threat and will resist changes of this kind. However, this must focus the attention on creating many new opportunities for development.

In this new reality a higher awareness about new technical possibilities offered is really needed and the impact on processes will be a prerequisite for an effective human resources management.

New talents will always be an important incentive, but digitalization requirements needs to be familiarized uniformly across the organization, as an organic part of what it is and what is required to be achieved. Digitalization will change the traditional business model of retail banking, and in some cases, quite dramatically. The bad news is that the change will happen, irrespective of the fact that banks are not ready yet.

The good news is that there are many clients who expect banks to embrace this change.

Ariana Tushi I think that the banking system will continue to play the same modest, but elite role in the Albanian labor market.

Today it represents only 1.8% of the labor market in the non-agricultural private sector. Staff redistribution, roles’ reshaping, internal horizontal/

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vertical career development with plenty of challenges, employees’ skills and competencies development, in accordance with digital banking era, especially in the field of technology, distant working and flexibility will be some aspects the banking system has to cope with, in the future. Also, a special strategic focus will be put on supporting training programs for interns in all structures, in order to create flexible talent groups for continuity purposes.

The bank must preserve a dynamic and innovative image to attract and retain, in the future, the employees it wants, by offering continuous support and success, which turns it into the Chosen Employer.

Entela Zigori Banking institutions hold a great potential to contribute significantly in the labor market. They have both a direct and indirect powerful influence in establishing decent working standards

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and they have further enhanced the regulatory framework that governs employment issues. ISPA has adopted politics and regulations that go beyond local regulatory framework requirements, by improving labor market standards. The Code of Ethics is the “Charter of Relations” between the Bank and all its stakeholders. It describes the values our bank believes and to which it is committed, outlining the principles of conduct that derive from the context of the relationship with each stakeholder.

In the last years, we have supported several human rights related initiative, such as: hiring people with disabilities, delivering training courses to our employees to enhance their awareness on the inclusion and participation of people with disabilities in the society, establishing channels of communication with Trade Unions, etc. ISPA strongly believes in the power of women. The majority of Top Executive Management

is represented by women with an average age lower than 42. Moreover in a broader view, the banking system in Albania impacts significantly the labor market also through financing the needs of many businesses and companies. In this framework, our bank considers strategic priority programs, such as: (i) reinforcement of financing agribusiness sector by implementing a new Service Model based on the specifications of this industry and its particular needs; (ii) implementation in full of the program “Women in business” which was initiated to support Women in Micro, Small and Medium-sized Enterprises in the Western Balkans. Therefore in this context, the bank’s contribution doesn’t refrain only in generating profits of the businesses it finances, but also in creating new jobs and new employment opportunities, hence impacting and contributing to the country’s economic and social development.

Journalist Corner

The new growth cycle and local human factor Higher salaries, a totally formalized activity, system and career stability make the banking sector one of the most desired employers for skilled professionals, in economics and finance.

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he year 2016 is being confirmed as the year of steady improvements in Albanian banks’ balance sheets.

Based upon recent data of Bank of Albania, the banking system closed the 10-month period with a net profit of ALL 8.3 billion. Profitability indicators are at average levels, with a ROE at 7.8% and ROA at 0.7%. As bankers had forecasted, profitability was revised downward, due to narrowing interest margins, but also as a result of a hike in non-performing loans. It is just such rise, especially in the first half of the year, the most unexpected, but explainable, development given the fragility of economic recovery and specific issues related to the legal and institutional framework for collecting obligations.

The banking system has been growing incessantly during all the time (according to AAB, by end-October, Total banking assets grew 3.5% p.a.) and it is inclined to the weaknesses identified during the crisis period, such as: high exposure risk to corporations, or special groups, as well as high exposure to exchange rate risk. Now the focus is on diversification and retail segment. According to Bank of Albania, in late September the loan portfolio for individuals scored an annual growth of 8.5%, while outstanding loan portfolio in ALL increased by 8.2%, compared with a year ago. The improvement of real economy will likely help boost lending activity. On the other hand, legislative initiatives to facilitate collateral enforcement, shows that there is a will to improve further these processes.

The most delicate moment seems to have

passed and now the banking system will likely enter a growth cycle. A new healthy growth of banking sector is, firstly, a matter of right strategies and right people.

The long crisis, from a struggle, has turned into a precious treasure of experience for bankers in understanding mistakes that may have been made in the past. On the other hand, the rapid development of private banking system in Albania has produced a valuable human capital, a team of several thousand professionals in the banking sector, who have contributed and have gained valuable experience over the years.

More power to local directors At June 2016 conference for corporate governance in the financial sector, one of the Bank of Albania’s main findings was that business strategies of foreign banks in Albania are chiefly defined by parent banks, whereas the impact of local managing structures is weak, in this regard. Such phenomenon, especially during crisis years, was objectively explained, given the serious challenges the majority of banking groups in Euro area have been faced with, and the need for consolidation at group level, which in turn has conditioned further restrictions in the autonomy of respective subsidiaries in the Central and Eastern Europe market.

Certainly, it would not be correct if we accept that foreign-owned banks do not trust Albanian managers; five, out of 16 commercial banks, are managed by an Albanian CEO and three of them manage banks with foreign capital. If we refer to

the number of Albanian CEOs, is goes without saying that, the issue is not so much in the managers’ nationality, but in the appreciation of people who know the market quite well. There are also foreign CEOs in banks who have been working here for many years, some of them for more than a decade. Over recent years, banks with the biggest growth were those that had a strong local base, including the importance of local managers in their strategic decision-making.

Today, the financial system and the banking sector have the opportunity to hire the most quality human resources, in various profiles required by such activity and this is primarily due to one simple fact: wages in the financial sector are the highest in the economy (excluding payments by international organizations).

According to INSTAT, in 2015 the average gross salary in the financial sector was ALL 95.527, up by 9% compared with 2014. Higher salaries, a totally formalized activity, system and career stability make the banking sector one of the most desired employers for skilled professionals, in economics and finance. Stimulating skills and ambitions of these professionals will undoubtedly be an important factor in the success of a new growth cycle for the banking system in Albania.

Ersuin Shehu Journalist

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Special

Banks: The best brand in Albania Banks are a good thing, for which the economy must be proud of. It is our best brand: solid, stable, sustainable, strong supporter of economy, a guarantee of financial security and stability in the country, with about 92% of assets of financial industry.

Dr. Spiro BRUMBULLI

Secretary General Albanian Association of Banks, AAB

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he year 2016 turns its last page, by reinforcing the feeling and belief that the banking environment has changed and bigger changes will materialize in the future.

Experts and policymakers have increasingly used the old Chinese idiom: "we live in interesting times", to summarize the factors that have caused changes in banking industry. Factors, such as: economic growth decline in a global scale, the prolonged debt and financial crises, Brexit, geopolitical tensions in Eastern Europe and Middle East, the environment with near-zero interest rates, structural changes due to digitalization, over-regulations of banking industry (Basel III and IV under discussion), negative perceptions for banks, due to the financial crisis, etc., have put a question mark on many aspects of the way the banking activity is conducted. Today we are increasingly hearing about banking models that could be a common reality, after 2020.

But if the agenda in developed

countries is concentrated in banking over-regulation and future models, in other countries such issues are go mixed with local issues. Whereas in developed countries the change of banking is an obligation to the public and the economy, due to the crisis, banks in Albania did not spark any crisis. Rather, banks in Albania had

Bank’s financial intermediation role is performed even when they place money abroad. This is not an irregularity of banking practice, or violation of legal activities by banks. They are allowed to provide and accept; to provide and extend their surpluses and borrow when they need funds, on the inter-bank market, be it national or international.

This is called financial intermediation.

to face adverse effects of the crisis.

For many years remittances were a factor of our development model and when their neighbors were faced with the crisis, their economic decline put reins on consumption and expenditure, thus reducing the demand side.

