Nr. 1 Tetor 2011
No. 5 October 2012 Publication of Albanian Association of Banks
EURO T-BILLS IN ALBANIA The evolving evolution www.aab.al • BANKIERI • 1
AAB offers member banks a cost-effective solution to train employees LEA
LEA SHIP DER SHIP LE
DERADERSSHIPHIP DER SHIP LE ADE SH IP RSH LEA LEAD DER ERSIPHLEADER SHIP IP SHI LEA
AD VA N BA CE D N
-2 Sk 6 S e y Ho pte te m l, be Ti r ra 2 na 01 2
IN FIN IN G LEA AN DER LEA CE SHIP DER LEA DER SHIP LEA LEA SHIP DER D SHIPLE ERS ADE RSH HIP LEA LEADERSH IP L IP D
-1 Sk 1 S e y Ho pte te m l, be Ti r ra 2 na 01 2
G DE NKI CO TE NG CT UR F IO RA SE N UD & PR AU 5 EV DIT -7 EN IN G TI Sk Se ON , y pte Ho m te be l, Ti r 2 ra 0 na 12
RI OP on SK E M RAT AN IO AG NA EM L EN T
IN N AI TR
-2 Sk 5 S e y Ho pte te m l, be Ti r ra 2 na 01 2
CO UR SE N ON KI LE NG GA & L AS FIN PE AN CT CI S AL
-1 Sk 8 S e y Ho pte te m l, be Ti r ra 2 na 01 2
G IN N
N AW KS AR SEC EN UR ES IT S Y
SH ER LEA LEADE HIP LIPE SHIP DER RSH ADER SHIP IP SHIP ERS L HIPEAD LEAD ERS ERSHIP
Sk 12 y Ho Oct te obe l, Ti r 2 ra 0 na 12
No. 5 October 2012
Editor’s desk Euro T-Bills in Albania - the evolving evolution by Elvin Meka
BANKIERI is the newest official publication of the Albanian Association of Banks which will mainly focus the Albanian banking industry. Bankieri will provide readers with valuable information on the financial industry's developments in general, and of commercial banks in particular.
No. 5, October 2012
FRONTLINE Albanian Treasury Bills in Euro – a newcomer or a companion?
Nr. 1 Tetor 2011
EURO T-BILLS IN ALBANIA The evolving evolution
Publication of Albanian Association of Banks
Publication of Albanian Association of Banks
Editorial Team: Elvin Meka Editor-in-Chief
Banking system Did we lend? Very much so! by Seyhan Pencabligil
Banks found guilty for being profitable?! by Ersuin Shehu
Income tax amendments and their impact on banking activity and efficiency by Aleko Polo
Ersuin Shehu Correspondent Junida Katroshi (Tafaj) Coordinator Sonila Krashi Design & Layout Besa Vila Editor Gert Hoxha Photographer Printing by:
Experts’ forum Bank robberies and psychosocial risk by Roland TASHI
Traditional insurance and its impact on financial system by Enkeleda SHEHI
Seyhan PencaBligil AAB Chairman & Chief Executive Officer, Banka Kombëtare Tregtare
Master studies, in front of career development and labour market by Luljeta Minxhozi
Ioannis Kougionas AAB Vice Chairman & General Manager, National Bank of Greece
Staff quality and banking exsperience by Anila DENAJ
Christian Canacaris AAB Executive Committee Member & Chief Executive Officer, Raiffeisen Bank - Albania
Economist corner “Liborgate” – the twilight of a dangerous banking manipulation by Adrian CIVICI
Balkan Net Interbalkan news
Tech Topics M-pay, ready to launch mobile payments in Albania by Ludovic Laveture
Financial auditorium Alco - Asset & Liability Committee, the most important banking committee by Erjon Taçe
Bozhidar TODOROV AAB Executive Committee Member & Chief Executive Officer, First Investment Bank - Albania Periklis DrougKas AAB Executive Committee Member & General Manager Alpha Bank Albania Endrita XHAFERAJ Secretary General, Albanian Association of Banks Hysen ÇELA Managing Partner, NH EuroConsult Adrian CIVICI President & Head of Doctoral School European University of Tirana Spiro BRUMBULLI Rector - Tirana Business University Enkeleda Shehi Chairman of Albanian Financial Supervision Authority
AAB Albanian Associations of Banks building capacities
Flutura Veipi AAB Executive Committee Member & Spokesperson of the Management Board, Procredit Bank
Albanian Association of banks Bulevardi: “Dëshmorët e Kombit”, Twin Towers Tower I, Floor 6, A3, Tirana Tel: +355 4 2280 371; Fax: +355 4 2280 359 E-mail: email@example.com; www.aab.al
www.aab.al • BANKIERI • 3
EURO T-BILLS IN ALBANIA The evolving evolution So far, the government has successfully concluded the first part of the evolution process: funding its needs in Euro; but markets and its participants will be expecting and asking more from it… they would ask for more liquidity and tradability associated to the product, as well as finding active counterparts, along with banks, in a modest or even non-existing secondary market. by Dr. Elvin MEKA1 Editor-in-Chief
he Albanian Government has been the star of the show again! It smelt the right moment and situation and acted with the perfect device. In the midst of the never-ending hot summer it issued a hot financial product: Treasury Bills in euro for the general public. Frankly speaking, it was not a complete brand-new product, as it was originally issued by mid-2010 and again by the end of last year, but with no publicity and marketing. The brand-new component was the energizing publicity and the publicly targeted investor base: the general public. Surely, this investor base exceled in the purchase, as the auctions went more than perfectly, they were oversubscribed. This move marks another step forward for the Government to diversify its debt portfolio beyond Lek obligations. T-Bills in Euro, however, are not a newcomer, in terms of obligation’s nature rather, they are a companion to Albanian Eurobonds and all T-Bills in Lek. It seems quite natural for the market and its participants, including banks, which now see a “competitor” in financial products, denominated in foreign currency. Nevertheless, bank deposits in foreign currency (Euro) are a quite established and natural product, whereas T-Bills in Euro still seem special and quite a dwarf to them. They are not expected to be in sizable issues,
as usually central governments issue mid and long-term sovereign obligations, through international markets, to raise substantial amounts of funds in foreign currency. Despite modest outstanding amount, TBills in Euro are in the market and stand out as an additional investment alternative for the investing public, thus making the market more colourful. So far, the government has successfully concluded the first part of the evolution process: funding its needs in Euro; but markets and its participants will be expecting and asking more from it. Typically, they would ask for more liquidity and tradability associated to the product, given the limits banks must honour, when investing in these instruments, as well as finding active counterparts, in a modest or even non-existing secondary market. Additionally, as bankers put it (see the FRONTLINE section), disclosure, financial education and transparency mean quite a lot to investors, in order to make informed decisions and also being informed about potential risks, accompanying such securities. Financial deepening, market development and information disclosure will be next key components , fuelling government engine and not losing steam of the evolving evolution within Albanian financial system.
Head of Department of Finance, EUT-UET
www.aab.al • BANKIERI • 5
ALBANIAN TREASURY BILLS IN EURO A newcomer or a companion? Interview by BANKIERI Editor-in-Chief with some bankers Q1: This summer the Albanian Government auctioned T-Bills in euro for the general investing public in the domestic debt market. Usually, debt obligations in foreign currency (FCY) are funded through Eurobonds or sovereign bonds. Is this a new way to raise funds in FCY through local market, or it’s a normal funding mechanism used by central governments?
Hubert de Saint Jean, I think this is an ordinary way when central governments are requiring FCY flows, in order to fulfill obligations such as, partial or total repayment of the foreign debt, payments in favor of foreign investors who may have invoiced in FCY, actions related to the monetary policy, etc. Christian Canacaris, This type of instrument is a normal one. Many countries are using it for mainly 2 reasons: to diversify their customers and as well to reach the individual customer. Periklis Drougkas, This is not a new way to raise funds. This is part of the government’s strategy to manage the public debt through the diversification of debt portfolio, currencies, and debt holders etc. Government domestic public debt is a stimulant for increasing funding for the benefit of the community, and at the same time, to increase its sovereignty by reducing the level of debt from investors or foreign financial institutions, which also affects the interest expenses of
6 • BANKIERI • www.aab.al
external debt. Securities market in euro currency is becoming a reality for individuals which up to now where depending only in commercial banks for their savings. Eranda Shehu, Through a very prudent policy of debt acquisition, central governments might raise funds in foreign currency also in their domestic markets. This policy is affected by a combination of important factors such as: the local financial markets’ characteristics and presence of foreign investors, through the participation in the international financial markets auctions. However, under the conditions of a multi-dimensional crisis that has captured international markets a second Eurobond issuance from our government through them, could result in very high costs. Let’s be realistic, the debt crisis that has captured many of the euro zone’s countries, among other factors came as a result of the fact that these governments initially “drained” completely their countries liquidities, and then turning later to other international markets to ensure other necessary liquidities.
…considering the level of informality and lack of information in Albania, public disclosure and transparency will also help to build a “getting informed” culture in Albania, which will be very useful in the future for all the investors. Hubert de Saint Jean, CEO, Société Générale
Q2: Technically speaking, the nature of debt obligation is the same, whether in lek or in euro (a government debt), but they differ in other characteristics, like risk profiles. What could be the potential risks usually associated with such debt obligations? Hubert de Saint Jean,
The major risk in this case is the FX risk. Eurobonds are usually longterm securities therefore a strengthening of the FCY performance in the long-run may harm the central government when paying back the funds. On the other side, a deterioration of it, can negatively impact the investors and considering that these are state bonds, this may create not a very pleasant climate.
An important element, especially in terms of potential risks associated with investing in Albanian government debt securities in foreign currency, is the currency risk or exchange rate difference, which may affect negatively the Albanian government solvency. Another aspect is the liquidity risk, linked with the trading of these securities in the secondary market. If an investor wants to trade (sell) the Treasury bill in FCY, s/he must deal with the fact that many banks, specialized as financial intermediaries, may or may not buy such security, due to internal limits, or by limits given from the regulators.
Christian Canacaris, The main difference is the currency. The customer or buyer of such debt may face a currency risk in case of depreciation of the euro. Concerning other risks, there is no difference.
The customer or buyer of Treasury bills in Euro may face a currency risk in case of depreciation of the euro. Concerning other risks, there is no difference.
Periklis Drougkas, The only additional element (assuming all the other components are the same) is the foreign currency risk, for both the government and the bondholders in foreign currency.
Q3: In your opinion, could this step signal and contribute to any financial deepening or development of the Albanian financial market?
Christian Canacaris, CEO, Raiffeisen Bank
Hubert de Saint Jean,
Yes, T-Bills are currently the only investment in securities in the Albanian market and so far it has been always applied in LCY. The new Eurobond is definitely something which will have a double positive impact: first, the people will have the chance to invest in the so called “risk free” securities even in FCY and second this will be a good opportunity to make the people used to investments in FCY (besides Deposits) and pushing thus them to be oriented toward different overseas investments in other securities, in the future.
