No. 1 October 2011 Publication of Albanian Association of Banks
The Collateral its economic impact
www.aab.al • BANKIERI • 1
Through an effective collaboration, AAB combines the energies and perspectives of its members to bring positive changes in the system
Blvd. Dëshmorët e Kombit, Twin Towers, Tower 1, 6th Floor, Ap. 3 Tel: +355 4 22 80 371; Fax. +355 4 22 80 359 e-mail: firstname.lastname@example.org;
2 • BANKIERI • www.aab.al
My senior colleagues will remember that before the establishment of the Albanian Association of Banks (AAB), we used to get together under the Albanian Bankers’ Club-ABC. There was some discussion as we converted ABC to AAB as to whether the Association should be that of the banks’ or bankers’. Although we decided in the end for a banks’ association after the international practice, the spirit of bankers getting together for mutual interest has been with us from day one. This publication is yet another product of that sprit. We may all belong to different banking groups and nationalities, but in the final analysis we are all Albanian bankers and “BANKIERI” will further concretize this common denominator. Furthermore, “BANKIERI” will be the industry’s voice to be heard by the authorities, business partners, media and other stakeholders. It will add some flavour to our on-going correspondence with all the stakeholders. Finally, it will be educative in treating banking and financial issues of the day so that not only bankers but also the population at large can improve their financial knowledge. I wish the periodical a great success and thank all those who have contributed.
Seyhan PENCAPLIGIL AAB Chairman
www.aab.al • BANKIERI • 3
No. 1 October 2011
Contents Cover story
Publication of Albanian Association of Banks
BANKIERI is the newest official publication of the Albanian Association of Banks which will mainly focus the Albanian banking industry. BANKERI will provide readers with valuable information on the financial industry's
The Collateral its economic impact
developments in general, and of commercial banks in particular.
p.7 Bankieri No. 1, October 2011
Is the “HONEYMOON” time for banks and business, over? Chairman’s Message
DOSSIER The Collateral and its economic impact
DEBATE Financing throught corporate bonds - A new financing alternative for companies by Elvin Meka
Publication of Albanian Association of Banks Working group for this edition: Endrita Xhaferaj Bardhi Sejdarasi Klodian Tomorri Junida Katroshi Design & Layout: Sonila Krashi Photographer: Gert Hoxha
FINACIAL EDUCATION National Strategy on financial education by Klodi Tomorri From “phishing” to “vishing” by Roland Tashi
Editorial Board: p.16 p.17
THE SYSTEM Deposit Insurance, amid financial stability and consumers’ protection Interview with Skënder Emini & Plator Ulqinaku
THE MARKET Energy Efficiency Remittances, Deposits and Banks by Lindita Varesi
ASK THE EXPERT Payment System in Albania a story of success by Najada Xhaxha
ANALYSIS Albanian Banks cautious to keep the system intact by Klodi Tomorri The neighbour country and its banks in Albania by Kasem Seferi
Christian CANACARIS AAB Executive Committee Member and Chief Executive Officer, Raiffeisen Bank- Albania Flutura VEIPI AAB Executive Committee Member and Spokesperson of the Management Board, Procredit Bank Andrea GALATOULAS AAB Executive Committee Member and Country Manager, Alpha Bank - Albania Executive Director, First Investment Bank
Adrian CIVICI Supervisory Board Member, Bank of Albania
Elvin MEKA Deputy Dean & Chief of Department of Finance, Faculty of Economy, European University of Tirana
Elisabeta GJONI Chairwoman, Albanian Financial Supervisory
Hysen CELA Executive Director, Institute of Authorized Chartered Accountants of Albania
ACTIVITY Albanian Association of Banks Activity
Ioannis KOUGIONAS AAB Vice Chairman and General Manager, National Bank of Greece - Albania
SOCIAL Social Responsability, part of banks’ management and culture
Seyhan PENCAPLIGIL AAB Chairman and Chief Executive Officer, Banka Kombëtare Tregtare
www.aab.al • BANKIERI • 5
By Bardhi Sejdarasi
Is the “honeymoon” time for banks and business, over? Commercial banks have been in the spotlight during last months, following some particular events and their respective actions. These events have generated numerous comments and responses, as well as professional explanations in this regard. The topic that took stage was that related to Raiffeisen Bank’s client, A&B Group, whose holdings were repossessed by the Bailiff’s office, because of a problem loan of EUR 11 million, the A&B Group owed to the bank (according to the bank’s official press release).
What really happened to merit such a particular attention? The bank, as any bank in the world, has commenced the implementation of a normal foreclosure process, in full compliance with legal and regulatory framework, against a business borrower, which hasn’t honored its contractual obligations. As stated by the bank, the above-cited group had stopped paying for a year in row, and was refusing in continuance, any further cooperation with the bank. Let’s say some words about the bank’s actions: “We did some loan restructuring, during last year, by being responsive and sensitive about company’s difficulties. We offered to the company’s owners to carry out a financial analysis, by an international appraiser, whose costs would be covered by the bank. Subsequently, we came back with the offer of co-management with an international expert, assigned by the bank, for a certain grace period for the obligations due and by writing down al penalties - all these offered unfortunately rejected by the company. At the end of the day, all offers were discarded by the company” – the bank announced through a press release, when the event got a central attention.
An event or a phenomenon?
We are not in hurry to label this event (as it happened to Raiffeisen Bank) as the iceberg’s peak of a grave phenomenon. We are just taking this event (which is not a case in particular) as clear benchmark, necessary to understand the phenomenon surrounding the
event. Commercial banks and the respective supervisory authority have all the right to be concerned about the bank collateral enforcement. There are two approaches: (1) All issues and difficulties, related to banks’ collateral enforcements are addressed properly and immediately (involving banks, government and judicial system); (2) the opposite to the first one, where banks would be forced to modify their behavior, in the form of a quite conservative approach toward crediting to economy. There are some certain costs, related to both approaches. These costs may be different to each other, but quasi equally detrimental to banks, whatever the approach.
Business against banks?! Business representatives were, as per the above case, openly supporting an anti-bank public attitude. They urged “finding a common understanding and language”, and even more declared that: “there is the right time for banks to adapt their behavior towards business and entrepreneurship, by acknowledging the new reality in Albania, as well as finding the opportunities for a mutual relaxing of this difficult situation” – as stressed by business representatives in daily magazines. Even Bank of Albania was in the orbit of the above attitude. They declared that: “Bank of Albania shouldn’t be by the business’ side, but it must not support banks preferentially, but at arm’s length”.
www.aab.al • BANKIERI • 7
Something missed out with the declarations? Although having a full understanding about mutual relaxation requirements and conditions, something was missing out in the above declaration and the request for “finding a common language” to overcome the crisis’ situation; practically no word was said about the fact that, this crisis was a global one, which hurt bankers and banking activity, specially their own image.
Banks are business as any other business. Any deficiency in the loan chain and its respective repayment, means increased financing costs, scruffy image for banks and problems with the deposits of the public.