Businesses were faced with difficulties of implementing projects, due to changing market conjectures, prices, demand, etc. Consequently, the biggest issue for banks was non-performing loans, which culminated with 25% in September 2014 and currently stand at 21%. This level, coupled with some sporadic events of operational risk in some bank branches, with several attacks and robberies of cash in transit and culminating with money theft at Bank of Albania, seems bundled together to build a threat on banks’ reputation, widely recognized as the vanguard of our economy. The Albanian economy should be proud of banks, because: • Total assets of the banking industry, in 30 September, 2016 reached ALL 1,400 billion, almost the value of GDP. Meanwhile, the capital invested in the banking industry is at

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ALL 173 billion.

• Banks have employed about 6 thousand employees, talented and well-qualified people, who know how to deal professionally with difficulties and to follow successes without euphoria. Only in 2015, the Albanian Association of Banks organized 21 trainings, where 257 employees were trained. The banking sector has provided staff to other sectors of economy, both private and public.

• Banks have corporate governance at the highest level in the country (with functioning assembly, board of directors, executive board, committees, detailed organizational structure, job descriptions, codes of ethics, etc.)

• Banks have supported economic growth with credit. Currently, the economy has borrowed about ALL 600 billion from banks, which are a bit more than half of deposits.

• Citizens have trustfully put their savings in banks, by not questioning their safety. Actually, more than ALL 1,100 billion are deposited with banking sector. In absence of other alternatives to use savings, the citizen - bank bond has become stronger through years.

• Banks are the most regular taxpayers.

Banks pay income tax, personal income tax, social insurance and health care expenses, declare all employees, provide regular employment contracts, comply with risk requirements in the workplace, thus being at the forefront of transparency and fairness.

• Banks spend each year big sums for corporate social responsibility. Only in 2015, banks spent EUR 1.3 million for relationship with the community and to improve its conditions, art, culture, environment, which are now summarized in Strategy for Global Sustainable Development.

• Banks have invested heavily in technology. During the period 2011 – 2015, the banking sector invested approximately EUR 65 million for

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developing services and information technology. Some EUR 16 million are expected to be invested for the year 2016. Many new products, offered in the market, are a result of technology development. Meanwhile, special attention is put on information security.

• For the period 2008 - 2015 banks invested about ALL 54 billion additional capital, whereas net profit was only ALL 48 billion, during the same period. So, going beyond one year time span, the banking sector has made a net contribution, which means that extra foreign investments have been made to cover losses from non-performing loans and regulatory requirements. Return on equity and return on total assets are respectively 13.8% and 1.2% for the year 2015.

So banks are a good thing, for which the economy must be proud of. It is our best brand: solid, stable, sustainable, strong supporter of economy, a guarantee of financial security and stability in the country, with about 92% of assets of financial industry. Despite financial losses for the period after the crisis, zero interest rates environment, which has greatly reduced profit opportunities, increased risks (attacks on bank premises and escorts of cash that transportation), low economic growth, although in an upward trend, the sizeable level of non-performing loans, shortcomings of justice system with the collateral enforcement, etc., banks are wellcapitalized, liquid, secure and in their full role as financial intermediaries.

Bank’s financial intermediation role is performed even when they place money abroad. This is not an irregularity of banking practice, or violation of legal activities by banks.

They are allowed to provide and accept; to provide and extend their surpluses and borrow when they need funds, on the inter-bank market, be it national or international. This is called financial intermediation. In the absence of credit demand, banks cannot keep idle funds,

furthermore when it comes to foreign currencies, which are not possible to be kept, even physically.

Finding new ways to make profit is a challenge for any banking sector, not only in Albania. The perception that banks are “drowned in money”, that earn more than any other sector of he economy, are wrong and ungrounded on official data. It would be much desired that banks could make such profits, as they would pay more taxes for the state budget and will allow more room for lower costs, but the real fact is not so. The preliminary 9-month profit for 2016 was only ALL 6.5 billion, with a Return on Equity at 6.8 percent.

Anyone can make a comparison of such indicator with other sectors to better understand how much profit is made by 1 ALL investment. In this way, the illusion that the banks are drowned in money is therefore dropped down.

Banks are trust institutions and by being so, every event around them makes headlines, but there cannot be credible news the attacks against banks' responsibility for the high level of non-performing loans. Endeavors to explain such situation are often

Banks are trust institutions and by being so, every event around them makes headlines, but there cannot be credible news the attacks against banks' responsibility for the high level of nonperforming loans. Endeavors to explain such situation are often filled with populism and demagoguery. Here the essence of lender - debtor relationship is overlooked; the bank has lent money and must get back them.

filled with populism and demagoguery.

Here the essence of lender - debtor relationship is overlooked; the bank has lent money and must get back them. The relationship is legal and lending risk is well – covered by collateral, as a reserve option, in case of failure of debtor to provide sufficient income to repay the loan. This is fundamental; surely if there are cases of lack of correct behavior from any employee, any violation of rules by any loan officer, etc., these are operational matters to be blamed, but that does not distort the essence of the creditordebtor relationship. Moreover, money lent by banks are deposits from citizens.

Loans are not a means to make social policies, so the society must be aware of punishing those who do not pay back the loan. In a loan relationship the bank is not evil, it is the solution, but

this solution should be accompanied by taking over the responsibilities by the borrower.

Failure to pay the loan has also consequences for the ongoing lending process. The higher the risk of failure to repay the loan and the more difficult the process of collateral enforcement is, the higher the interest rate on the loan.

During the collateral enforcement of the loan contract, banks are no longer part of the sale process, following the issuance of execution order; instead they are the interested party to collect revenues. Banks have nothing to do either with collateral evaluation, collateral sale or auction process, or the way such process is conducted.

Therefore, it is irrelevant to “blame” the bank in this process. This resembles to the transport of monetary values, for which banks contract licensed

companies for such type of activity.

Banks are not responsible for cash transportation; private companies for physical security are responsible, but when an event occurs, banks are pointed as responsible. Legally speaking, this is not true.

Often, failure to understand events as they really happen or as they are legally regulated, gives way for individual and biased interpretations. In the absence of the expert and the professional’s say, amateurish comments create doubts and undermine the image of banks. In this regard, banking industry can do more, either by investing in financial education of public, or by using their experts to explain phenomena, certain events or situations that are connected, directly or indirectly, with banks. Time proves that the market terribly needs the professionals’ word and say.

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Banking System

Collateral enforcement

Some significant amendments The adoption of Law no. 114/2016 "On changes and amendments to the Law Nr. 8116, dated 29.3.1996, "The Civil Procedure Code of the Republic of Albania", as changed, has significantly improved the legal framework, by way of incorporating certain prescriptions about unifying the collateral enforcement practices.

Albina HASANAJ

Head of Legal Sector

SOCIETE GENERALE ALBANIA

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he year 2016 saw some significant amendments of the Albanian legislation, primarily related with the collateral enforcement (foreclosure) procedure, bankruptcy and retrieval of certain guarantees that were abolished with the changes that occurred in 2013 in the Law "On securing charges".

The legislation came as a need to mitigate the level of non-performing loans, an Albanian government’s initiative, supported by the World Bank, as well driven by a decisive commitment of the Albanian Association of Banks, AAB. The purpose of such changes was a significant acceleration in the collateral enforcement’s procedures, considering the categorization, by the legislator, of the Bank Loan as an "executive title", according to Article 510 of Civil Procedure Code. In this way, the improvements made in Article 511, which prescribes that the issuance of Execution Order to be carried out without the parties’

presence, do accelerate the process of issuing the Enforcement Order. Contrary to previous practice, where the court set a hearing session, the latter must act now upon the assessment of acts, submitted together with the Creditor’s application for issuing the Execution Order.

In the first proposal of lawmaker, the

By considering the Collateral Enforcement as a process that must be efficient, but also a speedy one, the review of procedural terms and deadlines is an additional guarantee for the Debtor, Creditor, but also to any other third party involved in such process.

draft law prescribed the debtor as a party in the process of issuing the Execution Order, and the Court’s assessment must be effected upon calling an expert to calculate the respective liability.