This is a very good development for the financial market in Albania. It is necessary to offer to customers different types of instruments. The main reason is to diversify their risk. Albanian market should develop and follow the same trends as other markets in term of financial instruments. Of course, it is necessary to educate our customers as well.
Issuing Albanian government securities in foreign currency can induce qualitative changes in the further development of the financial market, in terms of: (1) an increase of the intermediation activities in government securities, by further enhancing the resident investors’ base, and allowing diversification of customers’ investments in FCY, as well as trading counterparts, (2) offering opportunities for management companies of pension’s funds and collective investment undertakings to offer their services in foreign currency as well, and (3) increasing the presence of foreign investors in Albania, too.
Periklis Drougkas, This may be an indication that the Albanian financial market is becoming more dynamic and diverse in all dimensions.
www.aab.al • BANKIERI • 7
8 • BANKIERI • www.aab.al
Q4: Are banks finding Albanian T-Bills in euro an attractive investment opportunity? Hubert de Saint Jean,
Yes, T-Bills in EUR can be considered quite an interesting opportunity, especially for those Banks who wants to offer a wide platform of domestic investments for their customers.
Investing a part of the excess liquidity in FCY-denominated Treasury Bills issued by the Albanian Government represents an opportunity for the banks, not only in terms of investment return, but also in investment terms. However, this is a limited opportunity, hence, I stress “a part of the excess liquidity in foreign currency”, because such investments are particularly affected by foreign currency risk, are mainly conditioned by two main following factors: (1) Bank of Albania’s regulatory framework, which limits a bank’s participation in such instruments, and (2) mother banks may build tough conservative policies toward such investments.
Christian Canacaris, Such instrument is interesting for a bank to diversify their currency risk and to invest their foreign currency as well. Periklis Drougkas, Treasury bills in euro currency are a profitable investment alternative for banks but since this instrument is not considered a liquid asset in the calculation of the liquidity indicators, banks are very cautious to invest in government securities in euro currency.
Q5: Public disclosure and transparency are key features for a sound and vibrant financial market. As these bills are directly offered to the general investing public, do you deem as necessary that a public information disclosure process& campaign must associate such steps?
If an investor wants to trade (sell) the Treasury bill in FCY, s/he must deal with the fact that many banks, specialized as financial intermediaries, may or may not buy such security, due to internal limits, or by limits given from the regulators. Eranda Shehu, Head of Treasury Department & ALCO Member, Tirana Bank
Government domestic public debt is a stimulant for increasing funding for the benefit of the community, and at the same time, to increase its sovereignty by reducing the level of debt from investors or foreign financial institutions, which also affects the interest expenses of external debt. Periklis Drougkas, CEO, Alpha Bank
Hubert de Saint Jean,
Yes, considering the bad experiences that Albanian people had in the past (Pyramidal Schemes) a clear and full explanation and information needs to be given to the mass, in order to make FCY securities attractive and safe at the same time for the investors. On the other side, considering the level of informality and lack of information in Albania, this will also help to build a ‘getting informed” culture in Albania, which will be very useful in the future for all the investors.
The increased interest of the citizens to invest in treasury bills in euro currency has increased from 1.8 million euro which was the individual amount participation in the auction organized on December 2011 to 9.85 million in the last auction in August. It is a clear indication of the impact of a massive publicity campaign organized by the Ministry of Finance and citizen’s awareness about the possibility to invest in government securities.
As I mentioned before, to sell such financial products a certain level of financial education is needed and such education process should start. It is necessary to explain the risk of such instruments to the customers. It is for all new types of financial instruments, not necessary for the treasury bills in foreign currency. The banks are part of this process and at the end the customers will decide.
Yes, absolutely! One of the main strategies in the public debt management is to increase the investor base, therefore, it is very important to have transparency, in terms of providing detailed information on the Government securities characteristics, their main risks and also their tax treatment, which in turn allows for a deeper understanding of these financial instruments.
www.aab.al • BANKIERI • 9
Banking INTERVISTA system
Did we lend? Very much so!1 The economic crisis will not end unless asset prices make a correction, and asset prices will not correct unless we have efficient collateral enforcement
by Seyhan PENCABLIGIL, CEO Banka Kombëtare Tregtare
e are very happy to see that our supervisory institution, Bank of Albania, is collaborating with one of the oldest and most established central banks in the world: Banca d’Italia. We are sure that such cooperation will be mutually beneficial and in any case will pave the way for the best practices to be adopted. I must also add, as an half outsider, most interaction of Albania with Italy in the past has been good for this country. Profiting from the occasion and from the presence of the media, I want to underline some key facts about the Albanian banking system. There have been recently two grand narratives in some circles: (1) banks are not lending; and (2) banks are making too much money, at the expense of their clients. Let me take up these one by one. The Albanian banking system grew by 12.9 per cent in total assets over the past 12 months.
This is a remarkable growth, given the stagnation in other sectors and countries. We also created 200 new banking jobs, while everywhere else people are made redundant. Did we lend? Very much so! The total loan book increased by 13.3 percent in the meantime. Are we making terrible amounts of money? No! The total profit of the banking system – that is the aggregate profit of all the 16 banks in the system, was only EUR 5 million in 2011! To put this in perspective, consider the capital the banks’ shareholders have put in the Albanian banking system: EUR 750 million. If our shareholders had purchased, say, Albanian Eurobonds with this much money, they would have made roughly EUR 75 million in the last year. If they played safe and had purchased, say, German bonds, they would’ve made some EUR15 million. But, by investing their money in the Albanian banks, they only made EUR 5 million; plus they are being accused of making too much! Why did we make so little in the past year? That’s because more than 20 percent of our borrowers have failed to repay the loans they took from us. So, it is not that the banks
are not lending in Albania, it is more that the borrowers are not returning the money they received from the banks! That brings us to another important issue. When a borrower doesn’t repay, the banks will go for the execution of the collateral. This is the meaning of collateral. Thanks God, most of our loans are well-collateralized. But, because of judicial and administration proceedings, we have been finding it extremely difficult to enforce such collateral. Let us be simple and clear: The economic crisis will not end unless asset prices make a correction, and asset prices will not correct unless we have efficient collateral enforcement. I can propose three simple solutions to achieve efficient collateral enforcement: (1) introduction of a third auction on top of the two, where the price will be whatever the market is; (2) special courts and/or trained judges; and (3) liberalization of the bailiff offices, where their fees will be a function of their success. I know some of these may require legal changes, but so be it. This is the way to recovery. I thank you for the attention.
The Albanian banking system grew by 12.9 per cent in total assets over the past 12 months. This is a remarkable growth, given the stagnation in other sectors and countries. We also created 200 new banking jobs, while everywhere else people are made redundant. Did we lend? Very much so!
1 Speech delivered at the Roundtable: “On a healthy and efficient banking system in Albania”, jointly organized by Bank of Albania and Bank of Italy in 4 July 2012, in Tirana.
10 • BANKIERI • www.aab.al
Banks found guilty for being profitable?!
e have been witnessing, during last months, various complaints by business community representatives and general public, about banks as being reluctant to extend loans and assisting businesses to overcome crisis-driven difficulties, not to mention that they are making fat margins. Basically, this claims are fairly unfounded, as per the figures published by AAB, the end-July loan portfolio increased annually by 7.8%, whereas the business segment grew annually by 12.8%. In addition, the banking system profit reached ALL 2.7 billion, during the first seven months of 2012, a 35% increase from the same period of last year. Along with “allegations” that banks are not backing businesses by providing enough liquidity, the fact is that the loan stock, as well as the new loan stock, extended during current year, is typically dominated by bank advances and working capital loans. In the frame of a general economic slowdown, bank financing is characterized by a shorter horizon, as compared to other previous periods, because of the following factors: (1) serious and quality projects are easily and quickly counted (2) an elevated risk level throughout global economy, including the Albanian economy, following global economic crisis. Therefore, banks have increased their prudential stake, by committing their funds in short-term financings, as well as re-pricing their services and products, whose costs should logically take into account the risk premium of economic activity they support and finance. Banks’ loans to the economy are not in a standstill despite increased risks; anyhow, no one could pretend that any business in difficulty will, by knocking on a bank’s door, be unquestionably granted a loan. Banks are for-profit-companies and more importantly, manage the savings of general public. In the context
...having profitable banks is not deemed as a bad thing, in contrast, it’s an asset for the economy, as profitable banks means healthier and more safe banks, capable to provide valuable support to the economy, through financial intermediation. of a sluggish economy and growing non-performing loans, an enhanced prudence is more than normal, besides the actual imperative of having a secured banking system, capable to support the economy. But criticism does not seem to stop here; banks are being accused for making fat margins and charging high interest rates. But are banks making big profits and are they driven by high interest rates? According to AAB, the banking system produced, by end-July, a ROE of 4.7% and a ROA of 0.4%, thus, notso-rosy indicators. The same story is told about interest income. The banking system has followed BoA’s dynamic monetary policy, and this is incorporated in their loans’ interests, rather than deposits. The actual interest margin is less than last year’s one, by 0.3 per cent. If the banking system has man-
aged to increase profits during this year, surely this is not driven by any rise in interest rates, rather it is because of a stabilized growth rate of problem loans. This means less provision expenses and a more positive financial result; moreover, a tight control on banks’ operating expenses, leads to less costs, as well. In this regard, having profitable banks is not deemed as a bad thing, in contrast, it’s an asset for the economy, as profitable banks means healthier and more safe banks, capable to provide valuable support to the economy, through financial intermediation. Profit is a precious source for wellcapitalization, in a time when capital injection, required by regulatory authorities, is not an easy task for bank shareholders. Therefore, it sounds quite uncommon today labeling banks guilty for being profitable! by Ersuin SHEHU
www.aab.al • BANKIERI • 11
Income tax amendments and their impact on banking activity and efficiency
Non-compliance or deviation form respective accounting and reporting principles and methodologies, aiming to increase the taxable result artificially, will undoubtedly create even more complex problems in the future.
by Aleko POLO CFO, Tirana Bank
urrent economic situation in Albania has a direct impact on banking sector activity and performance. One of the most significant indicators, adversely affected especially during last year, is the loan portfolio quality, which continued to move into negative territory. Given the circumstances, banks take natural measures aiming not only to improve the quality of loan portfolio, but also protecting the existing loans, by creating special reserves, referred as provisions. These reserves (or the provisions’ fund), serve as a compensating mean, in the future period, for a potential lost value, either in the form of principal, or interest. Pursuant to the Law No.9228, dated 29.04.2004 “On Accounting and Financial Statements”, starting from 1 January 2008, banks are required to prepare and report their financial statements according to IFRS1. Also, they are required to pre1
pare these statements, in compliance with Albanian legislation (national or statutory standards) and Bank of Albania’s regulations. Such procedure is based upon the Law No. 9662, dated.18.12.2006 “On Banks in the Republic of Albania” and in the respective Bank of Albania’s regulation. When comparing both standards it’s obvious that, certain identical items in financial statements may appear with different figures during
The goal to ensure a larger taxable basis and respectively a higher taxable result, cannot justify implementing a varying provisioning methodology, from one period to another.
reporting. Such differences result from different methodologies, both standards use when calculating these items. Loan loss provisions are one of those items where the difference between two standards is quite significant. According to IFRS, loan loss provisions are calculated on basis of expected payments (cash flows), following customer’s financial situation and strategy pursued by the bank to recover loan obligation. These expected payments (cash flows) are based upon a real possibility to conclude a payment or restructuring agreement, and in the absence of those, through the expected cash flows from loan collateral or guarantee enforcement. In contrast, according to national standards, loan loss provisions are calculated on basis of loan classification into five categories, as well as provision rates for each category. These categories are established according to days in arrears and customer‘s financial situation.