Notwithstanding the official declarations that, banks in Albania owned no toxic assets in their balance sheets, or engaged in improper loan-making activity, the need for ensuring a healthy (banking) system, capable to provide sufficient and continuous credit to economy and individuals, asked for a heightened prudence in terms of keeping banks off threats from internal factors, like the collateral enforcement. Banks are business as any other business. Any deficiency in the loan chain and its respective repayment, means increased financing costs, scruffy image for banks and problems with the deposits of the public. These are the key points, to be clearly recognized and conveyed to the business, who must initially calculate the increased costs it must absorb, which come out from bank
8 • BANKIERI • www.aab.al
financing, shouldering ever-increasing problem loans, weathering pressures of increasing loan interest rates and decreasing deposits’ rates, as well as increasing provisions’ fund. Then, they could require “common language” or “softening” of the crisis, in which they could have been included, so far. Increased problem loans are mutually harmful either to banks or businesses. Banks are still lending more to businesses than individuals, despite the fact that business problem loans are bigger than those of individuals. So, is crystal clear that, the “honeymoon” of banks and businesses is over and this so, not because of meagre banks’ profits, as data of current year show, but also by the fact that the Corporate Albania must understand that, banks’ negotiations offered as an opportunity for a new way out for large enterprises, cannot be exchanged for a total inability to repay the loans due and lack of bank collateral enforcement, pledged as a guarantee for these loans. It is the right time for business to improve the management of its own activity, reduce operational costs and weathering and honouring the contractual obligations with banks, related to respective financing, they have been provided with, by banks. The collateral enforcement is not solely a bank issue, instead it’s a public and far-reaching issue, and all stakeholders must persist in implementing the collateral enforcement. Undoubtedly, this is a win-win practice…
The Collateral and its economic impact Which are the issues raised by the banking industry related to the process of collateral execution, ranging from the increased number of cases taken in courts, the judicial approach to these processes, the difficulties identified in the work of bailiffs and collision in the interpretation of certain legal aspects. The road towards their solution.
hroughout last year, the prolonged lack of liquidity faced by the businesses put banks in front of increasing difficulties in collecting the loans given to the business, loans that for many years now have become a very important promoter of economic development in the country. After using all other methods of debt collection and having exhausted all other options to keep the borrowers’ business active, banks are obliged to undertake the process of compulsory
of the Bank of Albania. In fact, it was Bank of Albania that established an InterInstitutional working group to promote discussion on possible solutions to the difficulties in loan contracts enforcement. In this spirit, Bank of Albania, in July 2011, organized the Open Forum: “Collateral, Loans, Market and Legislation”, with the participation of major stakeholders in the banking system, the Albanian Association of Banks, as well as other institutions involved in this process as the Ministry of Finance, Ministry of Justice, Supreme Court, Public and Private Bailiff, etc. Many issues were elaborated and many solutions were proposed during this roundtable.
What are the “open” issues?
execution of collateral, a process crucial to maintaining a healthy banking system and especially to protect depositors’ money. This process has encountered many obstacles and problems, on which the Albanian Association of Banks has addressed, during the year, through official letter and meetings with institutions such as the High Council of Justice, the Supreme Court, the Ministry of Justice, the Office of Immovable Property Registration, but particularly having the full support
Problems associated with the collateral, are numerous. At the least, a possible consequence in the lending activity shall be the probable modification of the behaviour of banks towards a more conservative approach to lending to the economy. But what is more evident is the fact that the obstacles to the execution of collateral are not related to the market of immovable / movable properties, but rather to regulatory and organisational issues, as well as to the procedural law enforcement. Banks have cited the judiciary system as one of the main obstacles, but not only. They have also expressed concerns over the bailiff officers performance as well as over the certain legal provisions. These problems are still open questions in inter-institutional relations, where banks are risking continuously.
Problems related to the registration of immovable properties • Problems come out with the ownership of properties that are used as collateral for loans granted by banks, at the time of restructuring or refinancing the loan, or at the time of execution of collateral, problems for which banks were not aware at the time of freezing such properties as collaterals. • There are inaccuracies in the registration system of real estate and lack of information in the ownership files, as well as problems with the violation of law or its material misinterpretation. • It is necessary to enable legal certainty in the public registry of properties so that the parties can exercise their rights without being exposed at all times. As a result of insecurity banks are forced to tighten their lending conditions, which influence a shortage of funds to the market. • For all the above AAB and representatives of its Legal Committee had a meeting with the Chief Registrar and other representatives of the Central Office of Immovable Property Registration, where widely discussed specific cases and problems encountered. The Office committed to developing a guide for the local offices of registration aiming at solving part of the problems.
www.aab.al • BANKIERI • 9
10 • BANKIERI • www.aab.al
Kougionas: Our proposals Speech at the Open Forum “Collateral, Loans, market and Legislation” Dr. Ioannis Kougionas Vice Chairman of AAB
anks have continuously credited the Albanian businesses and are committed to do so in the future, thus being a very important promoter of the further development of the economy in the country. In such context, a very important issue is the collateral enforcement. The fast and successful process of execution of collateral is necessary and very important for maintaining a healthy banking system, and essential for a competitive economy. Banks are obliged to protect the money of the depositors and their shareholders. The privatization of the bailiff services had a positive impact in the facilitation of the enforcement procedures. Despite the efforts of the banks and bailiff officers to fasten the execution procedures and execution collateral, by complying with the legal provisions, Banks have constantly faced difficulties in this process. Many of these difficulties are related to Courts processes and
their decisions to suspend bailiff procedures, leading to delays and obstruction of obligatory execution procedures. Also various problems derive from the lack of legal provisions, or misinterpretation of the existing ones regarding the execution process. As results trials are extended beyond the deadline specified in the Code of Civil Procedure and the Courts are issuing security measures, based on debtor’s request, without those request to meet the conditions set by the Civil Procedure Code. Albanian Association of Banks, in order to improve and facilitate, the execution procedures, proposes the following: 1. Amendment of the Civil Procedure Code provisions in relation with the obligatory execution procedures and the issuance of the security measures. 2. Amendment on the legislative framework regulating the registra-
tion of immovable properties, considering that many of the recent problems banks are facing are also related to the ownership of immovable properties. 3. To be examined the possibility to create a section of judges to take care for judgments related to: - claims against bailiff procedures - issuance of executive orders in order to facilitate the Banks during this phase of the enforcement of the execution. 4. Further on, in order to improve the situation with collateral execution, an amendment can be made to the mode of payment for public and private bailiffs: instead of being paid in advance, to be paid in percentages to the amounts collected after or during execution (success fee). It would be motivating for bailiffs to carry out their tasks rigorously in order to achieve concrete results.