Practically, in the course of Parliamentary

Law Commission’s sessions, the Albanian Association of Banks focused its discussion over the fact that such draft law would turn back in time the legal notion of the " executive title" and "execution order", as well as it would significantly compromise the Creditor’s position, as according to such draft law the process of issuing Execution Order was being treated as an interparty court issue. The Constitutional Court Ordinance No.39, dated 16.10.2007 provides exhaustive arguments why acts for bank loans’ provision should have a special treatment by legislator, because of legitimate purpose and constitutionally justified perspective, i.e. the "public interest", given the impact on the economy and the economic stability. On the other hand, the Debtor has sufficient legal means to defend its own position and therefore the principle of equality in front of the law, or the principle of contradiction (principium contradictionis) are not affected at all, and such fundamental right is realized through the implementation of Article 609 of Civil Procedure Code, which gives to Debtor to obtain a lawsuit, which guarantees the rights that have been infringed, through a due legal process.

In this context the adoption of Law no. 114/2016 "On changes and amendments to the Law Nr. 8116, dated

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29.3.1996, "The Civil Procedure Code of the Republic of Albania", as changed, has significantly improved the legal framework, by way of incorporating certain prescriptions about unifying the collateral enforcement practices.

In this course, the Article 511 sets out modalities of the Execution Order, as well norming the applicable legal rate.

The implementation of such norming, which is in line with Article 450 of the Civil Code of the Republic of Albania, intends the alleviation of various court practices, regarding the issuance and content of the Execution Order, or Court Bailiff’s stances in relation to the amount of liability, subject to enforcement. Also, changes in this article avoid current practices under which penal conditions for payment in arrears were subject of contractual terms, whereas now we have an equitable application for all executive titles of Bank Loan granting acts. Certainly, such a unifying norm does not affect the "the free will of the parties" contractual principle, conditions which will be applied until the issuance of the Execution Order.

Some other issues and attitudes need to be unified, along the way, by the Court, e.g. determining the "late payment" moment, in a sense whether it will be referred to the deadlines set out by contracts between the parties, or to the related terms, defined on the time of issuing the execution order.

A novelty to be mentioned in this law are changes to Article 525, which recognizes and legitimizes the success fee, as a right to be exerted by Creditor, as hammered out in an agreement with a Court Bailiff for a successful execution

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(foreclosure) process, which is also scaled in the material law for Private and State Bailiff Service. Surely, this notion should not affect the Court Bailiff’s activity, who is guided by principles of Civil Procedure Code for collateral enforcement, which regulates enforcement actions and procedural terms. Court Bailiff, as a procedural subject in the area of execution, is equipped with all procedural tools that enable the execution of an executive title and certainly, in the course of exercising its duty, s/he should not be limited in carrying out formal actions only, along with the fact that s/he is vested with the power to impose sanctions, in case the Debtor or third parties obstruct, or do not fulfill the order of a Bailiff (the Constitutional Court Ordinance No.13, dated 21.03.2012). So, all legal provisions impose practical commitment and actions of Court Bailiffs in the course of enforcing a judicial decision, a right recognized by the Court.

In the context of unification, the Article 564 is considered an important development, as it provides a prescription of the methodology for evaluating the repossessed object, through normative acts of the Council of Ministers, thus avoiding subjectivisms in the valuation processes of repossessed properties.

Likewise, arranging a third auction, according to respective changes in Article 577 of Civil Procedure Code, provides a better opportunity for all Creditors in collecting loans, by way of collecting their money as fresh funds to be reinvested in the credit system.

All in all, by considering the Collateral Enforcement as a process that must be efficient, but also a speedy one, the review

of procedural terms and deadlines is an additional guarantee for the Debtor, Creditor, but also to any other third party involved in such process. Thus, the designated 30-day procedural term, from notification moment to the initiation of collateral enforcement, as provided by the revised Article 609, within which the Debtor may exercise the right to file a lawsuit on Executive Title Invalidity, or that the obligation does not exist, or it exists in a smaller scale, or otherwise is diminished later, is a fundamental change. Through this amendment, the lawmaker aimed at sidelining such practices, where even though the Debtor was notified about the commencement of collateral enforcement procedure, the latter has exercised the right under Article 609, after all enforcement actions were completed. So, the lack of an obligatory limit of prescription period for exercising the right to file a lawsuit, has caused the Court to refer to the overall 10-year prescription period, thus creating a legal uncertainty, as in the previous practice it happened, a bit often, that the repossessed object may have been rightfully owned by a third party, therefore infringing the latter’s ownership right.

Also, if the spirit of procedural terms and deadlines, the reformulated Article 610, brings shorter deadlines, within which Courts must examine and consider requests or appeals for enforcement actions, or extending the effects of suspension decisions.

In conclusion, we may say that these legislative changes and amendments fulfill the primary purpose for providing easing legal measures for a quicker and efficient recovery of Bank Loans.

Banking System

Card payments

A digital revolution for purchases and borrowing The "economy of scale" is what justifies costs and expenses in this business area; the greater the number of transactions with cards the less banks pay to schemes’ proprietaries, and the more expected profit, from products and services offered on the other side, is produced.

Irida HUTA Head of Business Development PAYLINK

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lbania is still in its early steps of transition from cash payments to electronic payments. Such business needs to be analyzed, under current conditions in terms of: • Issued cards/Active/Used (Cards) • Places/Merchants that accept these cards (Acceptance, ATM & POS) These factors have a mutual relation and are not perceived other than being closely related to each - other. In a time when the market is increasingly accepting electronic payments, financial institutions are strongly promoting cards, thus becoming a reality in the country, for at least 10 years in a row. Based on recent statistics, electronic payments in Albania increased in 2015, although at a low level, yet. Electronic payments in Europe on average made up more than 50% of payments’ sector. Albania needs to make serious efforts for a broader use of electronic payments. Studies show that

a country may save 2-5% of its GDP, if it moves into a high level of electronic payments (over 80% of all payments). An electronic payment system is not only cost – efficient, but also produces transparency and a strong monitoring mechanism for the tax system. In fact, businesses have to pay, for an electronic transaction, a cost of 1.5 - 2.5% of the transaction amount,

Studies show that a country may save 2-5% of its GDP, if it moves into a high level of electronic payments (over 80% of all payments). An electronic payment system is not only cost – efficient, but also produces transparency and a strong monitoring mechanism for the tax system.

in favor banks. This is, inter alia, one reason why businesses are reluctant to use electronic card devices. However, it

is worth mentioning the fact that cash bears some direct and indirect costs, such as: (a) transport cost; (b) insurance costs (c) operational counting/compliance costs, which summed up together will constitute in a higher financial cost for the business. In the domestic market it remains a challenge how to make possible that businesses, regardless of industry or products offered, accept a massive use of electronic cards.

In order to understand what is currently missing in the domestic market, a few questions are raised, as follows: 1. Are there enough investments to support such activity by banks in Albania?

2. Did the domestic market get the appropriate education on using these alternative payment channels, versus a healthy competition? Does the cards’ issuance means a subsequent massive usage of them?

3. Is there any appropriate legislation and what can help in this regard?

4. Is there any local or governmental initiative, to embrace or promote such investment in the country?

We all agree that the "economy of scale" is what justifies costs and expenses in this business area; the greater the number of transactions with cards the less banks

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pay to schemes’ proprietaries, and the more expected profit, from products and services offered on the other side, is produced.

If we analyze banking system and supporting companies in this activity in the domestic market, we can affirm with certainty that Albania is quite similar to other countries in the region, even in a broader sense, whether in terms of advanced technology/products, or in terms of security offered. There are some prestigious international and local companies in Albania, which offer quality services with efficient operating costs, e.g.: PayLink Company. This company is present in the local market to support financial institutions with services of: card personalization, processing of card transactions, creating a local scheme, through which several banking segments may be channeled, by offering a suitable product for the domestic market, with a lower cost, offering cleaning and settlement for interbank payments, innovative services, successfully implemented, such as: contactless cards, online payments, payment of utility services through ATM/ POS, gift cards, prepaid cards, virtual cards and many other products. Also, it offers the possibility of launching joint schemes for point of sales (POS), by enabling a significant cost reduction for such business line. If we take a simple example to understand, let say, the impact of the POS unification scheme, if a POS costs X Euro/month for a bank, this cost will be divided by x1 or more, if it is divided among banks. Typically, reducing costs for POS, or maintenance costs on one hand, would facilitate investments made form banks (faster ROI) and in turn would trigger incentive schemes for local customers.