Loan loss provision expenses and tax legislation. Two years ago, some special amendments with regard to loan loss pro-
International Financial Reporting Standards (IFRS).
www.aab.al • BANKIERI • 13
vision were effected in the tax legislation, which would significantly impact bank financial statements preparation and reporting. It should be mentioned, in parenthesis, that until end-2010, the Article 25 of the Law: “On Income Tax” stipulated as follows: “For purposes of calculating annual taxable income, bank loan loss provisions calculated according to Bank of Albania’s rules, are considered as deductible expenses. Any reversal of those reserves or provisions is added to taxable income”. In December 2010, a special amendment was included in this article of the law, which became effective on January 2011. According to this amendment, the definition of bank loan loss provision is transformed to another meaning, as now the article stipulates the reality, it is obvious that Bank that: “For purposes of calculating an- of Albania’s methodology is more nual taxable income, bank loan loss conservative, in terms of calculating provisions calculated according to loan loss provisions and the proviInternational Accounting Standards sion fund is therefore larger than that Board, and certified without audicreated according to IFRS. Surely, tor remarks, but not exceeding, in in implementing such methodolany case, those prescribed by Bank ogy and not that based on collateral of Albania’s rules, are considered as value or expected cash flows, Bank of deductible expenses. Any reversal of Albania relies on real economic and those reserves or provisions is added social conditions, thus considering to taxable income”. Put it simply, in the process of cal- practical and potential difficulties in culating bank taxable incomes, loan materializing those elements (collatloss provision expenses will range eral enforcement and the realization from those calculated under IAS to of expected cash flows). So, it is quite those under NAS2 (according to BoA logical to ask for a more “aggressive” standards), where the least calcu- loan loss provision fund. Tax Authorlated provision amount between the ity considered this aspect until 2010 two standards shall be accepted as a however, and such a stance must be continued in the future. On the other deductible expense. Technically and professionally hand, a varying methodology in calspeaking, such definition is meaning- culating provisions for tax purposes, less and causes practical problems triggers confusion and inequality in when implementing it, in the forth- tax treatment, as regards the banking coming activity periods. Firstly, this system financial results. Let’s put it definition does not take into account more practical by giving a technical the continuity and consistency logic explanation with a simple example. Let’s suppose that a bank for of financial statements through years; a key and substantial element in pre- which, all items in Profit & Loss paring and reporting financial state- statement for 2011 appear the same ments. The goal to ensure a larger for both standards, except for loan loss provisions. Assume also that, the taxable basis and respectively a higher taxable result, cannot Table 1. justify implementing a varying provisioning methodology, from one period to another. Earnings before provisions and taxes Apart from being drafted under “emergency” circumstances, it Provisions (reversals) remains far away from interna- Provisions (expenses) tional established and respective practices. As it draws from Earnings before taxes 2
National Accounting Standards.
14 • BANKIERI • www.aab.al
bank has earnings before provisions at ALL 100 million. According to NAS (BoA), the bank created loan loss provisions (expenses) for this year at the level of ALL 15 million, and no (provision) reversals happened; whereas, according to IFRS, the bank created loan loss provisions (expenses) at the level of ALL 5 million, and no (provision) reversals happened, too. (see Table 1 for illustration) In this case, by keeping all expenses’ items constant for both standards, except for loan loss provisions, it results that, taxable earnings, according to NAS, is ALL 85 million, and ALL 95 million, according to IFRS. Income tax in this case is ALL 9.5 million (with a corporate tax of 10%), as this is the case with the lowest loan loss provisions. Let see the situation at the end of 2012, if the bank will, according to NAS (BoA), register provision reversals at ALL 15 million, and new provisions at ALL 15 million. In the meantime, according to IFRS, there will be provision reversals at ALL 1 million and new provisions at ALL 5 million. Assuming that earnings before provisions and taxes for this year are at ALL 100 million and all other expenses’ items being con-
stant, (as previously mentioned), the situation will be summarized as shown at Table 2, below:
Table 2 BOA Earnings before provisions and taxes
Earnings before taxes
Now we see two problems emerging, with regard to accurate and fair calculation of taxable result. Recall that, according to NAS, net loan loss provisions for 2012 are zero, whereas according to IFRS, such amount is minus ALL 5 million. According to NAS, provision expenses are ALL 15 million, instead according to IFRS it is ALL 5 million.
What will be the basis for calculating taxable results: should it be net provisions (which are lower according to NAS), or only a comparison between provision expenses will be used (which are lower according to IFRS), thus bypassing provision reversals? It should be noted that, Tax Author-
ity has not released any guidelines yet; therefore tax inspectors give various interpretations in this regard.
Should we consider NAS variant (net provisions option) to calculate taxable result for 2012, net income to shareholders (distributable income) or retained for recapitalization ends up being taxed twice. This is simply unfair! Typically, in calculating the taxable result for 2011 we considered provisions at ALL 5 million (according to IFRS) and not ALL 15 million (according to NAS), therefore the taxable result, following the comparison between two standards, increased to ALL 10 million. Meanwhile, by the end-2012, the provision reversal,
amounting ALL 15 million, is considered as income and is therefore taxed again. Such confusion may happen and hence be interpreted in different ways, in case of loan write-offs from the balance sheet. Conclusively, it is deemed so important to stress that such amendment in tax legislation, which deviates from pursuing the continuity principle in preparing and reporting financial statements, with subsequent accompanying logical, methodological and practical problems, has triggered an unusual confusion within Albanian banking system. Any noncompliance or deviation from respective accounting and reporting principles and methodologies, aiming to increase the taxable result artificially, will undoubtedly create even more complex problems in the future, either in institutional, or in system level, thus producing unwanted issues for Tax Authority itself, not to mention clear ways for abuse and subjective behavior from tax inspectors. In this regard, it becomes imperative a quick review of such amendment, aiming at pursuing and implementing a single methodology in calculating taxable results, which makes financial statements normally readable and comparable through times.
www.aab.al â€˘ BANKIERI â€˘ 15
16 • BANKIERI • www.aab.al
EXPERTS’ SISTEMI BANKAR FORUM
Bank robberies and psychosocial risk Robbery risk assessment is an important and necessary process, as it affects one of employer’s main goals, typically protecting the employees’ psychosocial integrity.
by Roland TASHI Vice Chairman AAB Bank Security Committee
ssessing robbery risk and other acts of criminal nature in our banking system is not defined as a legal requirement for the employer, yet. This is so, because the legislation, especially the banking one, does not stipulate any clauses in this regard. Notwithstanding this, robbery and theft risk assessment should be listed as one of key responsibilities of banks’ managing structures, given the environment where banks conduct their activity, statistics from law-enforcement agencies, severity of event, as well as abusive and criminal behaviors against bank staff. Robbery risk assessment is an important and necessary process, as it affects one of employer’s main goals, typically protecting the employees’ psychosocial integrity. Banks or other financial institutions’ robbery is considered a criminal act, and it is accompanied with psychophysical consequencies, which are not limited to bank employees and clients, being present at the crime scene, because the event hassles and affects all employees in the banking system. Robbey’s precedent is therefore created “involuntarily”, since is driven by the nature of banking activity, where the
input and product is solely MONEY. The phenomenon and its psycologial consequences caused by robbery are known pretty well by psychologists, social workers and special structures, that’s why we are still a bit distant from an accurate definition for the level of trauma and damage done. Different people’s characters have different perceptions on robbery, theft and other abusive acts; so a precise assessment of robbery consequences, from an individual to another, needs specific medical analysis and diagnosis. The topic at hand needs a funda-
Trauma and stress level is related not only to gravity and type of experienced event, but also with other elements, like: personality characteristics, elements of social nature, ability to cope with grave incidents, etc.
mental discussion and commitment by security specialists and psychologists, therefore the most obvious fact is, that those which suffer most the psychological damages are individuals who are part of a “crime scene” and simultaneously “characters”, where criminals use firearms and violence; so the event is accompanied by injuries, wounding or even fatalities. Our statistics show that, criminals use firearms in most bank robbery cases to exert psychological pressure on those individuals who are not obeying their “orders”; otherwise the will get hurt, as the robbery must be accomplished within the shortest possible time span. Stress and anxiety are commonly developed with those individuals, following the first trauma. There are three main group of symptoms, signs and post traumatic shocks: (1) re-experiencing the event and trauma, by recalling the most difficult moments and the possibility of occurrence, (2) persistence to bypass and avert event-linked drivers, by staying away from activities, people and places, accompanied with it, and (3) disturbances which trigger insomnia, lack of attention, unjustified nervousness, etc. A countable number of individuals may experience and be present at grave criminal events, but not everyone suffers consequences and stress. With regard to psychological trauma of the robbery, caused to individu-
www.aab.al • BANKIERI • 17
als group found within the bank, it is a complex phenomenon, as clients and visitors of various ages, including children, besides bank staff, are found at bank premises. All in this group risk being subject of psychological consequences, where bank staff is, undoubtedly, the most “sensitive”, because the event place is just their workplace, where they will be turning back, following the event. Psychological consequences of robbery could worsen, either in the emotional level, through an uncertainty perception regarding the workplace, or by expressing distrust, especially against unknown persons. Bank managing structures must take proper measures to prevent robberies and minimize traumas. This calls for studies and research, conducted by security specialists, or by special working groups including psychologists, to study forms, ways and robbery technics, aiming at avoiding potential consequences and taking protective measures. In this regard, regularly scheduled training programs with special topics about robberies, are deemed as very important and substantial, in terms of enhancing physical and psychological security in the workplace. These special-focused trainings should be designed as part of successful management policies and should not be seen as simply costs, but primar-
Studies and research, conducted by security specialists, or by special working groups, including psychologists, are deemed as necessary to study forms, ways and robbery technics, aiming at avoiding potential consequences and taking protective measures. 18 • BANKIERI • www.aab.al
...regularly scheduled training programs with special topics about robberies, are deemed as very important and substantial, in terms of enhancing physical and psychological security in the workplace. ily as an investment, which helps in protecting employees from traumas caused by robberies. Moreover, it is necessary for all employers, not limited to banking system, to provide employees with all necessary information about risks associating the professional activity at his/her workplace, which leads to proper measures taken through respective staff training, consisting in knowing risks, then minimizing them. In other words, knowledge and awareness culture must substitute the obedience and submission culture. The workplace security must be an all-inclusive employees’ culture, as the banking environment is a business activity where crime shows up periodically, causing a psychological
pressure, boosted by media broadcasting effects. Such trainings should not be deem as a legally binding process, or otherwise driven by internal banking policies and standards, rather they should be considered as a valuable instrument and opportunity, which promotes and enhances the security culture, which helps trauma management and reduces the psychosocial risk. It should be noted that, the human being is the weakest and delicate shackle of the security process & measures chain, as it is for the individual who is physically and psychologically faced with the crime. The latter continues to bear the psychological shock for a long time, by re-experiencing it, repeatedly. Investing in security technological elements, such as: protection with electronic systems, bank access control devices, etc., remains a key and prevalent factor, when compared with the security product, obtained by security guards’ services. Having a clear and undistorted perception of the reality, along with proper harmonization of technological and human factors, could ensure satisfactory results, in terms of security. To close, it should be stressed that, initial knowledge of such phenomenon and the respective measures taken in this regard, could provide us with suitable protection against robbery and its subsequent psychological effects.