Fullani: The business must recalibrate its position “… Difficulties seem to be not only of legal nature, but rather fuelled by bureaucratic behaviour of the institutions in concern. Certainly, banks are out to give loans, but it should be noted that, the stability of the deposits of general public – the ordinary individual - gets more importance, than granting a loan to a certain business, or the portfolio of a certain bank. Furthermore, the business must recalibrate its position, in relation to recent developments, either in the domestic or international economy. The business must seek and reach a higher productivity, by identifying all comparative advantages, within the spectre of global changes.” (Taken by the speech of the Governor of Bank of Albania, Mr. Ardian Fullani, at the Open Forum “Collateral, Loans, market and Legislation”)
www.aab.al • BANKIERI • 11
Dossier Bode: Bank loan collateral – A public concern
“....Given that, the pressure and impact of the global crisis is continuously diminishing, and the impact of respective external factors on Albanian banks is substantially waning, it’s imperative to prevent the domestic ones to threaten the stability of banks. We should not allow that, a sluggish collateral enforcement process, impact banks’ willingness
to extend credit to economy. In this regard, “the collateral issue”, must be addressed instantly, without delay, and with subsequent efficient solutions and outcomes. ...The bank loan collateral is a public concern, because of the specific nature ..... when it comes to the issue of collateral enforcement, it doesn’t mean to protect the mere interests of a certain bank, any private business, but to protect a more broad public interest, namely to protect the general public’s deposits. If we were saved during the harsh period of global economic crisis,
it was just because of having a resilient and safe banking system, which posed no need for any government intervention; otherwise we will be joining the unhappy fate of some hard-hit economies..... Imagine what could happen if the financial system, the banking system could put a big question mark on itself? This would, unavoidably, lead to increased tax burden for businesses, to compensate for the costs created by the country’s financial deterioration in the global financial markets.”
Brikena Kasmi, Deputy Minister of Justice
Liberalization of bailiff’s services, an established practice in some European countries, has been a valueadded move, in terms of speeding up, simplifying, increasing quality and
efficiency of respective enforcement services, due to competition. By closely observing the bailiff’s service, the Ministry of Justice noticed: (a) an improved contesting bailiff’s actions and a faster execution (enforcement) process in courts; (b) widening the range of executive titles, by including
overdrafts and credit cards; (c) better access, by making available the bailiffs’ list through proper notifications and announcements; (d) adjusting creditor – bailiff’s relationship, in terms of accuracy and correctness; and (e) issuing the lawsuit for the creditor, also, along with the debtor.
Artan Zeneli, Chairman of Court of Tirana District Regarding “the contest for bailiff’s actions”, Mr. Zeneli discards the claim that this measure has already lost its own importance, stressing that, this is the only remaining right with the debtor; additionally, as long as the execution order is still to come under a court’s process. Therefore, the title, or
contract, could be handled by the court. This practice may be easily avoided, should the executive title contain a clear and accurate value of the obligation due. Regarding the security measures on debtors’ claim, he stressed the necessity of unified practices.
The follow up ..... The InterInstitutional working group established by • Proposing the necessary changes to the Code of Civil Procedure relating to compulsory execution procedures, Bank of Albania and expanded with the inclusion of in cooperation with EURALIUS. representatives of banks, continued its work led by the Albanian Association of Banks in order to determine • Banks have considered with priority and are providing support in terms of training the judges regarding the further actions to be taken by each institution for the enforcement of legislation relating to the collateral, but implementation of the measures set out in the Open also for a deeper knowledge on financial products in Forum, or set up other courses necessary to address general. common concerns. In general the action plan is focused on the following • Building an awareness campaign aimed at the financial education of businesses and individuals and aspects: organizing joint forums or roundtables with business • Unification of judicial practices by the Supreme Court organizations for better understanding of the products for cases which are interpreted and treated in different of commercial banks. ways by different courts.
12 • BANKIERI • www.aab.al
FINANCING THROUGH CORPORATE BONDS A new financing alternative for companies Companies in Albania could and must consider corporate bond issuance as an important lever to ensure a sustainable and efficient financing for their own activity.
By Dr. Elvin Meka Vice Dean & Head of the Finance Department, Economic Faculty, European University of Tirana
ollateral enforcement is defined as the terminal and extreme act of a bank, in the context of its practical inability to collect its bad loans, by its clients who are not paying back their respective contractual obligations. This kind of phenomenon was a bit unusual in Albana until recently, but it’s a real issue, the Albanian business shall be faced with, now and on. This thorny issue, when combined with effects of global financial crisis and tightening credit conditions by the whole banking system, has already placed Corporate Albania in a position where it must confront a real challenge, in the course of obtaining sustainable mid and long-term funding sources.
The crisis of the system and causes-results of banks’ behaviour
and service sector).(Graph.1) All these factors, substantially impacted from global financial and economic crisis, have inevitably caused a deterioration in borrowers’ repayment ability, therefore increasing problem loans. (Table 1) The funding process of Albanian economy and businesses, remain a quasi-exclusive domain of banks, given the model under which, the Albanian financial system is developed and structured. The banking system is almost the sole provider for business (external) financing, as the share of banking intermediation and banking assets, within financial system, goes beyond 94%. Thus, in the absence of alternative competing funding channels, other than bank (loan) financing, Albanian businesses were faced with “mandatory” acceptance of tighten conditions, offered in a concerted way by all banks, as well as the limited bank loan offer, continues in pg. 15
Graph 1. Credit to business in Albania, Q4 2008 – Q2 20111 !,,
It a well-known story that, although being indirectly hit, in our economy and financial system, from the global economic and financial crisis, and the dynamic intervention by Bank of Albania in preserving the financial health of the Albanian banking system, the business could not avoid the conservative approach in bank lending and a slowing economic activity. Practically, the whole banking system followed up by tightening the credit conditions, initially explained as a logical move, against difficulties and uncertainties in liquidity situation, in the peak of global financial crisis happening, during the last quarter
of 2008. On the other hand, the everincreasing conservative approach, applied by banks, was a direct reflection of their real concern on a deteriorating loan portfolio quality. Conclusively, the impact of global financial crisis on the Albanian economy and business could be summed up in two points: (1) an increasing portfolio of bad loans, and (2) an en bloc tightening of credit conditions, by the banking system. Logically, both results are interchangeably positioned as each other’s cause-and-effect, respectively. Global crisis shockwaves, although indirectly, would be materialized in the form of falling domestic consumption, either for durable or non-durable goods, dwindling liquidity, steady decline of remittances, as well as a slowing pace of investments in machines & equipment (see graph below), which normally are intended to support an overall growing of business activity (mainly manufacturing
Source: Bank of Albania 1
Not adjusted for exchange rate.
www.aab.al • BANKIERI • 13
14 • BANKIERI • www.aab.al
Investments starts in pg. 13
- Banks could use corporate bonds as
Table 1. Problem loans in Albania, Q4 2008 – Q2 2011 (in %) Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 6.6
Source: Albanian Association of Banks (AAB) - (according to NAS1)
throughout 2009-2010. Therefore, businesses had no way out to raise capital and liquidity from sources, different in type an origin, with bank loans, which could have relaxed the impact of bank loans’ tightened conditions and global financial crisis shockwaves on financial system and real economy, too. As per above, a mutually negative impact was evident among bank-business relationship; businesses continued to carry additional financial and non-financial costs, related to its mid and long-term financing, and banks, on the other side, are obliged to absorb and weather, for some full years, the cost of still-increasing bad loans. Thus, an imperative for the business is identifying and finding new fundraising ways and opportunities, to finance their long-term investment needs. One of them could be could be the issuance of corporate bonds, as a practical and efficient funding alternative, not only for companies, but also for banks, themselves.