There are numerous examples to be followed; however, some of them may be mentioned, as follows: - Unification of card accepting scheme at points of sale. This will reduce investment and operating costs, will lead to a healthy competition and closer cooperation between local banks in this business.

These include the implementation of a local interchange scheme, successfully

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applied worldwide.

- Government investment/financing: Mexico, through "FIMP" project, managed to increase the use of electronic payments in stores by 170%, during the 2003-2006 period, being at the same stage of development in this field where Albania stands currently. They used some incentive programs, such as: government investments in shop devices for cards (POS terminals) and organized awareness campaigns, in order to create a network for electronic transactions, which would help in collecting taxes, but at the same time it would facilitate customers and businesses. In the same way, Bulgarian banks and electronic payment providers, in recent years, have collaborated to improve their distribution and usage.

Other practices include tax relief or tax cuts for businesses that accept electronic payments.

- Legislation - Government projects: In the process of a wider use of electronic payments in Albania, public administration may play a key role.

Although the practice of direct deposit of payroll bank accounts was a major step, we can say that this step is not enough. It should be noted that banknotes’printing and processing are costly, and therefore one of the main goals of Bank of Albania’s activity and beyond, should be to reduce the use of cash.

- Broadening card acceptance in rural areas and small towns. It would help, either by formalizing the market, reduction of cash across the country, by significantly reducing costs, tax evasion and increasing domestic tourism, as one of government’s key priorities.

- Innovation. The innovation bears the same importance like that given to regulators. Here, contactless payments could be mentioned, which provide maximum convenience to merchants, who may accept payments with little value in a very short time, compared

to any other method of payment, by enabling additional points where cards are accepted and increasing the number of transactions. Meanwhile, mPOSs (mobile point of sales) are playing an important role in enhancing and facilitating the payments market.

- Channeling remittances into the banking system, through cards instrument. This will provide convenience for customer, and will significantly increase electronic payments via cards. Remittances sent on a card account may be used to perform the purchases, payments or receipt of services.

- Payment of local /government taxes through card instruments.

- Expanding online payment (e-commerce).

As per above, it can be said with certainty that current developments in the field of card payments has been a positive development, although there are still plenty of untapped opportunities.

These opportunities require advanced technology, innovative products and appropriate regulations, to provide the right impetus to the development of economy in the country.

Experts' Forum

Alternative investments, a road towards the development of real economy Alternative investments are the best option for banks to invest their excess liquidity, thereby avoiding large exposures. Alternative investments require specific knowledge in the field of finance, as well as and managerial skills, and in this regard, it is deemed as essential the presence of the banking system as an intermediary, consultant and strategic partner.

Fatmira KOLA PhD Candidate in Banking & Finance TOR VERGATA UNIVERSITY, ROMA, ITALY

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he financial crisis of 2008 triggered the collapse of financial and real estate markets and the bankruptcy of some of leading investment banks. The economies of many countries continue to suffer the effects on unemployment, economic recession and declining revenues for the financial system. Even though Albania was not directly exposed to the financial crisis, it was unable to remain unscathed form the consequences that continue to pinch, either in the amount of remittances, or in the performance of business cycle.

The construction sector and real estate market were the first to face the impact of the financial crisis in Albania, similar to the situation experienced in Spain. The decline of income and the deteriorating business solvency in this sector was followed by the surge of non-performing loans and the respective increase in banking provisions.

The relationship between business cycle and losses from bank loans is one of the hottest debates in recent economic literature, especially with regard to financial stability

analysis. The issue of non-performing loans is considered to be one of the biggest causes for the income reduction of banking system in Albania. Facing the increasing nonperforming loans after a "lending boom" to the economy is a feature of developing countries, as market saturation and maturity of many products puts the demand curve in a

Albania offers a high potential for investments in infrastructure, such as: highways, railways and airports, which is a form of direct economic support, and this will be of great importance for the economy, as it will facilitate public spending and increase competition among companies. Banking system’s participation in such investments would be an advantage for all stakeholders.

downward trend and businesses, to resist the market, need to create innovative products, otherwise they are forced to survive, under the conditions of an aggressive competition.

Financial market in Albania has still a great developing potential. The presence of capital market would have a positive impact on increasing the formalization of economy, and facilitate the absorption of capital for many businesses, along with investment opportunities for all investors. The young population in Albania is a strong point for developing alternative investments, either in terms of increased demand for investments, or in terms of adaptation and use of new technologies. Despite the transformation in the banking system and banks’ positive performance during recent years, a weak financial culture continues to dominate in Albania and many investors still do not see banks as partners, and this is so mainly due to the collapse of pyramid schemes.

A survey analysis, conducted to analyze the individuals’ approach towards the banking system, showed that a modest number of clients, out of a sample of 300 questionnaires filled out by individuals selected randomly, with 80% of them in the city of Tirana & Durrës and 20 % in Berat, used e-banking and that nearly half of them failed to make the difference between a credit and debit card, not to mention here the lack of information on other forms of

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investments, like: franchise, private equity funds, Venture Capital, mutual investment funds, hedge funds and infrastructure funds. Although many years have passed since the collapse of pyramid schemes, their consequences are still felt around, mostly to those individuals over the age of 50. To overcome such obstacles more needs to be invested in educating individuals about banking culture, as there is no time to think about the past and make allusions on the future for factors that do not depend on us, instead we have to react to the opportunities and potentials we have, to ensure a secured financial future.

In developing financial markets, an important role is played by the country's demographics. The demographic situation in Albania is favorable to the development of financial markets, as the average age of population is 34.7 years, thus offering a market with high potential for alternative investments. Individuals up to 35 show a high demand mortgage loans products and investments, to ensure their own livelihood.

During the age 35-50 the highest wealth density is reached and individuals seek to invest these funds with the aim to ensure a guaranteed income during their third age.

Here comes the moment when alternative forms of investments get priority, despite the fact that, in the mid-term, businesses will continue to widely use the banking system for funding and individuals will choose banks to invest their funds. Some banks operating in the market cannot offer a complete service package to their clients, like: e-banking, etc. Under current conditions, when banks possess high amounts of excess liquidity, a slower growth rate for gross domestic product will negatively affect their financial results, as the high amount of liquidity at banks is an opportunity cost, i.e. an absent profit. Gross domestic product is strongly correlated with financial results, as it means that the higher incomes for individuals and households and the more disposable funds they have for paying loan installments and investing their savings after consumption. In Albania the political influence on business climate remains a real concern, yet. This creates uncertainty for businesses to invest in long-term projects. Such business’ uncertainty is therefore transmitted to financial institutions, as it means uncertainty in maintaining the pace of business turnover for companies and a shift in the political climate will reduce income expectations, by increasing business liquidity problems to

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creditors, as well as would feed the increase of non-performing loans, which remains a concern not only in the region, but also in the European Union. The development of capital market and other alternative investment forms must be accompanied with an education process on financial literacy for businesses and individuals. Given the Albania’s potential, the European economy’s developments and the advantage the young population does represent, an added value are young people who have studied at best universities abroad, who can integrate their experiences.

Banks could and should be oriented towards consultancy on alternative investments for individuals. Also, the establishment of a stock exchange will have a positive impact on increasing markets’ efficiency, which in turn would increase the formalization of economy and the absorption level of financial investments.

The creation of a common market with Kosovo would produce a positive impact on maintaining the currency’s stability. Start-up and Venture Capital funding through direct participation in the stock capital is one of the most efficient forms of financing for businesses which seek capital for starting a

business, or to develop it. The same applies to real estate investments that are aimed at improving urban and underdeveloped areas.

Albania offers a high potential for investments in infrastructure, such as: highways, railways and airports, which is a form of direct economic support, and this will be of great importance for the economy, as it will facilitate public spending and increase competition among companies.

Banking system’s participation in such investments would be an advantage for all stakeholders. These investments require high amounts of capital and, in terms of efficient, they would call for a much more transparent and merit-based system, otherwise costs and negative effects on the economy will be significant. Alternative investments’ development will also promote the growth of remittances from Albanians working abroad. Alternative investments are the best option for banks to invest their excess liquidity, thereby avoiding large exposures. Alternative investments require specific knowledge in the field of finance, as well as and managerial skills, and in this regard, it is deemed as essential the presence of the banking system as an intermediary, consultant and strategic partner.