Traditional insurance and its impact on financial system
A consensus does exist that traditional business is less likely to be the source of systemic risk, because traditional insurance presents almost a little or no concern at all for the financial system.
by Enkeleda SHEHI Chairman of Financial Supervisory Authority, AFSA
nsurance companies play an important role in the economy, enabling economic agents to buy protection against risks, which in other circumstances could not be protected. In this way, they complement financial markets, by providing them with instruments which raise protection against risks. A traditional insurer builds its business model through premiums collection and implementation of a specified policy in assets allocation, assisted by financial market instruments to increase investment returns. The aim of this investment activity is to build an asset base that will enable insurers facing future damages, which are unknown in amount and in time. Albanian insurance market is comprised of 11 insurance companies, 7 out of them as non-life insurance companies, 2 life insurance companies and 1 composite company (Life and Non-Life insurance). By being a traditional market, the insurance industry in Albania is typically oriented to motor vehicles insurance, which accounts for more than 55 per cent of total earnings of non-life insurance market. Life insurance,
which accounts for about 9.65 per cent of total gross written premiums in the insurance market, continues to be closely linked to the increased level of bank lending, mainly for individuals. Market revenues for 2011 reached at ALL 8.4 billion. In Albania, the average insurance premium per capita is ALL 2,901, while insurance written premiums account for about 0.62 per cent of GDP. This is a clear indicator that the insurance market is still far from a matured market, but has the potential to reach, at least, the
Insurance market interacts with the bank market in some aspects, which may constitute the directions through which the risks can be transferred within financial system, as a whole.
levels normally seen throughout the region. The insurers’ business models differ from that of banks. The reason for these differences, in terms of impact, consists primarily in peculiarities of commercial model of insurance which, unlike banks, does not depend on short-term financing. On the other hand, these differences are related to a disciplined implementation of the investment approach, mainly being liabilityoriented, the nature of damage, which in many cases provide for cash outflows management, over a period of time (from weeks to months or even years, depending on the product). The nature of technical reserves and the fact that payments to policyholders generally require the occurrence of the insured event makes it less likely that insurers involved in traditional activities, suffer sudden cash outflows, which in turn could decrease their liquid assets. Insurance market interacts with the banking market in some aspects, which may constitute the directions through which the risks can be
www.aab.al • BANKIERI • 19
By being a traditional market, the insurance industry in Albania is typically oriented to motor vehicles insurance, which accounts for more than 55% of total earnings of nonlife insurance market.
transferred within financial system, as a whole. About 55.7 per cent of total assets of insurance market are invested in bank deposits or in government bonds, including the Guarantee Fund Deposits. The ability of insurers to make such investments constitutes a significant contribution to banks’ financial stability and the financial system in general. The performance of property portfolio and debtor’s life insurance are directly related to the performance of lending by banks, because the development of these products is directly impacted by banks’ requirements for insurance. Regarding to banking system data, about 45% of loans are collateralized by real estate, which provides another insurance relationship between insurance and banking markets. Loan insurance class, for which the insurance companies are licensed, is another channel for risk transfer from banking system to the insurance industry. Insurance can take various forms, ranging from
20 • BANKIERI • www.aab.al
consumer loans to bank guarantee insurance. Despite the low level of income from this product, it is clear that it has a great potential for transferring risks from the banking system to the insurance market. The above arguments, regardless of the fact that asset level of the insurance industry is still low, support the view that its instruments represent a great potential of interaction between banking and insurance market. A consensus does exist that traditional business is less likely to be the source of any systemic risk, because traditional insurance presents almost a little or no concern at all for the financial system. A set of reasons support this argument, such as the steady stream of premiums and independence from short-term financing, or predictable cash flows for a relatively long period of time. All these reasons reflect the fact that traditional insurance activities do not affect the system.
Loan insurance class, for which the insurance companies are licensed, is another channel for risk transfer from banking system to the insurance industry. Insurance can take various forms, ranging from consumer loans to bank guarantee insurance.
MASTER studies, in front of career development and labour market
The future of these programs belongs to interaction between different areas of sciences and links with labour market requirements for multidimensional professions
by Prof.Dr. Luljeta MINXHOZI Deputy Rector, Dean of Economic Faculty & Head of Masters’ Programs European University of Tirana, EUT - UET
he challenge of every young person, aiming to enter the labor market or any practitioner in career, is to be more competitive in a global economic and social environment, which is dynamically changing. In the frame of such effort, we all turn into knowledge, as the most certainly device, which creates this quality. The labor market, however, does not require how much we know, but how we use knowledge. Modern education systems have created Master programs, as the best way for everyone to transform knowledge into motivation and innovation, thus complying with labor market requirements and creating personal advantage in the labor market. For example, UET Masters programs have been designed to enhance students’ critical thinking ability, the capability to adapt to realistic behavior of society, entrepreneurial and initiative skills, leadership abilities etc. Masters programs are categorized into two groups: Masters of Science and Professional Masters. Master of Science programs are tailored to prepare future research-
ers, by providing them with an op- social sciences may study further in portunity to study fundamental the- a through Professional Master prooretical and methodological subjects, gram in Business Administration. that will allow them and lead to a fuLabor Boards, established as a ture academic career advancement. permanent structure within each DeSuch a program is designed as a must partment, are bridging the academy for students who aspire to continue with business world, thus matching studies at third level, i.e. doctoral Masters programs with labor market studies. requirements. Through them, we try Professional Master program to understand nascent labor market aim to provide students with basic requirements for new profiles and knowledge that lead to a university specialties, which are included very profession. Therefore, such programs soon within Professional Master focus on specialized subjects of in- study programs or Master of Science. tended profession and practical pro- Certainly, the future of these professional internship. These programs grams belongs to interaction between are among the most flexible academic different areas of sciences and links products, in the sense that they are with labor market requirements for in a constant process of adaption multidimensional professions future with requirements of local and re- of Master programs is the interaction gional developments. We achieve between different fields of science, this, academically, by offering pro- as well as connection to the labor file courses, which can be changed market requirements for multidiand adjusted easily within a study mensional professions, as one of the program, without intervening in the keys for long-term success of these core courses section, which will form programs. the theoretical nucleus of a profession’s scientific education. In other words, Master programs at EUT - UET: these study programs are designed properly to cre- • 8 Masters of Science programs (MSc) ate cross professions, along • 2 in Law studies, 4 in Social Sciences and 2 in Economic sciences, divided into 23 profiles: the professional career of • MSc programs are organized with 120 credits (ECTS) any individual. For exand last 2 years. ample, Bachelor students graduated in economic sci- • 11 Professional Masters programs (PM) ences may continue their • 3 in Law studies, 4 in Social Sciences and 5 in Economic studies, divided into 22 profiles. studies in a Professional Master program on Busi- • MP programs are organized with 60 or 90 credits (ECTS) and last 1 year and 1.5 years, respectively. ness Law, or a Bachelor student with a degree in
www.aab.al • BANKIERI • 21
STAFF QUALITY AND BANKING EXPERIENCE A responsible and professional staff, capable of having profound knowledge of business needs, and willing to implement banking strategies responsibly, yields the best guarantee toward success
by Anila DENAJ Member of Executive Board ProCredit Bank
conomic and financial developments in Albania, as well as those in international markets, have created a platform for generating a strategic planning and thinking, intended to provide an approach toward enhancing human resources capacities, not only on professional and academic grounds, but also on personal ones, typically toward accountability. When placed within Albanian context, such approach gets another valence, given the academic performance development of recent years, which has not always resulted in an enhancement of graduating students’ quality performance. We must unenthusiastically admit that, such a quality is not going north. These trends, however, have not been always moving in tandem. Business and academic institutions have been striving to tailor a partnership, in a way that a suitable format, satisfying both interests, could be crafted on this particular process. Typically, the need for professionalism and accountability in the banking sector moves faster and overtakes the other sectors. The financial crisis and the global market where we do play, reinforces the role assumed by banks, as well as the importance of a responsible and ac-
22 • BANKIERI • www.aab.al
countable decision-making, based upon a critic and analytic thinking. It is why in our bank, we do appreciate selecting a quality and dedicated staff, who believes in our values and mission. A responsible and professional staff, capable of having profound knowledge of business needs, and willing to implement banking strategies responsibly, yields the best guarantee toward success. The bank has already invested in establishing the Program “New Bankers”, to produce such a quality and responsibility.
The “New Bankers” program is quite unique, designed by an academic staff in Germany, which aims at embracing experienced and skillful persons, as well as graduate students, who are eager and willing to obtain and get new knowledge.