Financing through corporate bonds – a new financing alternative for companies
The absence of this instrument in the funding agenda of Albanian companies, could be relatively justified, because of: - The current stage of country’s economic development and the necessary time, needed to consolidate the bank loan instrument, within the mechanism of market economy; - The phase of institutional and organizational development of mid-sized and large enterprises in Albania. These companies are in their first phase of development, in the context of Albanian economy as an emerging capitalist economy. Typically, growth companies choose private over public sources of funding, because renegotiating 1
National Accounting Standards.
a troubled loan with a banker (or a handful of private lenders) will generally be much easier than getting hundreds of bondholders to restructure the terms of a public bond issue; - “The crowding-out” effect, played by foreign direct investment, as the bulk of substantial foreign investments in Albania come from companies actually listed in stock exchanges or with easy access into international capital markets; - Lack of possible ratings for these instruments by credit rating agencies and the respective costs accompanying the issuance process, as well as continuous obligations for financial disclosure. Apart from these factors, it should be noted that, the actual situation is quite suitable for Albanian companies to consider any bond issuance, given many positive and favorable considerations such a move could produce to them, as follows: - Bonds compensate the fluctuations in the overall supply of external funds of companies. Even though bond financing is dependent on the economic cycle, it shows less obvious cyclical patterns than bank loans. - The existence and usage of corporate bonds constitutes a more gradual build up of loan repayment inability for companies as they will, during periods of liuquidity crunch, be primarily limited to coupon repayments, rather then adding up principal repayments, too (as in the case of loan repayment installment); - Albania has enacted the legal framework for corporate bonds (Law no. 10158, dated 15.10.2009), which allows and entitles Albanian companies to issue various types of bonds;
a new investment alternative and a bit different one form bank loan, as well as a good opportunity to yield some fees or offering value-added services for their clients in the securities market; - Decreasing systemic risk, as banks are high leveraged institutions and a functioning bond market tends to balance the latter with the bank market, thus lowering this type of risk; - Providing investment alternatives for pension funds and insurance companies, by enabling the latter creating and offering long-term saving and investment schemes and products; - The development of corporate bond market would be a key element of the capital market, which could start providing companies with financing opportunities for some important infrastructure projects, thus discouraging the export of capital, out of Albania. Conclusively, companies in Albania could and must consider corporate bond issuance as an important lever to ensure a sustainable and efficient financing for their own activity. This could be a mutually profitable undertaking, from the economic and financial standpoint, but in a broader picture, it could yield additional benefits, in the frame of developing the financial market and the overall economy in Albania.
Call for an open debate:
Should bonds be considered as a new approach to long term financing by Albanian banks and businesses? Please write to the editorial desk of BANKIERI email@example.com
www.aab.al • BANKIERI • 15
Future through education
The Albanian Association of Banks supports the adoption of a national strategy for better financial information and increased financial literacy
16 • BANKIERI • www.aab.al
NATIONAL STRATEGY on financial education
oday’s financial world has become a complex maze, where many people find it impossible to navigate. This is not a problem only for the underdeveloped countries; the same concern is shared today even by the more powerful economies of the world, where the financial industry has existed for hundreds of years. A study made in 2008 in Italy showed that about 33 percent of the population can not read bank statements, calculate changes in purchasing power or distinguish between different types of mortgage loans and thus calculate their risks. “This phenomenon exists in almost all OECD countries,” observes Mr. Franco Passacantando, from Banca d’Italia. Indeed. In the United Kingdom one out of two individuals who have a bank account is not aware of the current interest rate. In the United States, 50 percent of those who are in colleges and high schools do not properly understand how to manage their debts on credit cards and only 17 percent are able to estimate the returns from investments in securities or savings accounts.
Knowledge of Albanian consumers in the financial area is more or less on a par with regional countries for some indicators, but lower in some other more complex indicators Albania A field survey conducted by Bank of Albania in cooperation with Banca d’Italia, shows that knowledge of Albanian consumers in the financial area is more or less on a par with regional countries for some indicators, but lowers in some other more complex indicators. According to the study, the public in Albania has more or less equal knowledge with that of the region for some concepts like risk and return, or inflation and diversification. Nonetheless, the survey shows that Albanians are less familiar to some more complex concepts like time value of money, the calculation of principal or interest and compound interest. Furthermore, the observations confirm a lower degree of financial awareness in the public. The percentage of Albanian citizens who answer that they closely supervise their own financial affairs is 20 points lower than the average of the region. The same inclination is
Financial Education shown regarding the financial budgeting. Only 12 percent of respondents in Albania answered that they set longterm financial targets and try to reach them. The regional average on this is 33 percent.
From “PhIShInG” To “VIShInG”
Increasing awareness In a market with misinformed consumers nobody wins. Ignorance is not only harmful to consumers. It hits the very businesses and even industries. Banks are aware of this.
ATTENTION! Here’s how your information and money can be stolen!
Adopting a strategic plan for a structured and nation-wide financial literacy would be an important step towards ensuring coordination of all efforts and responsibilities that are shared by public and private stakeholders for the improvement of financial education in Albania “Financial education and awareness help consumers make more informed decisions and protect against risks. A good level of financial education leads to financial market stability and to economic development” notes the Albanian Association of Banks. During the last decade banks’ initiatives for consumer financial education have been several and very attractive and market oriented. Information leaflets, different publications, events with presentations, as well as other types of events near universities promoting learning through interacting, have been some of them. Furthermore, the Albanian Association of Bank has been involved in several occasions and collaborating with different organizations (such as IFC and ASD) in campaigns of public information and education. On the other hand, the regulator, the Central Bank has set financial education as one of its priorities. “In this regard, I would like to highlight the recent contribution that Bank of Albania gave to high school students through the book: “Personal Finances in your hands”, a publication designed for high schools, as part of the optional curricula that students may opt for”, says Governor Ardian Fullani. Everybody is aware that increasing the level of financial education and consumer awareness is becoming an indispensable tool for consumers who live in a globalized financial market everyday more sophisticated. International experience shows that financial education is considered a priority in many countries that have adopted in this regard National Strategies for Financial Education. This experience also shows that the financial education is provided through education programs being promoted by both public and private stakeholders. The Albanian Association of Banks believes that Albania should do the same. “Adopting a strategic plan for a structured and nation-wide financial literacy would be an important step towards ensuring coordination of all efforts and responsibilities that are shared by public and private stakeholders for the improvement of financial education in Albania”, says the Association. By: Klodi Tomorri
Sophistication of robberies a consequence of developments in information technology
By Roland Tashi Vice Chairman of AAB Banking Security Committee
or some time now the phenomenon “phishing” is present, circulates and is being and used by the “masters” of interventions and looting through informatics networks, and much information about it is now available. However, “phishing” (from English: “fishing”) is the definition for an abusive activity, with which through engineering techniques, is attempted to “fish” victims and to ensure the necessary information regarding personal data of a user, through informatics communication networks. In these cases, identification codes, data bank, credit card records, etc., are stolen by the users and then money found in these personal accounts is eventually “unloaded” or “transferred”.