Economist Corner

Monetary policies challenges Where next beyond “quantitative easing” measures?

The world's leading central banks are opting to "go beyond the classic manuals of monetary policy", in the name of innovation, the current reality and challenges do require. In overall debates, just two important innovations are standing out of practical examples and proposals in this regard: Threetier reserve system and Targeted Longer – Term Refinancing Operations (TLTRO).

Prof. Dr. Adrian CIVICI President European University of Tirana, UET-EUT

M

onetary policies of central banks, especially those with significant impact on international financial markets, including FED, ECB, Bank of England, Bank of Japan, etc., continue to be at the center of debate and scientific and academic analysis on "limits and current limitations", "most efficient instrument for achieving objectives", "basic concepts or paradigms underpinning monetary policy", etc. Researchers in this field and central bankers seem to converge at a common consensus: following the global financial crisis erupted in 2008 central banks’ monetary policies have entered a new phase of conjectural and structural changes, which may produce new institutional and theoretical concepts in the coming years.

After the crisis the responses or reactions from central banks were almost unique: a permanent reduction of key

interest rates, keeping them at minimum– to–zero for a long time and strong policies of "quantitative easing". The crisis’ severity spurred central banks to relax their monetary policy at maximum, initially by approaching the zero level of key interest rates, then adopting macro-

Current programs of quantitative easing expose central banks against prospective losses of their net income, which has pushed many monetary policy experts to think that in the future ECB, Bank of England, Bank of Japan, etc., may not renew quantitative easing policies, by not being certain for their efficiency, as in case when they commenced implementing such policy, but instead focusing more extensively on non-conventional monetary policies, like TLTRO program. prudential and non-conventional policies, such as: massive purchase of financial

assets, in the frame of quantitative easing policy, improving communication with money and financial markets, for better orientation of economic agents’ expectations, by way of forward guidance policies, and finally, by implementing negative interest rate policies. The need for new solutions became the main inspiration for innovations in this regard.

Such ultra-easing monetary policies mitigated, to a great extent, the disastrous consequences the financial crisis could cause: avoiding any money market impasse and liquidity crunch, avoiding the diffusion of high risk and toxic financial products and derivatives, maintaining budget balances of European countries, reducing the credit risk, etc. The actual debate over monetary policy seems to be focused on the following dilemma: do their instruments have already come to age and completed an important stage, and therefore we will soon face a new vision of monetary policy?

Monetary policy experts believe that now non-conventional monetary policies of quantitative easing – for Euro area during March 2015 - September 2016 period ECB purchased approximately EUR 1,100 billion, i.e. EUR 60 billion / month of government assets and bonds; Bank of England, during 2009 – 2010,

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Më pranë Kombëtares me kartën Kuq e Zi

Union Bank, sponsor krenar i kombëtares Kuq e Zi, në bashkëpunim me FSHF mundëson kartën e re të kreditit MasterCard, të personalizuar me notat e kombëtares dhe shoqëruar me plot supriza të tjera:

• Antarësim automatik në klubin “Tifozët e Kombëtares” pa asnjë pagesë shtesë • Bileta të garantuara për ndeshjet zyrtare dhe miqësore të kombëtares për ndeshjet kualifikuese të Botërorit 2018 • Zbritje deri në 10% për blerjet në dyqanin e FSHF dhe pikat e tjera të autorizuara prej saj • 0% komision për të gjitha blerjet brenda apo jashtë vendit online tek www.unionbank.al/karta apo ne www.fshf.org 30Aplikoni Bankieri www.aab.al

0800 0800

bought in open market over GBP 200 billion of financial institutions’ assets, bonds or public debt; since 2008, FED has undertaken quantitative easing programs of over USD 1,000 billion – along with continuous key interest rate cuts, risk at becoming counter-productive, in relation to their basic objectives. Concerns are focused on two essential aspects: the effects of these policies on consumer spending and threats to financial stability and sustainability of the banking sector, they do pose for.

Regarding consumer spending, the underlying rationale of monetary easing policy’s hypothesis is that "cutting key interest rate, thus lowering the price of money, directly and indirectly stimulates consumption and investments", seems that it is not getting the expected confirmation.

Studies focused on this topic show that "in Europe and Japan, where high GDP per capita and relatively even distributions of income prevail, angst about the future – rising health care costs, and shrinking labor forces – mean that lower rates may actually reduce spending. For those who need a fixed amount at some time in the future, lower rates simply mean that more saving is needed today."

Moreover, by accepting as true the hypothesis that “public debt growth and inflation increase is one of the solutions to the problem of debt in the private sector", seems quite difficult that "increasing the stock of public debt will produce the expected effects, within a private sector already overburdened with debts and obligations”. Analysis of institutions specialized in "banking behavior" find the response precisely in this fact that "why the lending growth in Euro area and other developed has been anemic, although its cost was becoming cheaper", as a result of relaxing monetary policies.

Why minimum or almost zero key interest rates are not being able at contributing to create the expected inflation? By adding another fact that, "the reaction of financial markets to the policy of negative interest rates is not yielding the expected effects" then monetary policy experts have begun to crystallize the idea that "the traditional instruments need diversification, innovation and be put on discussion, for a better alignment of monetary policy’s objectives with legal and institutional mandates of central banks." What kind of changes and innovations can be expected

in the context of monetary policy?

In the specialized banking literature and high-level meetings of central banks’ heads and governors is being frequently invoked the experience and actions conducted by Japanese central bank, which in 2000 by reasoning that " low levels of key interest rates and periodic purchases of bonds did not contribute to the inflation growth", and by defending the position that ultimately " inflation is the responsibility of central banks and any conjectural or short-term failure in its orientation in accordance with the objective of central banks is not a reason enough to abandon the achievement of such objective", was engaged in a money supply growth until the inflation index reached the forecasted target level.

More than practical action of money supply growth, the issue lies in the fact that now it seems that some "paradigms or monetary policy limits levels could be expanded or reformatted toward new horizons." The world's leading central banks are opting to "go beyond the classic manuals of monetary policy", in the name of innovation, the current reality and challenges do require. In overall debates, just two important innovations are

Monetary policy experts believe that now nonconventional monetary policies of quantitative easing, along with continuous key interest rate cuts, risk at becoming counter-productive, in relation to their basic objectives. Concerns are focused on two essential aspects: the effects of these policies on consumer spending and threats to financial stability and sustainability of the banking sector, they do pose for.

standing out of practical examples and proposals in this regard: Three-tier reserve system and Targeted Longer – Term Refinancing Operations (TLTRO). Their essence lies in the vision and efforts to decouple monetary re-boot from market interest rates. “(Three) tiered reserve system”.

Tiered reserves just make it clear that the monetary base and government papers, while many often are seen as close substitutes, are in fact qualitatively different as per the opinion of banking experts. Government papers are issued upon a certain price in the market, which is the interest rate. The “interest rate” paid on reserves, is practically a theoretical interest rate – which should correctly be named a payment (or deduction) to the holders of reserves. According to E. Lonergan of M&G Investments, “Central banks can set market interest rates by setting an interest rate on a fraction of ‘excess’ reserves. If they want to, they can remunerate the balance at a premium, or discount, or otherwise mat depreciate government papers, in relation to their actual value. In future, it is conceivable that required reserves could be shrunk using negative ‘interest rates’ and excess reserves paid a premium”.

In actual discussions, be they of academic or theoretical nature, there is a prevailing opinion that, we are dealing with “simple budgetary policies, applied through banking sector”, but some financial experts assess that this case stands simply for new unimplemented monetary policies by central banks..... that, the increase of impact and effects of monetary policies on enterprises and consumers marks an obvious phase, in the near future”.

The central banks of Sweden, Switzerland, Denmark, Japan, etc., have already established a specific system of tiered reserves in FX, aiming at mitigating the effects of negative interest rates on private banks’ balance sheets, through the application of negative interest rates only on one level, or certain amount of monetary reserves of such banks. So, in case of Bank of Japan, an important part of FX reserves (Basic Balance) continues to be remunerated with a positive interest rate; another, more modest, part fixed by Bank of Japan (Macro Add-on balance) is remunerated with 0%; while negative interest rates apply only to new monetary

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reserves (Policy-Rate Balance), created by banks. This new system is intended to affect the transaction price, but it is not expected to impact bank profitability, whereas its fundamental objective seems to be the fact that negative interest rates should encourage banks to lend, by relying on new reserves created by quantitative easing policies, without sacrificing their profitability.