The major part of students attending this program is selected from those who are conducting their academic internships in our bank, as part of their university studies. Such plan is a great deal to our recruiting system and simultaneously has been found a great help for students’ practical development. The success of our academic internships and the respective program is not to be seen as linked only to specific interests a certain company may have toward such employment. The selection process is based upon their theoretical performance, where the threshold is set at grade 8. Such a selection set the basis for a good start in student – company relationship, as to guarantee a successful internship program, where quality is a real objective. Students must be willing to get maximum practical knowledge, cultivate listening skills and discuss openly about their queries, having an active participation during internship, as well as having a strong interest in getting maximum out of it, but offering the best they can, in terms of knowledge. The institution is responsible for the proper course of academic internship. Often, the internship is quite dysfunctional and misses the intended objective of obtaining relevant practical knowledge. In this context, the internship “translates” into a certificate that confirms internship attendance, whereas internes fail to acquire the practical dimension of theoretical stuff. Each student, attending
internship at our bank, possess a special contract and a well-defined internship agenda. In the course of this internship, internes are closely supervised and observed by dedicated and experienced staff members. The bank offers academic internship even for non-qualified students, or those who have expressed an interest to attend the “New Bankers” program, but a relatively high average grades from universities we have entered into contract, is therefore required. Attendance in this program goes beyond being a simply student-based one. Program candidates are selected
persons with a clear aim to conclude in a service relationship, following the successful program end, where previous background and banking experience is not a must. The “New Bankers” program is quite unique, designed by an academic staff in Germany, which aims at embracing experienced and skillful persons, as well as graduate students, who are eager and willing to obtain and get new knowledge. This program is a valuable opportunity for various participants to get general knowledge about banking system, and the way it operates. It is a two-way op-
“New Bankers” Program: Structure and Content ProCredit Bank ethics, thinking values and business philosophy. Our operating environment 1. Society 2. Development perspective 3. Globalization and environment
ProCredit as economic, political and social organization & Our way of doing things Banking system and role in the banking 1. Financial sector, banks and banking system 2. Financial and economic crises
Often, the internship is quite dysfunctional and misses the intended objective of obtaining relevant practical knowledge. portunity for participants and the ProCredit bank, to assess whether personal skills and expectations match with the special ways of doing things in our bank. The quality of this training program and the consistent methodology used, helps guaranteeing a quality and sustainable service for bank clients. This is a multi-dimensional 6-months program, based upon a very dynamic and interactive courses’ platform, accompanied with open discussions among candidates, along with many projects, teamwork and practical internships at banks’ branches and business units.
www.aab.al • BANKIERI • 23
“LIBORGATE” – the twilight of a dangerous banking manipulation Manipulating LIBOR, or simply “making errors” with it, just misleads, quite dangerously, the nervous system of global monetary and financial mechanism
by Prof.Dr.Adrian CIVICI President & Head of Doctoral School European University of Tirana, EUT-UET
mongst the oh-so-many financial, monetary and banking issues and problems, the global financial crisis has sparked already, the most prominent event of the last months was undoubtedly a dangerous banking manipulation: LIBOR crisis or the so-called “LIBORGATE”. This was not a random or short-lived happening, instead it was a multiyear “deviation”, typically spanning from 2005 to 2011. Was it a miscalculated benchmark? ..a manipulation made on purpose? ..or, a “conscious” instrument, used to mask the sector’s crisis and difficulties? “LIBOR”, this well-known word for banking circles and financial markets turned to be quite familiar all over the world. This indicator, which stands for London Inter-Bank Offered Rate, calculated and published daily by British Bankers’ Association, BBA, on 11.30 A.M. in London, serves as a benchmark rate for interbank money market for key world currencies (US Dollar. Canadian Dollar, New Zealand Dollar and Australian British Pound, Japanese Yen, Danish Krone, Swedish Krona and Euro). LIBOR is widely used as a benchmark rate for pricing numerous global financial products, like: real estate loans, business loans, student loans,
credit cards, commodities and raw materials, various financial derivatives, etc. In a global scale, its serves as a benchmark for pricing various financial products with an estimated value of US$ 350,000 billion. It’s the barometer and the compass of the world money market. Whereas the base interest rates by key central banks (FED, ECB, Bank of England, Bank of Japan, etc.) are announced on a monthly basis, LIBOR is a daily benchmark, thus becoming a daily thermometer of world finance.
By underestimating its value artificially, and moreover, in relation to base interest rates of central banks, provided a golden opportunity for banks to lend to each – other very cheaply, whereas loans to businesses, individuals and to the rest of the financial market were priced in real terms, hence yielding colossal earnings.
Manipulating LIBOR, or simply “making errors” with it, just misleads, quite dangerously, the nervous system of global monetary and financial mechanism. Even TIBOR (Tokyo Interbank Offered Rate) and EURIBOR (Euro Interbank Offered Rate) were put in question for potential manipulation, but nothing compared to LIBOR, as its role and weight in world finance overshadows those of TIBOR and EURIBOR, in addition to the fact that the panel of banks contributing to EURIBOR (actually) consists of 44 banks, compared to 16 (now 18), which contribute to LIBOR, thus making the manipulation of the former far more difficult. Doubts for a potential manipulation emerged since the beginning of 2008, when the LIBOR “producer”, BBA, declared that: “some of its panel banks have allegedly offered inaccurate percentages or values, thus risking trigger a profound shock to financial markets”. BBA muffled the announcement, by stressing its prudence in “guaranteeing a transparent, fair and accurate Dollar LIBOR,… as its unusual volatility was caused exclusively by the financial crisis”. But in March 2011, the issue broke out in Switzerland. UBS announced that it has noticed deliberate LIBOR distortions, thus getting warnings and reprimands from U.S and Japanese supervisory authorities. Within the same month, “Financial Times” declared that the investigation on the issue was not limited to UBS, instead it included the other 15 banks:
www.aab.al • BANKIERI • 25
Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JP Morgan Chase, Lloyds Banking Group, HBOS, Rabobank, Bank of Tokyo-Mitsubishi, Norinchukin Bank, RBS, WestLB; therefore all banks of the LIBOR panel. As the investigation resulted, Barclays Bank played the key role in the affair. In February 2012, the LIBOR scandal went global. American authorities commenced special investigations against Bank of America, whereas Swiss supervisory authority (Camco) started controls in 12 banks, with activities in Switzerland. Investigations were extended to Asia, too. In June 2012, doubts went high when Barclays announced that, it “paid EUR 360 million to U.S. and British authorities to settle allegations that it manipulated key interbank lending rates, LIBOR and EURIBOR”, in a time when the British Serious Fraud Office (SFO) has opened a penal lawsuit against Barclays, thus forcing its president Mr. Bob Diamond and Vice President Mr. Jerry Missier to resign. Even Bank of England was put in doubts, where its number two, Mr. Paul Tucker, was allegedly seen as encouraging Barclays to “maneuver” with LIBOR, and guaranteeing that Bank of England will “keep its eyes shut”, should Barclays publish a lower value than the real one, typically in times when the financial crisis has reached its peak. Additionally, the U.S. Congress required an “auditing” of US Secretary of the Treasury, Mr. Timothy Geithner and the President of the Federal Reserve Bank, Mr. Ben Bernanke, by asking detailed explanations about this “affair”. “Washington Post” revealed the existence of some e-mails, exchanged between the Governor of Bank of England, Mr. Mervyn King and the US Secretary of the Treasury, Mr. Timothy Geithner, where they stated that “an urgent reform was necessary to be undertaken as regards the LIBOR setting procedures”. “Der Spiegel”, the German weekly publication, announced that Deutsche Bank was asking European Commission to give it the status of coop-
26 • BANKIERI • www.aab.al
erating witness, in exchange for its cooperating commitment in this international inquiry. Finally, “Financial Times” published an announcement that banking supervisors have found a link between some Barclays’ traders and four important European banks, so bringing into spotlight a strange character, named Philippe Moryossef, a Moroccan trader, who has been working for Societe Generale, before going to Barclays. He has been instrumental in manipulating the world finances “thermometer”, and according to a JPMorgan study, the damages cause by this scandal exceeded US$ 12 billion. But why banks found an “interest” to dump the LIBOR value? What is the benefit generated by such a move? The reply unfurls since 2005. Competition among banks and their internal structure was focused particularly to capitalize on holding “privileged information” about forthcoming performance of LIBOR value. Holding or manipulating such information created substantial advantages. The outbreak of financial crisis, by end2007, accelerated everything. Banks were fiercely challenged with the risk of financial asphyxia or blocked interbank markets, by being unable to lend to eachother. Even Barclays used this argument in when summoned by British authorities for financial control, by stressing that “it was afraid to remain out of interbank market and therefore going bankrupt, therefore causing a chain reaction to international banking system”. Interbank rates differ from market interest rates, which are mainly produced by the demand and supply, in the sense that, they primarily reflect bilateral procedures, therefore being quite declarative. So it gets easy to manipulate them; all you need is “lying” at the moment of bilateral declaration. But being a lone wolf in this undertaking is extremely difficult, as Thomson Reuters eliminates, during average calculation, the extreme declaration (offered) values. If all banks in the panel agree, there is a perfect ground to collude and implement a manipulated LIBOR value, thus declaring
and offering almost the same value. Such a manipulation generates huge profits. An intentional change or deviation from the real rate, say one or two per cent, translates to hundreds of millions of dollars. According to “Wall Street Journal”, more than US$ 600 trillion in financial transactions are indexed with LIBOR and EURIBOR, equal to a tenfold value of world GDP. In their attempt to provide enough liquidity, and leaving their clients undisturbed, banks at least apparently, had to show a bold and solid profile, without threatening problems for their activity and per-
formance. Should they declare a real LIBOR value, which was high because of the crisis, the interest rate would be therefore high, a sign of high risk. Consequently, if they colluded and offered a low LIBOR value, so an underpriced rate, LIBOR panel banks made profits at the expense of all other banks, which have entered into dollar financing contracts with their clients, anchored to LIBOR, but they implement their contracts upon the real cost of such dollar liquidity, thus being unable to recover back the difference between the real and the announced value, which is basically underestimated. By underestimating its value artificially, and moreover, in relation to base interest rates of central banks, banks found a golden opportunity to lend to each – other very cheaply, whereas loans to businesses, individuals and to the rest of the financial market were priced in real terms, hence yielding colossal earnings. Put it simply, the logic behind the LIBOR is: when the economy is growing, banks seek to increase its value and that of EURIBOR, making loans with higher interest rates, and ensuring fat profits; when the economy goes down and experiences a crisis, extended also to the banking sector, if a bank is in a bad shape and its stability is questioned, other banks are forced to elevate their prudence level against it, offering loans with higher rates, labeled as “high risk loans”. But with an artificially lower LIBOR, this bank manages to disguise its real financial position, and continues to get cheap loans with low interest rates, namely “risk-free loans”. This is exactly the case, Barclays and other LIBOR panel banks have been accused of. Experts of financial regulations suggest the implementation of some important structural reforms, in order to eliminate the reappearance of such crisis, like LIBOR or EURIBOR, in the future, especially limiting the risk of conflict of interest and abusing with a dominating position in the financial sector, particularly “a colluded interbank loan rate”. At the top
of these, along with other national legislative and regulatory measures, comes the endorsement of a special law, in a European or international scale, similar to Glass - Steagall Act of 1933 in USA, which allows for imposing substantial limitations upon many risks and abuses, especially against oligopolistic phenomena in banking sector, as well as separating depository functions from those of investments.