The “Trend” of computer abuse Looting and informatics abuse has evolved even further, is being sophisticated and “improved” as a result of technological developments. From “phishing”, amongst the intelligent or “cold” robberies, as otherwise labelled, is now being used the phenomenon “Vishing”, that undoubtedly accompanies and follows new informatics applications, not only in the banking and financial system, but beyond, down to the level of ordinary users of computer networks.
www.aab.al • BANKIERI • 17
Developments in information technology and their increasing application in banks to improve the quality of customer service, are associated with phenomena of abusive attempts to obtain and steel money and information through computer networks without risking by entering banks premises. The “vishing” type phenomenon this technique, send to individuals, via e-mail, messages similar of looting began to appear for the in terms of graphics, logo and first time in USA in 2006, continuing content, to the ones from banks or later in England, gradually companies where these individuals advancing across Europe, improving are clients and hold their deposits continuously the quality of deception accounts. techniques. Users of this form of e-mail messages fake fraud prefer VoIP communication • The “notifications” to the client (Voice over Internet Protocol), regarding: current account, deposit because this communication in maturity, renewal of interest, relation to traditional telephony repayment of debts, changes of the (PSTN) has more advantages: very terms of the relationship with the low cost for conversation, especially bank, completion of the term of for communications at long distances; use of cards as well as other similar low cost infrastructure, connection to banking activities. a internet network is enough; etc.. • The messages also inform that regarding the mentioned issue How to understand and how to the customer should contact the protect ourselves from “Vishig”? “call center” of the bank on the “Vishing” is the union of terms telephone number and following “VoIP” (Voice Over Internet Protocol) the steps very politely explained at and “Phishing”. the bottom of the email. It determines the setting up of In fact, the telephone number an abusive theft practice, which given in the email sent by the “visher” uses VoIP telephony services, by is not that of a call centre of the banks, simulating a “call center” of a bank. but rather a fake centre where a very At the simulated centre, customers eloquent and polite operator attempts (in this case: the victims) are deceived to obtain by the fished customer his by a fake operator of the bank, personal data in relation to the bank. who attempts to obtain as much The data collected, are processed information as possible on their and administered by the “masters” banking data. of fraud and then used to withdraw Likewise the deceiver of the money or just be transferred as data, “phisher” type, the “visher” one which may serve to damage and uses electronic mail communications, attack an individual’s identity. but in a more sophisticated and The “Visher” can also use an “convincing” process to the ignorant automated calling system to fish clients. potential victims. When someone Methods and forms of fraud of the fished victims responds the are different, depending on the phone call, the system reproduces computerization of processes, but a message that “announces” to the let’s follow the logic and stages of client that there have been problems this phenomenon. with his bank account, credit card, • The masterminds and applicants of etc., and asks him to contact number
18 • BANKIERI • www.aab.al
given in the telephone message. This number is that of the “visher”, which when called, starts asking misleading questions to obtain more confidential information about accounts or other relationships with the bank.
The perfect fraud scheme The phenomenon of information theft and looting through counterfeited “call centre” is increasing. The masters of deception have acknowledged that victims fail to recognize the level of risk that exists in responding to the e-mail and conducting a telephone conversation with an “operator” of the bank and, for simplicity, prefer to choose the chat. Obviously verbal telephone communication, especially, especially when the interlocutor is educated, eloquent, persuasive, correct and competent, greatly influences the outcome of the fraud. Continuing the conversation, its combination with the daily problems and concerns, with sentimental relations, etc., affects the temptation and disorientation of the victim. These fraudsters, who set informatics snare and ambushes, navigate on internet, invisible, merciless, waiting for the right moment to attack your system. They operate with the tactics of hungry predators in the savannas. If the victim is able to identify the fraudsters, they turn away, but do not withdraw from the attack, continuing with the conviction that they will reach other victims, tired and unable to exit the trap. We explained that the telephone communication via the internet, if you do not have the right information
Financial Education and are not aware, puts you at risk of giving individual confidential banking information to persons called “vishers” who communicate disguised as operators of a customer care centre of the bank. Naturally a question raises: how does the “visher” know that the captured victim has a bank account? The imposter has no prior information that the victim that he has fished has a bank account, checking account, credit card or other business relationships with the bank. He attempts through emails or telephone calls, to reach as many individuals as possible with the requests or the misleading information with the hope that someone who has an account or issue with the bank, will respond and so the fraud scheme can be carried on. Informatics fraudsters consider that it is easier and more “economical” to steal information through the Internet rather then deceiving and stealing from the victim’s pockets or wallet. In the pockets of the victim they can probably find just some change, while if through Internet they “hit the mark”, they can make big amounts of money, perhaps in a single night only.
More attention to personal information Using the computer, and through it the Internet, is accompanied with human psychological effects rather special. While searching through various internet sites to find what you are looking for, you feel like in a virtual place, different from everyday’s reality, which does not belong to anyone, and everything that you seek is available. During navigation on the Internet, all are free
and “anonymous” and no one seems responsible for the consequences of their actions. Benjamin Franklin (1706 - 1790, an American polymath, scientist and politician) had correctly predicted the future of caution regarding information when saying that “we should pay more attention especially to personal information”. The development of new technologies that help and improve communication, is followed by their fraudulent usage by “phisher” and “visher” types of fraudsters and robbers, which may create major and sensitive economic problems if they make it to penetrate into banks, companies and large enterprises. With the development of technology, also the fraud methods change, adapt, and become more refined. Despite these, we must understand that the application of new information and communication technologies provide a very important impetus to the development of a country. Negative criminal phenomena, associated with tendencies for fraud through informatics networks, can not diminish or inhibit the incalculable values obtained through informatics developments. It is wrong to think that advanced technology should not be used because they may be risky. In order to be safe while using informatics networks more should be spent on protective measures and for increasing knowledge in this field. In conclusion, let’s turn once more to Benjamin Franklin who claimed that “Spending something sooner is better than spending more later. Having free protection is wonderful, while having an effective protection is much more so”.