On the other hand, in terms of TLTRO system, the final objective of its implementation is "yielding practical results in the real economy by quantitative easing policies and not simply improvements of banks' balance sheets or the increase of assets’ prices through them". Why TLTRO system is being considered as an innovation in monetary policy and the role of central banks? This is so, because referring to Walter Bagehot’s dictum, " central banks only ever lent to

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the bank sector at ‘punitive’ rates, or at least at a premium to what they paid on reserves", while the latest ECB decision, the TLTRO would be extended to banks at the same rate as reserves were being remunerated, is considered within central banks’ premises as a new innovation of monetary policy.

In this sense, ECB has already made clear that there are three axes through which monetary policy can be implemented: duration, credit risk and price (or inflation). TLTRO program seems quite far more radical than quantitative easing policy, in a view that such program is much broader, in relation to the above three axes. So far, TLTRO has been extended for 5-year periods, but the latest trends hint that such instrument may turn into a principal tool of monetary policy, especially in terms of a decouple of TLTRO interest rates from interest rates

paid by ECB for monetary reserves.

Current programs of quantitative easing expose central banks against prospective losses of their net income, which has pushed many monetary policy experts to think that in the future ECB, Bank of England, Bank of Japan, etc., may not renew quantitative easing policies, by not being certain for their efficiency, as in case when they commenced implementing such policy, but instead focusing more extensively on non-conventional monetary policies, like TLTRO program.

Since 2014, ECB has launched two significant TLTRO programs, while over a short-term horizon it plans some other analogue operations. The more banks that participate in these programs lend to real economy, the more we can benefit from TLTRO financings with favorable interest rates, compared to those usually proposed

by ECB.

Social Capital

Together for Holidays sounds more beautiful On 15 December, the bank donated food packages to 250 families in Albania, in cooperation with the largest municipalities in the country.

In his address on "Social Multidisciplinary Center" in Tirana, Mr. Periklis Drougkas, CEO of Alpha Bank said that holidays are a special time that brings people closer to family and friends; it is a period where we should be grateful for what we have and to help those who have less. Together with Alpha Bank Albania staff , he distributed food packages for 50 families.

"Mr. & Mrs. Invest in Shopping" Bank supported "Mr. & Mrs. Invest in Shopping", an event aimed at promoting city's cultural heritage, as well as encouraging businesses to invest in this unique area, in terms of architecture and development potential.

"Run for Children" On 4 December, a fundraising event: "Run for Children 2016", was organized in Tirana and it was attneded by citizens, groups, institutions and businesses in Tirana. This initiative was supported by the bank's staf, too.

"Film Music in PIANODROM" Artistic December started in Tirana with a special evening at the University of Arts, two well-known artists of the Albanian scene, performed in a special concert. The artistic Project: "Film Music in PIANODROM" was supported by ABI Bank, by honoring the film music as one of the most precious values of the Albanian music.

Stand – up comedy: “Dude, live on your own” The Bank was the main sponsor of standup comedy: "Dude live on your own". The comedy traveled to several cities in Albania, following the show at "Kujtim Spahivogli" Experimental Theatre.

"Arab Night" at Metropolitan Theater This was one of the most successful shows supported by ABI Bank, where famous Albanian names performed, such as: Emma Ndoja, Naum Shundi, Dasara Xhagolli, etc.

"Protect caveman" with Romir Zalla This theatrical challenge, supported by ABI Bank, was performed not only in Tirana, but also in other cities like: Pogradec, Korca, Vlora, etc.

American Investment Bank close to sport The support for a healthy life that the sport ensures, is always in focus of the bank. Now the bank is the main sponsor of all teams of "Studenti" Sport Club, for the whole sport season.

The bank awarded for Corporate Social Responsibility ABI Bank was awarded the "Golden Bee 2016" for Social Responsibility, for its contribution at improving the community life. The award was extended to Mr. Andi Ballta CEO of ABI Bank by Mr. Arben Ahmetaj, Minister of Finance.

In the gala dinner, organized by Chamber of Commerce and Industry, on 17 December, ABI Bank received the "Bank closer to the community" award.

During October – december, BKT supportet the following institutions and activities: Malatya Education Foundation (Malatya Egitim Vakfi - MEV): Donation for 60 students to meet their financial needs during the school season.

Turkish Red Cresent: supported “Kizilay Annesi Projesi” in the project of helping orphans and children of poor families.

Tirana Bicycle Sharing System: in cooperation with Tirana Municipality began the implementation of Tirana Bicycle Sharing System project. The donation aims the improvement of infrastructure of bicycle roads.

Agriculture Local Directorate - Elbasan: BKT supported financially the Agriculture Local Directorate of Elbasan, for the organization of Year-End event, 2016. This event

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Social Capital

would be also an occasion to establish relations between BKT and local farmers who participated the event.

Public Health Instituion: BKT helped at publishing health summary legislation books in 500 copies and with some office equipments.

Regional Education Directorate (DAR) Vlore: BKT sponsored the event organized from Vlora Regional Educational Directorate, on occasion of the end of school year 2015-2016.

Education Office (ZA) Delvine: BKT donated some office equipments in order to facilitate and improve working conditions.

National Food Authority, Vlora: BKT sponsored the reconstruction of the park outside the institution.

AKSHI: Donated new office furniture, thus improving working conditions.

Albanian Embassy in Ankara: BKT supported financially the Albanian Embassy in Ankara for the organization of the Albanian National Independence Day, 28th of November.

FASTIP Graduation Ceremony: BKT is a key partner for FASTIP at UAMD, and has contributed massively during these 9 years in this unique program of Public - Private Partnership, between the Albanian and German Government, UAMD and Albania Business Partners. During the graduation ceremony, broadcasted in written and visual media, the Rector of UAMD, in occasion of the 10th Anniversary of UAMD, conferred the honorific title “Doctor Honorius Causa” to Mr. Pencabligil for his special personal contribu-

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tion in this project. BKT was also one of the main sponsors of the graduation ceremony.

University Hospital Obstetric Gynecologic “Koco Gliozheni”: BKT sponsored the décoration of New Year tree, erected at the hospital’s premises.

“Naum Veqilharxhi” and “Demokracia” School – Korçë: BKT supported the activity against violence.

Organization of “Albanian City” of Kruja: BKT supported financially the organization of the event in occasion of the Year-End event, 2016.

itage Centre in Korça, where national values were promoted.

Partner for local institutions This year-end, the bank chose to support Municipality of Pogradec for improving the look of the city with festive decor for holidays.

Also, the bank supported the Berat Hospital with room furnitures for patients, thus improving hospital conditions and providing a better quality service.

"Credins Bank DONATES"!

This initiative, undertaken by bank employees from 57 branches, aimed at donating clothes and toys for different age groups for children in need. Clothes and toys were donated at the "National Emergency Centre". Staff joined the call of Club FM radio through "Morning Club" program, to support the marathon aid to underprivileged children in Albania. Following this initiative, some 75 backpacks were donated to the children of "Sabaudin Gabrani" 9-year school in Tirana.

In this context, the bank also contributed to SOS Village and "Down Syndrome Albania", by buying postcards designed and made by those children, themselves.

Supported British Chamber of Commerce and Industry of Albania, in preparing and organizing the conference for promoting tourism and agribusiness development. Such support aimed at creating a platform to encourage producers to seek advice on how to develop their own business and how to add value to their product, in search of new markets, while providing financial solutions and insurance packages for businesses, too.

Supporting academia, by hosting at its premises CEST Conference 2016, with the theme: "Globalization, economic developments, repeating history cycles, technology and innovation", through an in-depth analysis on how they affect countries or people’s lives.