…in order to eliminate the reappearance of such crisis, like LIBOR or EURIBOR, in the future, … it is suggested that, along with national legislative and regulatory e measures, a special law, in a European or international scale, to be the endorsed, which could allow imposing substantial limitations upon many risks and abuses, especially against oligopolistic phenomena in banking sector, as well as separating depository functions from those of investments, is really required. In December 2009, American senators Mr. John McCain and Mrs. Maria Cantwell and FED ex-governor, Mr. Paul Volcker proposed the idea of a possible turning back to Glass - Steagall Act, whereas in Europe, many experts are requiring a strict implementation of banking legislation, in line with this Act. In the frame of “Liborgate”, “Financial Times” called several times during 2012, for a need to approve a “European Glass - Steagall II”, which states a clear separation and division between investment banks and savings & depository institutions.
www.aab.al • BANKIERI • 27
28 • BANKIERI • www.aab.al
BKT TO LAUNCH NEW PRODUCTS SUPPORTING AGROBUSINESS Banka Kombëtare Tregtare (BKT), within the framework of supporting agribusiness, has launched for SME-s operating in the agriculture sector, a new loan called BKT AGRO LOAN. In the event organized within the Agribusiness and Tourism Fair, with BKT as the main sponsor, BKT’s CEO and Board Member, Mr. Seyhan Pencabligil, underlined the vital importance of the agriculture development with the aim at returning the country as self-sufficient in terms of the fulfilling the needs for agriculture products. Head of Commercial Banking Group Mr. Pekhan Isipek, in his opening speech stated that agriculture is very crucial for the country’s development. He said that this is the reason that BKT has contributed and continues to support the development of agriculture, allowing the actors operating in this sector to have access to the capital, lacking of which has prevented the investments and development of this sector.
USAID signs agreement with albanian banks to encourage agriculture loans Through the Development Credit Authority (DCA), USAID is increasing access to credit for agriculture and agribusinesses in Albania. Through a $15 million agriculture loan agreement between USAID and two local banks, ProCredit and Banka Kombetare Tregtare (BKT), Albanian farmers and small and medium agricultural enterprises (SMEs) will be able to access credit more easily. In fact, only approximately 2 per cent of private loans go to the agriculture sector. Through the DCA program, loans will be issued to agricultural enterprises in areas such as dairy, livestock, and fresh and processed fruits and vegetables, including olives and herbs and spices to support investments in new technologies, packaging and marketing. USAID has been active in supporting Albanian agriculture since it began work in Albania in 1992. Recent work focuses on making Albanian farmers and agribusinesses more competitive in domestic and export markets through advanced techniques, quality control, marketing and packaging. This agreement was modeled after a similar program initiated by USAID/ Kosovo in 2007 which greatly expanded lending to Kosovo agriculture borrowers. BKT AGRO Loan is designed in three segments such as Agro Special Loan, Agro Support Loan and Agro Loan. BKT has recently finalized an agreement with USAID about financing the agribusiness sector with the value of US$ 15 million.
CREDINS BANK Support for green environment Social responsibility remains one of top priorities for Credins Bank, as it is quite active in offering examples of business awareness, toward a more civic life. During this period, the bank supported the initiative to create a green zone at the premises of “Shefqet Ndroqi” University Hospital, as well as planting new decorative trees along main streets in Kamza Municipality. Such initiatives are welcomed by respective communities, which indicate that, increasing social responsibility level and philanthropic spirit is the best way for business to serve, in a human aspect, to the community.
www.aab.al • BANKIERI • 29
FIRST INVESTMENT BANK
Fibank as the key sponsor of “This is Bulgaria” show, by National Folkloric Ensemble “Bëllgare”. On the occasion of 100th Anniversary of Independence of Albania, the biggest European private folkloric professional ensemble - “Bullgare”, performed in Tirana the famous show: “This is Bulgaria”. This unique performance at Opera & Ballet Theatre in 13 September, unfurled the beauty and splendor of music, songs and dances form various Bulgarian regions, such as: Shopluka, Northern Bulgaria, Dobrudja and Thraca, delivered through the eyes of Ismail Qemali, our national hero. Fibank was the key sponsor of this spectacle, as a sign of strong support for cultural communication and exchange between two countries. The performance culminated in the twinning of the two national ensembles, Bulgarian and Albanian ones.
Fibank to sponsor “Student Seasonal Employment” project, in Korça Cooperation between Fibank and Korça Municipality, regarding “Student Seasonal Employment” project, used to be a tradition. The closing ceremony of this project and certificate delivery for participating students was held at the premises of “Life Gallery” in Korça. During the ceremony, attended by the Mayor, Municipality’s employees, Fibank CEO and employees, 60 students as part of project, got their certificates of participation, signed by both institutions.
INTESA SANPAOLO Bank Morning time at “Light Rays” Head of Business Division at Intesa Sanpaolo Bank - Albania was invited to deliver a short class to a fourth form elementary course of “Light Rays”, 9-years, non-public school. It was an exciting and interactive class where pupils were provided with simple elementary knowledge about the bank as an institution, its products and services, as well as its impact in everyday life. The new generation was particularly eager to get further knowledge about deposit insurance, contracts with customers and ATM usage. In addition to giving examples about saving and using money and explaining its role in everyone’s everyday life, the bank distributes some recently published children books, with practical knowledge and information about banks.
RAIFFEISEN BANK “Terre des Hommes in Albania” - Summer camps for the vulnerable children Raiffeisen Bank Albania for the second year in a row has supported the summer camps organized by Terre des Hommes in Albania in Korça, Durrës, Gjirokastra, Saranda, Vlora, etc. The success of the Summer Camps this year relied not only on the increased number of children participating, but also on the fact that the majority of children attending came from vulnerable and marginalized families throughout the regions. The goal was to create a safe and nurturing environment where children could have fun and play while simultaneously fostering an atmosphere where children developed social and emotional skills in order to be able to express their own feelings and cope with their realities. About 900 children attended these summer camps. The sponsorship policy of Raiffeisen Bank has always been focused on community projects. With this project, Raiffeisen Bank showed again that it is the bank of the community, for the community.
30 • BANKIERI • www.aab.al
TIRANA BANK “Green Initiative” for Bilisht Center commune Following projects for expanding green zones, Tirana Bank in cooperation with Bilisht Center commune, developed the project, called “Green Initiative”, consisting in planting decorative trees along the main street of commune. Such initiative was undertaken by bank branch’s employees, thus contributing for an improved environment quality. Tirana Bank Green Tree, as the symbol of such projects, was “planted”, along this street. “Digitalization of school classes” project to carry on Pogradec was the current station, just following Korça, as regards Tirana Bank’s support for “Digitalization of school classes” project. In this regard, Tirana Bank sponsored the purchase of a digital interactive board (Smart Board), which would help in modernization of teaching methods in Pogradec Education Directorate.
VENETO BANKA Veneto Bank to support promoting artistic values in Albania Veneto Bank, together with “Marin Barleti” University, sponsored the exhibit of Fate Velaj, a painter and photographer from Vlora. This exhibit is part of “Europa Plaza” activities, organized under the auspices of Fier municipality, and also one of the activities of Fate Velaj, which follows the same artistic project, successfully performed in Pogradec, some time ago. Veneto Bank continues to support many other artists in their activities to promote artistic values in Albania.
UNION BANK Union Bank to continue its support for Albanian National Football team Union Bank, following its support for Albanian National Football team during last season of 2010-2012, has just renovated its cooperation agreement with Albanian Football Federation, FSHF, by extending its support for Albanian National Football team for 2012 – 2014, when it will play the qualifying matches for “World Cup – Brazil 2014”. Extending cooperation agreement with FSHF comes as a natural decision for Union Bank and its executive management, as the support for the Albanian National Football team by Union Bank, a bank with Albanian equity, means continuing support to those reference values for all Albanians, wherever they live.
www.aab.al • BANKIERI • 31
interbalkan news BOSNia - HERZEGOVINA
EBRD supports Bosnia with a €10 million for on-lending to SMEs
EBRD – 31 August 2012 In the current challenging economic climate, when the availability of financing for small businesses in Bosnia and Herzegovina is limited, the EBRD is continuing to support the country’s real economy sector with a €10 million credit line to Intesa Sanpaolo Bank for on-lending to small and medium-sized enterprises (SMEs).Majorityowned by Intesa Sanpaolo Holding International, Intesa Sanpaolo. The EBRD loan will assist Intesa Sanpaolo Bank in meeting the demand from private sector enterprises for external financing to support them during the economic crisis. “We expect this project to have an immediate impact on the availability of credit”, said Libor Krkoska, Head of the EBRD office in Sarajevo. Since the beginning of its operations in Bosnia and Herzegovina, the EBRD has committed more than €1.4 billion in over 100 projects in key sectors of the country’s economy. Loan portfolio of Bosnia’s banks increases quicker than their deposit collection BNE – 12 September 2012 The loan portfolio of the Bosnian commercial banks increased quicker on the year than their deposit collection at the end of July, matching the trend from the previous period, as the rise in both segments slowed down in comparison with end-June, data from the central bank showed. The Bosnian lenders had extended credits worth BAM 15.73bn (EUR 8bn) towards the end of July, up 4.3% on the year and just 0.34% higher on the month. Their end-June deposit portfolio stood at BAM 12.967bn, up by an annual 2.23% but down by a monthly 0.02%. End-June loan stock was up 4.5% y/y, while the volume of deposits back then was 3.3% higher y/y.
32 • BANKIERI • www.aab.al
Total bank deposits in Bulgaria went up by 6% y/y BNE - 04 September 2012 Total bank deposits went up by 6% y/y to BGN 61.5bn (EUR 31.4bn) in July to 93% of total gross loans, indicating high levels of liquidity in the system, according to central bank data. The annual increase in July decelerated marginally from 6.3% at the end of June. Household deposits continued to post sound growth, rising by 14.9% y/y in July and covering 51.7% of total credits - a record high ratio since Jan 2008. S&P raises Bulgaria’s Unicredit Bulbank short-term credit rating BNE - 04 September 2012 Standard & Poor’s said it has raised Unicredit Bulbank’s short-term credit rating to A-2 from A-3 to reflect the re-
cent raising of the sovereign short-term rating. The rating agency has also affirmed the bank’s long-term credit rating at BBB with stable outlook. In August, S&P raised Bulgaria’s short-term foreign and local currency sovereign credit ratings to A-2 from A-3 as a result of revision in methodology. S&P has also affirmed Bulgaria’s long-term foreign and local currency sovereign credit ratings at BBB with stable outlook.
Deposits in Greek banks posted a 2 percent rise in July Ekathimerini - 29 August 2012
IFC considers EUR 50mn loan to Croatia’s Societe Generale-Splitska Banka BNE - 07 September 2012 The International Finance Corporation (IFC) said it considering extending EUR 50mn loan to Croatia’s Societe Generale-Splitska Banka. The financial sources will be used for lending to small and medium-sized enterprises and companies, working in agricultural sector, the statement said. The loan was expected to be reviews by the IFC board on October, 2012. Croatia’s National Bank: Foreign reserves gone up again in 2012 Balkan News - 13 September 2012 The Croatian National Bank (HNB) Council held a regular meeting on Wednesday, discussing the latest monetary and economic indicators, the HNB said in a statement, adding that foreign reserves had gone up again this year. At the end of June, foreign reserves totalled EUR 11.6 billion, up EUR 440 million from the end of 2011. Their net value was EUR 10.4 billion, up EUR 399 million from the end of December.