In the next number you will read: Preventing and monitoring fraud in the card industry By Enkelejda Balliu, Chairmwoman AAB Card Fraud Committee
BE SMART WHIlE USING yoUR CARD Tips and advice to prevent payment card fraud
Protect your CARD and PIN • Protect your cards and Personal Identification Number (PIN) at all times • Sign the signature panel of the card as soon as you receive it • Cover your hand when entering your PIN and check no-one is looking over your shoulder • Never keep your Card and PIN together. Be Safe at the ATM! • Be aware of any damage or obvious fixtures to the ATM that look out of the ordinary. Please notify your bank immediately • If you believe your card has been compromised, go to another ATM, change your PIN as soon as possible and report it to your bank • If the ATM does not dispense money or return your card, report it immediately to your bank Tips for shopping on the Internet! • Don’t use your PIN while making online purchase, there is no need! • Use a secure and encrypted connection to make your online purchase. Use websites beginning with HTTPS instead of HTTP • Use any passwords that do not include your personal data (birthday, phone number, address).
www.aab.al • BANKIERI • 19
20 • BANKIERI • www.aab.al
Alternative Scheme: How much? How? Why?
Deposit Insurance, amid financial stability and consumers’ protection Interview of BANKIERI with Skënder Emini and Plator Ulqinaku,
It could be the right time for the regulator to consider introducing a desirable deposit insurance target level, which in turn, would shape a more objective insurance premium and payment frequency, in the frame of a solvent and well-capitalized banking system.
Skënder Emini, Head of the Division for Financial Control, Budgeting and Reporting, at Banka Kombëtare Tregtare
Plator Ulqinaku, Head of Risk Management Department, at Union Bank
BANKIERI: Theoretically speaking, a deposit insurance fund must be of a sufficient size, to ensure the probability of banks’ insolvency remains within acceptable low levels. In your opinion, which would be the most suitable ratio between banks’ assets and deposit insurance funds, with DIA1 ? In few words, how the optimal size of deposit insurance fund could be defined, and what’s about the respective Albanian deposit insurance scheme?
Skënder Emini: The rationale behind establishing the deposit insurance mechanism stands with the issue of a country’s financial stability and the protection of small depositors from possible loss caused by a bank failure. Therefore, the size of deposit insurance fund is designated in such a way, to cover with insurance most of depositors of a bank that goes bankrupt, but not those of the entire system. A deposit insurance system (scheme) alone is unable to cover and support, simultaneously, bankruptcies of major banks, in other words a systemic crisis. This is what we have noticed during the recent global crisis, especially in U.S, where the rate of reserve fund turned negative in mid 2009, due to a numerous number of banks and other financial institutions, which went bankrupt. This typical case calls for other financial system’s participants and governance mechanisms to be involved and included, which in turn could help minimizing the effects of such bankruptcies. Current global practice, as well as the Albanian one, generally aims to set the optimal size of the fund in direct relation (ratio) to the average insured deposits, instead 1
Plator Ulqinaku: In this case, it is easier said than done, as there are no established standards. It must be clear that, the practice of clients’ bank deposit insurance is relatively new, within the theory of economy and business. This practice was first introduced in USA, back in1933, when a deposit insurance scheme was officially set up, following the Great Depression and the respective banking crisis. Some 34 years later, it was Canada, which followed suit, whereas European Union would enact deposit insurance schemes in 30 May 1994, through Directive 94/19/EC of the European Parliament and of the Council. This Directive stipulates that, member countries must insure not less than 90% of public’s deposits with an average amount of EUR 20,000. The mission to answer to this question gets more difficult in the context of Albania, where, fortunately, there is no evidence of any genuine bank failures, at least since the moment the deposit insurance scheme became active. BY witnessing this fact we are admitting that the deposit insurance fund at DIA is newly established
Deposit Insurance Agency.
www.aab.al • BANKIERI • 21
Alternative Scheme: How much? How? Why? of banks’ assets, but recently and due to financial crisis, different countries are considering the possibility of setting it in relation to GDP. As far as I am informed, this ratio for other countries stands at an average of 2% - 3% of insured deposits or total deposits in the entire banking system of that country, whereas in Albania, a minimum ratio of 5% of insured deposits is being targeted. Even in Kosovo, the law on deposits’ insurance, which came into force recently, stipulates the same rate: 5%. According to the annual report of the Deposit Insurance Agency (DIA), this ratio, by end -2010, reached the level of 2.2%. I think that, actually, this is a fair practice, and given the current fund size and the targeted one, it is easily noticed a satisfactory coverage rate of insured deposits for a considerable number of banks in Albania.
and still-building up. Practically, by year-end 2010, the outstanding deposit insurance fund at DIA was 0.8% of total banks’ assets, or 1.1% of total individuals’ bank deposits, where the latter are totally insured (covered), up to ALL 2.5 million. If we could have a quick look on the Balkan region or beyond, we see that a country like Bulgaria has a targeted (deposit insurance) fund of 5% of all eligible deposits. Following the actual ratio of “individuals’ deposits to total deposits” fro he Albanian banking system, this targeted fund would be translated into 3.49% of total assets. In addition, USA, as the country with the most stabilized deposit insurance practice, has a targeted fund level at 1.35% of all insured deposits, where this level serves as the obligatory floor threshold. If we can translate the American target level into Albanian banking system, it would stand at 0.94% of total banking system’s assets. It’s obvious that, the Albanian fund is still away even from minimal levels, comparable with USA, and this spell out the need for this fund to get further accumulated. Probably, it could be the right time for the regulator to consider introducing a desirable deposit insurance target level, which in turn, would shape a more objective insurance premium and payment frequency, in the frame of a solvent and well-capitalized banking system.