Culture remains at the focus of social responsibility policies The bank played a key role in organizing the promotion event for the book: "Albanian - German Crossroads" by Prof. Dr. Paskal Milo, and the book with poems by Dritëro Agolli, on the ocassion of his 85th birth anniversary. Also, on the occasion of 28-29 November, the bank supported the exhibition: "100 Years of the Flag" at the Albanian Her-

#ShperndaniDashuri This autumn Fibank came with a Social Media Campaign in order to fulfill its engagement in CSR. The campaign was conceptualized as a SOS Children Village photo by sharing or commenting @ #shperndaniDashuri through all Fibank Social Media Channels. All raised funds where donated to SOS Children Village.

Season Greeting Cards from Down Syndrome Foundation Albania & SOS Children Village In the framework of year-end activities, an-

Social Capital

other activity was the support towards Down Syndrome Foundation Albania & SOS Children Village. For the fourth consecutive year we congratulated colleagues and associates for the holiday season with a special postcard handmade by the children of Down Syndrome Foundation Albania & SOS Children Village.

Volunteer mentoring at country’s high schools for 2016-2017 academic year The bank, following cooperation with "Junior Achievement Albania", was committed again this year to be part of such program. This year Junior Achievement program is expected to extend to more than 170 schools and in parallel at all elementary schools (K-9 system).

Charity event: Run for Children 2016!

During the first days of December, ISBA Bank’s colleagues participated in "Run for Children 2016" marathon, organized by Vodafone Foundation and MRDC (Medical Response Diplomatic Corps). Funds raised from this event will go for medical treatment of children with serious diseases and cancer.

Bank’s staf gave its support by making a voluntary contribution in buying didactic articles for 45 children in need at “Ahmet Gashi” 9-year school in Laprakë, Tiranë.

Donate blood, save a life!

ISBA Bank organized during 17 – 18 November, for seventh consecutive year, the second blood donation initiative for this year. The blood collected at National Transfusion Centre, goes mosttly (70 – 80%) to cover needs from children with thalassemia.

25 November - International Day for the Elimination of Violence against Women In the frame of the International Day for the Elimination of Violence against Women and to support the objectives of Sustainable Development, the bank organized an awareness campaign to all colleagues, by delivering an interesting postcard as some materials containing statistical data and facts that make clear the need for elimination of violence against women. Postcard was punt as an email footer, and appeared also in all bank’s ATM screens, across the country.

Meeting with food industry businesses ProCredit Bank initiated "Business to Business" meeting with food industry businesses from all the country. The focus of this event was to promote and develop business relationships between customers of ProCredit bank in the country.

Inauguration of Regional Training Centre in Prevallë, Prizren Bank inaugurated regional training center, built in Prevallë, Prizren, which will provide trainings for bank’s staff.

Supporting the Workshop: "Challenges of Regional Development" This workshop, organized by Economic Faculty of "Luigi Gurakuqi" University in Shkodra, was focused on promoting ideas and increasing students’ analytical and presentation skills by preparing interesting topics.

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Social Capital

Supporting Tirana Municipality for the project of construction of 5 playgrounds Mr. Erjon Veliaj, Mayor of Tirana and Mr. Christian Canacaris, CEO of Raiffeisen Bank, inspected the commencement of construction work for the second playground of this project. In his speech, Mr.Canacaris said that: "This is the second playground, out of 5 for this year, and I am happy to inform you that the cooperation betwwen Raiffeisen Bank and Triana Municipality will continue for the next year with 5 other playgrounds".

Donating 200 book titles for the Public Library in Fier The bank continues support for "City of Readers" project. This time it supported the initiative of Fier Municipality in implementing "City of Readers" project, in cooperation with "Dudaj" publishing house.

Charity does not impoverish During the Year-end festivities, all employees of Raiffeisen Bank became part of "A different weekend" Foundation's campaign.

Thanks to their contribution over 2 tons of food were collected, which were distributed to 15 families in extreme poverty, where each of them was provided food for 3 months.

Supporting the 1st Parental Conference on Intellectual Disability in Albania, organized by the Foundation "Down Syndrome Albania" (DSA) This conference aimed at gathering parents of children with disabilities, professionals of the field and representatives form local government institutions to discuss about services to individuals with intellectual disabilities, their autonomy, rights and challenges to toward inclusive education and access to employment for them.

Raiffeisen Bank as one of the first businesses officially committed to empower women through the integration of Global Women's Empowerment Principles in its job practices At the ceremony organized by Tirana Municipality, and supported by UN Women and Swedish government, Ms. Valbona Zeneli, Director of Human Resources of Raiffeisen Bank, signed with Mr. Erion Veliaj, Mayor of Tirana, a declaration to formalize the support of Raiffeisen Bank for the advancement of equality between women and men.

CSR at Societe Generale Albania Bank Every year Societe Generale Albania Bank takes part is CSR activities, with support and donation to people in need. This year, some 14 volunteer teams were built up at the bank, and some 153 persons joined the challenge for 3 months. All the activities are communicated on Facebook and Instagram.

The activities selected and performed, were: 1. Donation and entertainment to orphans 0 – 6 years old (in Shkodra city) 2. Donation and entertainment to children recovered for Leukemia 3. Botanic garden for kindergarden children 4. Retreatment and special day with elders at eldery houses (in Berat city) 5. Recreational room for children with autism and Down syndrome 6. Setting up road signals for tourists (hiking) 7. Donation and entertainment to orphans 6 – 14 years old (in Shkodra city) 8. Donation and provision for abandoned infants at maternity (angels’ nest) 9. Donation and entertainment to orphans 6 – 18 years old (in Tirana city) 10. Whitewashing tree trunks (protect forests) 11. Donation in three extreme poverty families (#FundjavëNdryshe) 12. Blood donation 13. A day with people at eldery house 14. School Library (in Gjirokastra city)

Blood donation On 14 October, for the eighth consecutive year, the bank, in cooperation with the Albanian Red Cross carried out the human activity of blood donation.

Wine Festival, Pogradec For two days, on 16 and 18 December, domestic wine manufacturers introduced their products in front of a wide audience.

Gifts for orphans Gifts for the year-end goes to orphans in the community, in cooperation with the Albanian Red Cross. On 22 December, some 100 orphans who live in the community, received gifts provided by Tirana Bank, after a concert organized by themselves.

Adopt a kindergarden Tirana Bank has joined the Tirana Municipality’s initiative: "Adopt a kindergarten".

In this context, the bank contributed with new furnitures for kindergarten at "Commune of Paris".

"Cook a dish more" The bank sponsored the event of 25 December: "Cook a dish more". The guests of honor at the table were the homeless, poor and lonely people.

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Gifts for children for New Year 2017 On the New Year Eve, Union Bank employees collected gifts for children living at "Bridge - Street" suburb in Tirana, where a sizeable community of families in need lives. Children were surprised by specially packaged gifts, extended to them for them.

ASD ANNOUNCEMENT

DIA wins award “Deposit Insurance System Improvements”

Helping families in need The staff of Union Bank contributed with clothes and food to help some of the poorest families living in suburbs of Elbasan.

Promoting relationship with businesses Union Bank, the official sponsor of "Red and Black National Team" continues to promote business relations on the ocassion of Albania-Macedonia football match.

Businessmen from Tirana, Elbasan, Kruja, Lezha and Shkodra recommended and accompanied by UB branch managers in respective cities, got free tickets for the first match of 2018 World Cup qualifiers.

Union Bank employees donated blood for children with thalassemia Blood donation was organized in collaboration with the Albanian Red Cross under the slogan: "20 minutes for being a hero".

Veneto Bank attented the introductory event of "Albalaureati" association, organized by IIDs Foundation and Italian Embassy in Albania, by supporting the Albanian youth who graduated from Italian universities.

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I

n the annual general meeting of the International Association of Deposit Insurers (IADI), which was hosted in Seoul, South Korea, on 23-28 October 2016, the Albanian Deposit Insurance Agency (ADIA) won the award: “Deposit Insurance System Improvements”. The Albanian DIA was represented in this event by Mr. Genci Mamani, General Director, to whom this prestigious award was conceded by Mr. Thomas M. Hoenig, President of IADI. ADIA had previously applied for this award, which evaluates the steps undertaken by deposit insurance schemes for a 3-year period (respectively October 2013 – October 2016) in adopting and applying best standards and practices of deposit insurance.