Deposits in Greek banks posted a 2 percent rise in July, according to figures released by the European Central Bank, reversing the declining trend which was evident in May and June. The creation of a coalition government in midJune saw deposits grow by 3.2 billion euros in July, rising from 156.2 billion at the end of June to 159.4 billion at endJuly. The total flight of deposits since July 2010 amounts to 58 billion euros, and almost 80 billion since 2009, which is equal to a third of the deposits that Greek banks held at the time. Greece’s Piraeus Bank and Societe Generale reportedly close to agreement Ekathimerini - 05 September 2012 The deal between French credit group Societe Generale and Greek lender Piraeus Bank for the transfer of Geniki Bank is set to be completed by next week, Kathimerini understands, while the sector is eagerly anticipating a decision from Credit Agricole regarding the sale of its Greek subsidiary, Emporiki Bank, also expected to emerge next week or soon thereafter. Sources say that talks between Piraeus and SocGen are at an advanced stage and that it’s only a matter of time before an agreement is reached. Geniki has assets of 2.9 billion euros, loans of 2.4 billion (after provisions) and deposits of 1.9 billion, making it a significant force in the local credit sector.
www.aab.al • BANKIERI • 33
MBDP approves first funds of favorable loans MIA – 23 August 2012 Turkish bankers show interest for Kosovo CBK - 7 August 2012 A Turkish bankers’ delegation paid a visit at Central Bank of Republic of Kosovo, during last August. They were hosted by CBK’s Governor Mr. Gani Gërguri and his aides, who briefed them with a profile of Kosovo’s banking system and economy, and with investing opportunities in it. Governor Gërguri outlined Kosovo’s economic and banking system advantages, as the bedrock for foreign investments. Financial stability and fiscal discipline was particularly pointed out, in the frame of macroeconomic stability, which is typically reflected at the highest GDP growth rate in the region. As regards the banking system, he stressed out the high level of capital adequacy, satisfactory liquidity position and the single digit figure of problem loans. IMF Mission of Financial Sector Assessment Program visits Kosovo
The Macedonian Bank for Development Promotion (MBDP) has approved the first funds of its EUR111 million-cheap loans, Vice-Premier and Finance Minister Zoran Stavreski told reporters on Thursday. Thus far 80 applications for lending funds of the European Investment Bank (EIB) favorable loan of EUR 100million has been submitted, Stavreski said. The EIB EUR-100million credit is the main instrument for dealing with the current economic crisis and it is good that it attracts interest of businessmen. The first EUR 20 million will be handed over in early September, Stavreski said, pointing out that about 80 enterprises have applied and will acquire funds for investing in their further development.
CBK - 19 September 2012 A joint IMF Mission of Financial Sector Assessment Program visited Kosovo during the period 18 September - 2 October. Commencing back in 1999, the Financial Sector Assessment Program is a joint responsibility of International Monetary Fund and the World Bank and provides a profound and comprehensive analysis for a country’s financial sector. Along with assessing the financial sector stability, such assessment focuses also on development aspects of this sector, by taking into consideration a country’s specific features and characteristics.
Montenegro banks’ capital drops by 9.65% y/y BNE - 13 September 2012 The bank capital dropped by 9.65% y/y to EUR 275.8mn at end-July, Pobjeda daily reported, quoting the Montenegrin central bank as saying. The central bank declined to say which of the 11 commercial banks needed capital injection. The main reason for the capital decrease was the negative financial results of some banks posted in the
34 • BANKIERI • www.aab.al
period January-July, which was due to higher provisions for potential losses in banking businesses and higher total costs. The council said that although that there is a considerable increase in deposits, assets and liquidity in July, capital and lending are declining. This provides concerns for the capital adequacy of banks and may lead to capital injection needs.
Montenegro takes EUR 50 million from EIB for support of small and medium business Balkans.com - 14 September 2012 At yesterday’s session, the Cabinet gave its approval to the Investment and Development Fund of Montenegro to enter into a loan agreement with the European Investment Bank (EIB) worth EUR 50 million. The loan is aimed at supporting small and medium size enterprises and development of infrastructural projects in Montenegro, Finance Minister Milorad Katnić said. The arrangement envisages eight-year loan repayment period, with two-year grace period, and the interest rate of 2.5 – 3.5%, the Finance Minister said. It is expected to contribute to the creation of new jobs and economic development, in particular in the areas of agriculture, energy and tourism, Minister Katnić concluded.
Serbia’s CB leaves base interest rate steady at 10.5% BNE - 07 September 2012 Despite rising inflation, the National Bank of Serbia (NBS) opted to leave the base interest rate steady at 10.5% at its session on 6 September. In July, consumer price inflation reached 6.1% y/y, rising above the NBS’s target band of 3.5-5.5% for the first time since January, and prices are expected to increase further in the near term. “While many analysts had predicted another hike in interest rates at the September session, IHS Global Insight does not anticipate further upward movement, particularly after the recent shakeup of the NBS board. Assuming that the government manages to push forward a fiscal austerity plan and reach a new loan deal with the International Monetary Fund (IMF), we expect a gradual decline in interest rates starting in 2013,” IHS Global Insight said.
Bucharest Istanbul The provisioning cost of the Romanian banking system decreased to EUR 469mn in Q2 BNE - 04 September 2012 The provisioning cost of the Romanian banking system decreased to RON 2.1bn (EUR 469mn at the e.o.p XR) in Q2, according to calculations based on the central bank data. The provision cost hit in Q1 was EUR 722mn, the highest cost incurred by local banks since Q2, 2010 and the second highest quarterly cost ever. The provision cost edged down in Q2 from the record value in Q1, but it was nonetheless 12% above the average quarterly cost in 2011. Notably, in spite of the lowest expenditures with provisions, the banks moved in the loss area in Q2 after marking aggregated net profits in Q1. The banks’ aggregated losses were EUR 73mn in Q2, according to our calculations, after EUR 29mn aggregated net profit in Q1. The share of bad loans, including loans under the categories of loss and doubtful, reached 26.1% of the banks total exposure to customers - up from 21.9% one year earlier.
Turkey’s banking industry net profit increased by 12.1% BNE - 12 September 2012 Banking industry’s net profit increased by 12.1% y/y to TRY 13.4bn (EUR 5.8bn) in January-July, preliminary data from the banking regulation and supervision agency showed. The asset size of banks grew 5.5% compared with end-2011, reaching TRY 1.28tn while loans showed a 8.8% increase to TRY 742.8bn. The capital adequacy ratio of the banking industry was calculated at 16.3% as of July 2012, down from 16.5% a month ago. Head of the banking regulation and supervision agency (BDDK), Mukim Oztekin, said in July that he expected banking sector’s net profit to increase by 16% y/y to TRY 23bn this year from TRY 19.8bn last year and Suleyman Aslan, general manager of state-owned lender Halkbank, announced in June that the lender foresaw a 15-20% y/y loan growth in domestic banking sector this year.
www.aab.al • BANKIERI • 35
36 • BANKIERI • www.aab.al
M-PAY, ready to launch mobile payments in Albania M-PAY offers yet another important feature; it provides a tailor-made technological flexibility, making the solution easy to adapt to existing platforms with reduced costs and enhanced efficiency
by Ludovic Laventure, Executive Director of M-PAY
s the world is thriving with all sorts of mobile payment solutions, from Kenya’s traditional MPesa to the Western developments of ultra-high-tech mobile contactless payments, Albania has slightly lagged behind. During 2011 and despite the global overall poor financial environment, this industry kept growing with mobile payment revenues amounting to US$ 47.2 billion. True, Albanians may still be marginally unfamiliar with mobile payments, but the global trend is about to become a reality even in the tiny Balkans country. Recent market developments and the gradual evolution in the banking industry, mobile
network operators (MNOs) and the merchants’ ever growing needs for increased payment efficiency call for the development of innovative, smart, secure and convenient solutions.
A non-exclusive mobile payments solution open to all actors that welcomes all banks, MNOs and utility providers to fully benefit end consumers. No more physical presence, long queues, unnecessary waste of
Simple smart and secure
Mobile payments represent e breakthrough in today’s technological solutions that provide for increased benefits, in terms of enhanced security and volume of transactions. Mobile payments are far more secure than existing plastic card alternatives, internet payments etc. Typically, the time to be aware of losing the credit/debit card is much more than the average time of being aware if you lose your mobile phone. This way the time to react on this is shorter and your mobile payment instrument safer. Concerning M-PAY, an Albanian non-banking financial institution, no segment of the platform is exposed to the public internet, which in turn means that the other segments are private, B2B, secured by several layers of security including: VPN tunnels, dedicated lines, encryptions, digital signatures etc. The payment is done during session-based USSD driven process. The USSD menu is protected by PIN, which in turn is known only by the consumer. Consumers can easily change their PIN, deactivate their account temporarily or definitively, in case of lost mobile phone or doubts. The idea behind is really simple:
M-PAY stands for a truly innovative service: it connects banks, MNOs and merchants into a single all-inclusive platform. Users can access the USSD menu in their phones at any time, check for utility bills to pay and effectuate the payment with a couple of buttons. They can also check their bank accounts and switch between them; manage their accounts, top up any kind of prepaid service, view previous transactions and more. www.aab.al • BANKIERI • 37
time and money, and no complicated procedures. Everything can be accomplished with just a few clicks in a very simple menu automatically embedded in the customer’s mobile phone, enabled by MNOs. M-PAY makes no use of installed applications, and thus any GSM enabled mobile device, from the most recently evolved smartphones to the oldest mobile phone models can perfectly function with the USSD menu. Furthermore, M-PAY is already cooperating with Eagle Mobile and Vodafone Albania. This solution has been architected and constructed with this concept in mind, to be able to connect in the platform all the MNO-s, financial institutions, merchants etc. Multiple modules on our platform simplify this task as it has modules and interfaces for MNO, Banks and financial institutions, utility companies, merchants, etc.
Teaming up with banks
Banks benefit significantly from mobile payment solutions. Customers’ physical presence in their venues is significantly reduced and cash transactions too, while these solutions allow for an increased volume of transactions between banks, merchants and MNOs. In case of Albania, a further development of mobile payments channels is crucial, considering the not-so-well-developed existing electronic channels. According to the Bank of Albania’s 2011 Annual Report, approximately half of country’s population owns a bank account, but only 28 per cent of banked Albanians – i.e. less than 1/3 – use electronic means to execute their payments.