BANKIERI: The deposit insurance Plator Ulqinaku: Balkan countries Skënder Emini: In Albania, the Law premium in Albania is the highest no. 8873, dated 29.03.2002 “On apply different schemes, and any among Balkan countries and one Deposits’ Insurance”, stipulates a flat comparison with them is quite difficult. of the highest, compared to many premium system (flat fee premium) In Bosnia & Herzegovina, individuals’ countries’ schemes. What could be at 0.5% level for each bank (which deposits are, like Albania, the only newly proposed and what are the could move within the range of 0.1% eligible ones, whereas in Bulgaria ways toward a new accord between - 0.7%), while the average rate in other business deposits are eligible at 50%. DIA and commercial banks? What’s countries could range between 0.15% In Serbia and Romania, all deposits are the share of deposit insurance - 0.35%, depending on the premium eligible. Insurance premiums range premium, paid by the banking system, system in place. Despite this, there from 0.3% of eligible deposits in Bosnia in the total expenses of the banking are countries with lower rates than & Herzegovina to 0.8% in Romania; system for 2010? Albania, and some others with higher the latter calculates the premium on premium rates. Practically, the newly the outstanding deposit amount, at introduced deposit insurance scheme the last day of the year (31 December). in Kosovo, stipulates higher premium rates, which vary In Serbia, the premium is 0.1% per quarter (i.e. 0.4% p.a.), from 0.3% - 1.5%, based on risk classification/valuation whereas in Bulgaria it is calculated as 0.5% of daily average (examination) grade, banks receive from the Central balance of eligible deposits. So, as previously cited, the Bank of Kosovo. This choice, in my opinion, makes sense comparison is fairly difficult. Beyond comparison game in the frame of less developed, or developing countries’ and to give an exhaustive answer to your question, one environment, which have a higher degree of perceived should consider the features of Albanian banking system, risk and in this regard, alternative financial resources, as well as the implications and impact this premium does, insurers could possess, are therefore limited. on the overall business of banking industry in Albania. In the case of Albania, as you know, the legal It’s so important to know that the banking system in amendments made in March 2009 (in the Law no.10106), Albania is fairly solvent and liquid. By end-year 2010, which entered into force in 2010, led to an increase in loans, as the most risky assets, represent just 47.5% of the amount of insured deposits, from ALL 700,000 to total assets of the banking system. The rest was invested ALL 2,500,000, by leaving the premium level intact, thus in Albanian Government securities (approx.33.4%), causing a substantial increase, approximately by 82%, placements with other banks in Albania (11.5%) and cash of the annual cost to the banking system in relation to and other fixed assets, which altogether pose quite a low insurance premium paid to DIA during 2010. According risk for the system.
22 • BANKIERI • www.aab.al
Alternative Scheme: How much? How? Why? to DIA report, the annual premiums, collected from banks for 2010 were ALL 1.941 million, which account for approx. 8.5% of annual total costs of banking system’s activity. This figure is fairly large, compared to banking system’s profit (approx. 30%), given that the banking system’s net profit for 2010 was at ALL 6.7 billion.
Furthermore, the ratio loan-to-deposits is far away from 100% (57.1 by end-year 2010), showing that banking system have enough free capacities for credit expansion, without further needs for external financing. So, having a solvent banking system in Albania, means that banks have adequate liquid assets to cover and redeem all covered deposits. Additionally, DIA’s pay-box function is less risky, when banks routinely redeem covered deposits, as liquid assets decreases DIA’s potential obligation, by turning the latter rather overcapitalized. On the other hand, banking system in Albania is well-capitalized, enabling it to weather and absorb potential losses from ordinary activity, without being constrained to fire sale its assets. Again, the risk undertaken by DIA is diminished. Another unavoidable issue is the cost of insurance that negatively impact banks’ profitability, which in the course of saving their margin shall try to transfer the additional costs to clients, by lowering deposit interest rates. It is indeed true that deposit interest rates must reflect the cost of funds, based upon market mechanisms, but it should be noted that, lowering interest rates beyond these mechanisms, just for the sake of absorbing additional costs of deposit insurance premiums, makes banks less attractive for clients, hypothetically decreasing the deposits’ volume. The last scenario is not among the best even for DIA itself, as it means less income from insurance premiums, which go proportionately with deposits’ volume. In this regard, it is important devising a healthy balance between, premium level, its respective costs and positive effects in public, which makes the latter more confident in depositing with the banking system, and also allowing for further development of banking activity, in a position to be able absorbing costs without far-fetched interventions into market mechanisms. continues in pg. 25
www.aab.al • BANKIERI • 23
Alternative Scheme: How much? How? Why? starts in pg. 23
BANKIERI: Discussions among experts
have revealed differing opinions Plator Ulqinaku: Although the riskSkënder Emini: Yes, indeed. Actually, about two deposit insurance based premium scheme seems to we got in numerous discussions about schemes: the flat premium and have some advantages, given that it is both deposit insurance schemes, as risk-based premium scheme. based on fair and measurable indicaregards the premium rate. As above What is, according to you, the tors, many banks in Albania do precited, Albania, but not only, does most suitable scheme for our fer the flat premium scheme. Let’s be apply the flat rate premium scheme banking system, should a change more concrete: for all banks. Instead, many countries, in the deposit insurance fund be The main advantage of risk-based including developed countries further considered? What are the premium scheme is that it allows for or countries with a consolidated supporting arguments and what adjusting the premium to realistic levinfrastructure of the financial system could be the pros and cons of the els, based upon risk – i.e. risky banks (e.g. U.S.A, Canada, Turkey, etc.), selected scheme? will pay more (bigger premium) and adopt the risk-based premium scheme, less risky banks, will pay less. In this based on assessed individual risk for each bank. BKT has, during various meetings with Deposit Insurance Agency and Bank of Albania representatives, clearly expressed its opinion on changing the current deposit insurance system, from flat premium to risk-based one. This is so, because the risk-based scheme is consistent with the general theory of insurance, which takes into account not only the potential damage, but also the risk of its occurrence. Also, such a system would be not only fair, by “penalizing” banks which undertake more risk in their activities, but at the same time it will orientate banks towards less risky activities, thus improving their risk management systems. Flat premium schemes have the sole advantage of being quite simple and relatively easy to understand and implement them in way, there is an instinctive incentive for banks to ensure practice. better risk management, and therefore avoiding additionThe most difficult aspects, as discussed by experts, al and unnecessary premium payments. are related with the practical implementation of the riskHowever, the biggest disadvantage of risk-based prebased scheme, in the terms of finding appropriate methods mium scheme is that, it could give grounds to subjective to classify the level of risk for each bank, different risk considerations. Practically, small banks would be burcategories and the premium rate for each category. In this dened with more risk and more premium expenses, comcontext, it is recommended that different premium rates pared to big ones, therefore being placed in a competitive should be designated in such a way to ensure and preserve disadvantage, for reasons not related to their business, not a sustainable funding level, required by the insurer, and to mention their real risk profile, not necessarily linked by effectively encouraging a healthy management of bank with the size of the bank. risk. So, the real concern is that, using different approaches In conclusion, BKT would kindly bring to the attention toward banks would result in relative profit or loss, esof the relevant Albanian authorities the option of pecially toward risk-averse banks. Furthermore, this introducing the risk-based premium scheme, where bank’s scheme risks an adverse or negative public perception for risk classification could be based upon the examination any certain bank, based solely on the figure of risk-based grade, given by Bank of Albania to each bank, examined premium, by deepening even more the competitive disadand assessed on CAMELS system, a practice recently vantage of that bank. applied in Kosovo. To conclude, I’m of the opinion of avoiding complexiIn this way, differentiated premium rates could, for ties, accompanying risk-based premiums, and stick to specific categories of risk classification, be calculated in the flat premium scheme for all banks. This premium is such a way as not affecting a possible decrease in the total simple, and easy-to-implement, either from regulator or amount of premium, which is currently collected by the banks, and above all, it is quite neutral in the eyes of the public. Deposit Insurance Agency. Interview by B. Sejdarasi
www.aab.al • BANKIERI • 25
lbania’s goal of becoming a fully fledged, competitive, market economy continues to be hampered by the insecurity borne out of consistent problems with the energy supply. The frequent power shortages have a negative effect on private-sector productivity and investment activity. Albania’s economic development will be hindered until the issue of a stable energy supply is solved, and the solution cannot be but twofold: a) increase the amount of energy supplied to the market by renewable energy and b) increase the efficiency of energy use in the market. Involvement of financial institutions in energy
efficiency loan projects will increase the impact of overall energy savings through households. Commercial banks are oriented towards development by providing full package services / banking products through a responsive service. Part of this responsibility is the obligation to operate in accordance with social, ethical and environmental concerns. Today the only possible way to reduce energy costs, protect the environment and wisely use the natural resources is without doubt the ENERGY EFFICIENCY.