This evaluation comprised of, inter alia, the steps undertaken for implementing and IT system for monitoring subjects member of the deposit insurance scheme and automatic data reporting, calculation of insurance premiums, as well as for depositors’ payout, in case of an insurance event. In addition, ADIA was rated for a series of important legal reforms, which enabled the modernization of the scheme.

Another important step from a financial perspective was the Agency’s right to independently approve the investment policy for its own financial means. This creates a greater flexibility in investments, as it allows taking into consideration

various regulatory and economic factors, changes in the securities’ market, as well as allowing for a greater diversification of Agency’s investment portfolio. In addition, in 2014 the Agency signed a loan agreement with the European Bank for Reconstruction and Development, which makes available a credit line of EUR 100 million to the Agency, in any insurance event. This credit line, which is a supplementary security measure for depositors, allows the Agency to use additional liquid funds in an insurance event, in line with best practices for an effective deposit insurance system.

Lastly, ADIA was positively rated for its public awareness campaigns and steps undertaken in this regard.

AAB ACTIVITIES Information Security Forum AAB and Information Security Committee held on 13October 2016, the Information Security Forum. Participants at the event included Albanian and international banks’ experts, representatives from National Agency for Information Society (NAIS), Bank of Albania, Kosovo Banking Association, consulting companies, etc. This Forum was in line with the awareness raising campaign by EU country that promotes cyber security among citizens and advocates for change in the perception of cyber-threats, by promoting data and information security, education, sharing of good practices and competitions.

On the adoption of the legislative package During its meeting on 25 October 2016, the Parliamentary Laws Commission adopted the legislative package, which included five draft laws: “On bankruptcy”, “On some changes and amendments to the Civil Procedure Code of the Republic of Albania”, “On some amendments to the Civil Code of the Republic of Albania”, “On some additions and amendments to the law on private bailiff service”, and “On the Organization and Functioning of the Bailiff Service”.

AAB and AMB signs the Memorandum on Partnership and Cooperation On 30 November 2016, the representatives of the Albanian Association of Banks (AAB) and Association of Montenegrin Banks (AMB) met to sign a Memorandum on Partnership and Cooperation. Mr. Spiro Brumbulli, AAB Secretary General and Mr. Mirko Radonjić, AMB Secretary General, met at AAB’s premises for such important moment. This Memorandum defines the frame for future cooperation between the two associations of respective countries and will allow both organizations to contribute at creating a positive image of the banking system and increasing public confidence. The exchange of professional experience and analysis of the banking legislation and proposals on its improvement in accordance with international standards are some of the main objectives of the Memorandum.

The law “On Chambers of Commerce and Industry” AAB Secretary General was part of a group of 18 business associations’ representatives that have reserves on the new law “On Chambers of Commerce and Industry”. On 22 November, such representatives attended the meeting with Mr. Shpëtim Idrizi, PDIU Chairman and PDIU Parliamentary Group Chairman, where they requested support from PDIU Parliamentary Group, specifically not to endorse the law, which is returned by the President of the Republic of Albania, which make compulsory the business membership to any chamber of commerce. This meeting was organized in the framework of other meetings held with Parliament representatives and letters sent to all state institutions and foreign embassies.

In this context, on 23 November, business associations’ representatives expressed their concerns related to the amendment of the law for Chambers of Commerce and Industry, during a meeting with Mr. Petrit Vasili, Chairman of LSI Parliamentary Group. On 30 November a meeting was held between business associations and chambers of commerce. This meeting was broadcasted live by TV Scan. On 2d December, representatives met Mr. Edmond Spaho, PD Parliamentary Group Chairman. Media reported extensively all these meetings. www.aab.al

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AAB ACTIVITIES

AAB Assembly and Year - End Dinner The last meeting of the AAB Assembly of Members for year 2016 was held on 14 December, where participants discussed and approved the AAB Financial Plan 2016. The agenda included the election of 3 (three) members of AAB Executive Committee and the new AAB Chairman and Vice Chairman. These elections were due to the expiration of membership mandates of three out of six members of AAB Executive Committee. The elected members are: Mr. Silvio PEDRAZZI, CEO, Intesa Sanpaolo Bank Albania; Mr. Dritan MUSTAFA, CEO, Tirana Bank; Mr. Andi BALLTA, CEO, American Bank of Investments.

The Assembly also voted for the election of Mr. Periklis DROUGKAS, CEO of Alpha Bank Albania, as Chairman of the Albanian Association of Banks and Mr. Silvio PEDRAZZI, CEO of Intesa Sanpaolo Bank Albania as vice Chairman.

On the same day, AAB organized the Year - End Dinner, which was attended by member banks’ directors and representatives, special guests by BoA, such as: Governor, Vice Governor, Director of Supervisory Departments and Chief of Cabinet, Director of Deposit Insurance Agency, and members of the BANKIERI Editorial Board.

Internal audit in banks, open lecture with master students in UET On 1st December, at UET was organized an open lecture with students and professors in Faculty of Economics. Mrs. Dorida Stambolla, Chairwoman of AAB Internal Audit Committee and Head of Internal Audit, Raiffeisen Bank Albania was invited in this activity to talk about the audit in banks, its role and the development of internal audit standards, as part of the AAB strategy for financial education.

High-level Forum on Corporate Integrity On 12 December, ICC Albania with the support of the Embassy of the Kingdom of Netherlands, and in collaboration with AAB, FIAA and other partners, hosted a high level forum on Albanian private sector engagement on corporate integrity. Business representatives decided to initiate the Business Coalition in Fighting Corruption and to work together on an annual agenda, preparing private sector anti-corruption measures and shaping their anti-corruption policy environment.

www.aab.al

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AAB TRAININGS Training - trip with economic journalists AAB organized on 21-22 October, 2016, in Montenegro, a workshop for 23 journalists from print, online and audiovisual media. The training program was headed by banks’ expert from Fibank, NBG Bank Albania, Societe Generale Albania and Tirana Bank. Participants learned about some aspects of financial reporting, banking system and media relation, credit risk and non - performing loans, online banking, digitalization, security and cash transportation. Also, part of the agenda was a visit at the Association of Montenegrin Banks in Podgorica and a trip to Kotor and Budva.

SME: from business plan to bank financing”, 11-13 October 2016 The seminar aimed at improving technical and commercial expertise of participants in their relations with SMEs applying for a loan to finance the development of their activities, better understanding what is a “bankable” credit demand on the basis of a business, and improving the understanding of key words in SME financing: “Information” – “Treatment of information” – “Use of information”.

The training was attended by 27 participants from 9 member banks.

“Applied Risk Management in Banking”, 31 – 04 October 2016 The basic objective of the course was to provide participants with a good understanding of risk management for banks. The methodology was based on theoretical lectures, numerous practical exercises, interactivity and exchange of views, case studies. The course was lead

by Stefano Bragoli, Member of the House of Training Quality Circle ALRiM in Risk Management and attended by 20 representatives from 11 banks in Albania and Kosovo.

Win-Win Negotiations, 26 - 27 October 2016 The program focused on teaching participants widely agreedupon fundamental concepts of negotiations, as well as tactics for conducting tough negotiations. It provided them with substantial practice in preparing for and conducting their own actual upcoming negotiations. Participants participated in two negotiation simulations and had opportunities to practice using communication skills in negotiations. The program was lead by the expert & trainer David Turner.

Investing with UBS, 7 November 2016 This one-day seminar provided participants with a practical appreciation of concepts and techniques that shape the UBS Chief Investment Office (CIO). The seminar equipped them with practical tools to improve asset allocation and risk management processes, implement novel investment management approaches, and develop new products and solutions.

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AAB TRAININGS Developing High Performance Teams through Collaboration - 12 December AAB organized the workshop entitled "Developing High Performance Teams Through Collaboration: What can leaders do to enable and empower their staff to become more efficient and effective?", with the trainer Mark Engelhardt. The workshop was attended by 11 participants from HR departments of member banks.

Prevention of Money Laundering & Counter-Terrorist Financing (AML & CTF) Foundation level - December 5-9 This training was organized with the financial support of House of Trainings, Luxembourg and for the first time a certification exam for 16 participants that attended the training was organized in Tirana. All participants passed the exam, successfully. www.aab.al

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