38 • BANKIERI • www.aab.al
The adoption of mobile payments will increase electronic transactions, while providing enhanced efficiency and profits. While banks have at their core business other central operations (such as, lending and deposits), where new digital services that facilitate transactions have a secondary weight, mobile payments companies core business is developing and constantly improving these solutions. It is precisely the placing of a principal and decisive focus what allows the mobile payments company to provide an irreplaceable service for other actors with a different core business. In this regard, M-PAY offers yet another important feature; it provides a tailor-made technological flexibility, making the solution easy to adapt to existing platforms with reduced costs and enhanced efficiency. With its technical platform already finetuned and about to start rolling, MPAY is now cooperating with Societe Generale Albania and Raiffeisen Bank. Being part of this service, banks can benefit not only due to the installation of a functional and synchronized platform, but also from the constant updates with the most recent technological innovations. This approach allows for enhanced interoperability, better overall communication and an increased volume of transactions.
M-PAY starts the engine
In this context, M-PAY is bound to launch its innovative services within the coming months, in cooperation with banks, MNOs, merchants and other key players. After several years of hard work and perseverance, the project has taken shape and steadily aligning partners, who believe in its potential and success. M-PAY embodies both the service and mission to introduce in Albania one of the fastest growing industries in the world. In the market reality, bill payment is a strenuous and time-consuming experience for the consumer and that’s why
The efficiency that mobile payment solutions provide for the banking sector is related primarily to the fundamental focus of the company, to find as many as possible merchants and to facilitate the maximum volume of transactions between them. M-Pay is being proposed as the best way to start developing a mobile payment platform in and for Albania. Surely, once the market will become familiar and embrace this method of payment M-PAY will open up to other types of merchants and vendors, and further facilitating the life of Albanian consumer. Besides the already functional services, the platform will embed new services and opportunities for partners and consumers, which will be materialized in the near future. This is the right time to start rolling and benefit from the opportunities waiting out there to be grasped. As history bears witness, all innovations reluctantly adopted at later stages and with slower pace, are prone to lose momentum and raise higher costs.
ALCO - Asset & Liability Committee, the most important banking committee
ALCO policies/plans’ implementation, allow banks to create an optimal balance sheet structure, which protects them from traditional risks, while maximizing profitability in the mid and long-term
by Erjon TAÇE Head of Treasury Department SOCIETE GENERALE ALBANIA
f no attention is paid to the analysis and forecast of the bank liquidity situation, the uncontrolled growth of credit and the vulnerable bank expansion could have serious consequences. On the other hand of the spectrum, if no attention is paid to the market penetrating and the development of the product per se, the analysis of the liquidity prevailing and being introduced as too much unfavorable, could constrain and even damage the bank growth. It is widely accepted that the opinion of the Head of Bank’s Business Lines should be harmonized with those of Head of Asset & Liability Management (ALM) structure, or Head of Risk or Head of Treasury. It is also accepted that the opinion of Head of ALM or Risk or Treasury should not stand alone, when impacting the future development of the bank business. All these opinions should be elaborated and discussed while supported with valid and acceptable arguments, so that a convergence of forecast (or impact) is met. In this way, decisions for the bank are then very efficient and effective. It is
for this reason that banks have created and maintain the ALM Committee or simply ALCO. Basically, it is committee because it is a combination of perspectives and proposals. A bank business line cannot do without approaching its perspective
For every bank’s ALCO there is at least one objective: ensuring that the bank has, at all times, an optimal profitability and a balance sheet structure which allows for protecting the bank from main risks, related to liquidity, interest rate and exchange rate.
towards the market conditions and near future developments accepted with the consent by ALCO members. Similarly, the business lines perspectives with regard to a product development or activity expansion should not be hindered by a temporarily hesitating ALM analysis.
What kind of decisions does ALCO take and how important they are?
ALCO members include senior managers of the bank. The decisions consist in policies, plans or even special operations guidelines. Normally, banks differ by size, activity focus or even type of market where they operate. However, for every bank’s ALCO there is at least one objective: ensuring that the bank has, at all times, an optimal profitability and a balance sheet structure which allows for protecting the bank from 3 main shocks: 1. Liquidity/Funding Risk 2. Interest Rate Risk 3. Structural FX Risk The perfect structure of the balance sheet does not exist. This is mainly due to the fact that the developments in the balance sheet struc-
www.aab.al • BANKIERI • 39
40 • BANKIERI • www.aab.al
ture are quite dynamic. The banks then mitigate the risks but they operate within an accepted level of risk. At the end of the day, it is a natural indivisible part of a bank’s mission. Consequently, it is for ALCO, which ensures that the bank keeps its activity within these risks’ objectives. Imagine a situation where ALCO members are overlooking the ALM reports or Risk analysis, which shows an increasing difficulty of the bank in accessing the interbank or financial market. The results could be catastrophic even in the short run. Therefore, in the end of every ALCO meeting, as an indispensable part of a (maybe formal) aide-memoire of the management, there are questions that must be addressed with accuracy during the meeting, as following: • Did all members comprehend the position against the risk (limit)? • Did everyone agree on the level of the funding risk? • Did every one agree on forecasts of the impact?
The business of the bank cannot be boosted without a solid support from ALM analysis. A proper ALM analysis and a constructive discussion in ALCO are crucial to a desired credit growth and the success of other products.
• Is this forecast within the risk appetite boundaries of the bank? Going back to ALCO composition, the anchor is still best practices. In this context, best practices suggest that the presence of CEO is necessary to this committee and its decisions, respectively. While confronting the business lines with risk and analysis, equilibrium should be set in order for the bank to clearly decide on the objectives, risk appetite and allocation of resources. The business of the bank cannot be boosted without a solid support from ALM analysis. A proper ALM analysis and a constructive discussion in ALCO are crucial to a desired credit growth and the success of other products. What ALCO decides is reflected directly in the bank’s routine activity. By implementing ALCO policies/plans, banks create an optimal balance sheet structure, which protects them from traditional risks, while maximizing profitability in the mid and long term.
www.aab.al • BANKIERI • 41
Albanian Association of Banks Building Capacities AAB TRAININgS July - september 2012 Training course on Auditing, Detecting and Preventing Internal Fraud at Banks, 5-7 September 2012 AAB, in cooperation with USAID Mission in Tirana and Assist Impact organized a training course on Auditing, Detecting and Preventing Internal Fraud at banks. The course was attended by 32 specialists, coming from Internal Audit Departments of 15 member banks and was moderated by Mr. W. Valen McDaniel. The main scope of training course was identification of internal fraud in loan-making process, as well shortcomings in internal audit activity on procedures and organizational issues.
Workshop on “Raising Awareness on Bank Security”, 17- 18 September 2012 The workshop on “Raising Awareness on Bank Security”, organized by AAB and GLOBAL Community Security Group – Albania, was attended by 12 physical security heads and specialists of 10 member banks and one representative form Bank of Albania’s Physical Security Department. The course aimed at increasing the awareness on risks and threats, faced by the banking sector in Albania.
Training course on “Operational Risk Management”, 10 - 11 September 2012 AAB and IFC jointly organized a two-days training course on: “Operational Risk Management”, moderated by Dr.Yevgen Prokopenko and Mr. Denis Bondarenko. The course was attended by 14 operational risk heads and specialists, coming from 11 member banks and was typically projected as a practical and interactive training course on issues and challenges faced in the course of operational risk management. During the course, several case studies were analyzed by participants, along with group discussions.
Training course on “Leadership Best Practices”, 18-19 September 2012 AAB, in cooperation with Banking Association for Central and Eastern Europe (BACEE), organized 2-day training course: “Leadership Best Practices”. Paul Gauci, a chartered training practitioner and lecturer, moderated this course which aimed at encouraging participants and developing their managerial, communication and motivation skills. The course was attended by 13 managers and supervisors, from 10 member banks.
42 • BANKIERI • www.aab.al
Training course on “Financial and Banking Sector Legal Framework in EU and Albania”, 24-25 September 2012 AAB, together with Bank of Albania and AEDBF- Albania organized a 2-days training course on “Financial and Banking Sector Legal Framework in EU and Albania”. The course addressed institutional and legal infrastructure issues, supporting the financial system markets, and was attended by 13 lawyers and representatives from 7 member banks, 3 representatives form Bank of Albania’s Legal Department, and by AAB Legal Adviser.
Training course on “International Financial Reporting Standards (IFRS) – Advanced Level”, banking & finance, 25-26 September 2012 AAB and KPMG Albania organized a training course on “International Financial Reporting Standards, (IFRS)” – Advanced Level”. The training course was attended by officials of Department of Finance from 5 member banks. At the course, new standards were presented as well as their respective practical implementation. Trainers from KPMG Sofia moderated the course.
Achieving Success Through Self-Motivation Self-motivation isn’t merely important; it’s essential for your survival
t is said that all motivation is selfmotivation. Indeed your family, your boss, or your co-workers can try to get your engine going, but until you decide what to accomplish, nothing will happen. The ability to discipline yourself to set clear goals, and then to work toward them every day, will do more to guarantee your success than any other single factor. Self-motivation plays a critical role in making things happen through the development of one’s own internal locus on control. This is the tendency among individuals to attribute events to either their own actions – through an ‘internal’ locus of control (e.g. taking credit for success or accepting blame for failure) or else through external forces (destiny, luck, etc.) – known as an ‘external’ locus of control. Someone once said: There are three kinds of people: (1) those who
by Paul Gauci1 make things happen, (2) those who watch things happen and (3) those who wondered what happened. People with an internal locus of control make things happen and focus their energies on achieving …through ‘using the moment’. Using the moment means taking control of your life in the moment-right - now, today. To make things happen you need to have… Intent; Desire and Commitment. It doesn’t matter where you are coming from; all that really matters is where you are going. Self-motivation applies to our relationship with ourselves, …and we need an inventory of techniques and ‘tricks of the trade’ that we can employ to move ourselves off dead-center for the sake of our own future. Self-motivation isn’t merely important; it’s essential for your survival. Be seen as someone who wants to accomplish something, to
try new things, to have the courage to take risks, to challenge the status quo, to truly achieve and to excel. Above all get skilled in setting and meeting goals. We all work harder, and better, when the goal we are working towards means something to us. When companies and individuals fall short of their targets, it is often because they were not sufficiently inspired by their goals. When goals are unattainable they lose their power to inspire us and breaking them into achievable targets gives them the potency they previously lacked. As long as you have a goal, when you do fall down, you will fall in a forward direction. When you pick yourself up, you will be a little closer to the goal each time. “There is no dishonor in falling, but only in failing to rise again.”(Japanese Saying).
1 Paul Gauci B.A.(Hons); M.Ed (Trg &Dvpt) Sheffield; Chartered MCIPD is a Chartered training practitioner and lecturer with 25 years of experience delivering training to various organizations within the banking industry at an international level. He has recently delivered two training courses for AAB in Tirana: “Customer Care and Negotiation Skills” training course in June and “Leadership Best Practices” training course in September.
www.aab.al • BANKIERI • 43
44 • BANKIERI • www.aab.al