Two banks launch products for the promotion of energy efficiency.
roCredit Bank was the first bank in Albania that dedicated a special attention to the efficient usage of energy, offering a dedicated product. The “Energy Efficiency” loan is structured to finance all investments in business premises and dwellings that bring efficient use of energy and its conservation. The introduction of this new product was made possible through the cooperation of ProCredit Bank Albania and the European Fund for Southeast Europe (EFSE) and KFW, both well-known worldwide companies supporting developing economies. This loan helps families and businesses reduce energy costs and influences on improving the living standards of individuals. Businesses have the opportunity to reduce monthly expenses and electricity bills through reducing energy consumption. A very important benefit to businesses is that they get a competitive advantage in the market.
26 • BANKIERI • www.aab.al
The bank has had an increasing trend of the energy efficiency credit portfolio. Since the start on of this product in July 2009 its portfolio has reached over 6 million Euro, and it has been noted a growing interest from the client’s, since energy is an issue that affects everyone. With the support of the IPC (International Project Consultant one of the largest shareholders of ProCredit Holding and a well-known international company consultancy
provider for developing projects to economies), ProCredit Bank owns an advanced technology for the calculation of energy savings for the more potential business sectors in Albania, by the time they invest in efficient products. For example: If a client has a bakery activity and invests in a new baking oven with a 30 kWh capacity when the working hours are planned to be around 10 hours/day, then the annual energy savings would be roughly around 460 000 ALL. Business consultant’s officers in addition to the financial advice offer technical advice related to investment in energy efficiency products. ProCredit Bank has given its own example in terms of adopting energy saving methods by investing in its Green Branch Lapraka. With this and other initiatives ProCredit Bank confirms its commitment to an approach that respects the environment and improves the lives of citizens.
redins bank is seriously committed to the initiative taken by the IFC, to promote measures to enable energy savings. More specifically, in February of 2010 Credins Bank and IFC signed an agreement, according to which Credins would finance the loan “Energy Efficiency”. The social obligation to be part of the promotion of energy saving incited the bank managers to give their approval for the launch of a product which is totally dedicated to saving electricity. Through the “energy saving” loan, clients are funded up to 10,000,000 ALL, with a maximum term of 7 years. If by February of 2010, Credins Bank financed its clients through loans for the reconstruction of basic housing facilities, today it offers more detailed information about the methods and devices for energy saving. The clients is given accurate information on the quantity and value that he can save if realizing an investment that is based
on the use of energy saving methods, made possible by a Tool developed by the IFC. Explicitly, when the client comes in the bank asking to be financed with a loan for housing reconstruction, he is been explained regarding all the measures that can be undertaken in order to increase energy efficiency in his apartment. For each investment that he could make he is provided
with the estimated savings of the electricity bill and a list of companies that offer devices that provide electrical energy savings. During the 18 month period, the “energy saving” loan portfolio has reached 1 million Euro, and a total of 240 credits. From a study done to the portfolio it has been realized that most of the investments made by clients are such as: a) buying double glazed windows doors, b) purchase of efficient appliances, c) and d efficient lighting ) purchase of equipment to provide protection from solar radiation (tents, grills). Credins Bank will be focused in the future to extent the financing of energy savings also for the business. In the same spirit, will continue the promotional campaigns in order to raise the public awareness about the benefits of using energy saving methods and the benefits we can get from the environment we live in.
Energy efficiency and the Banking System
he Albanian Association of Banks, in light of the recent developments in terms of energy efficiency, has been engaged for the involvement of its member banks in this market. Thus, AAB has supported, participated and cooperated in organizing activities for the introduction of financial mechanisms to promote energy efficiency and finding ways of mutual cooperation. Among them: • In June 2011 IFC, in cooperation with the National Agency of Natural Resources (AKBN) organized the seminar “On energy efficiency in buildings”, with the participation of representatives of banks and AAB, KFW, GIZ, UNDP, and AKBN. • In July 2011, AAB hosted at its premises a round table organized with the Albanian Program for Market of UNDP, where was presented to banks some conclusions regarding the feasibility of financial mechanisms to promote solar panels for hot water.
What clearly emerges from discussions in such forums is the need to create a new market and a favourable environment for cooperation, and for the provision from the Albanian government or donors of subvention schemes for the necessary financial mechanisms to support energy efficiency. www.aab.al • BANKIERI • 27
An “Alternative” view on remittances, savings and liquidity
remittances, DePoSITS anD BanKS
by Lindita Varesi MBA & PhD Candidate Finance & Banking SBB Credit Risk Supervisor, National bank of Greece Albania
anks in Albania are mainly focused on increasing deposits, as the key source of financing in this sector. Foreign financing in banking industry are limited and banks itself do invest predominantly in loans and other banks (placements), in Albania. That’s why bank’s policies and strategies insist in deposits’ growth, especially during this year, which has, in economic terms, been a particularly difficult one for neighbor countries. Deposits’ growth is directly related to savings, consumption and income levels. The main drivers for income growth are increasing individuals’ salaries, companies’ profits and remittances’ growth. Consumption was growing with 1.6% and 0.9%, respectively during the first and
57% of remittances’ recipient households, use all amount received, by no saving anything. The rest, or 43% of recipients, use up to 65% for consumption/ food and the remaining part goes for savings and investments; only 6% save the entire amount. 28 • BANKIERI • www.aab.al
Banks must be more passionate with small businesses, listen to their requests and change the attitude towards them. Also, they must consider a review of their financing policies in this regard.
second half of 2010. This growth is totally credited to salaries’ increase, as other financing sources and remittances have recorded low levels, if not negative rates. Much has been said about a decline in remittances, during the period of June - August 2011. Some banks link the decline in their deposits exactly with the decline in remittances. It would be more than necessary to identify the real motives, behind this remittances’ decline. It is true that remittances play an important role in individual’s income growth and in stimulating business, especially small ones, but they are not considered as a sufficient condition for deposits’ growth. During 2004-2008 remittances were instrumental in the Albanian economy, and therefore in the development of banking industry. Beginning of 2009 and on, they started the unstoppable decline, where for 2009 and 2010 they declined, respectively, by 6% and 11.7%, compared to 2008 and 2009. Finally, for the first half of 2011 they
continued the downward trend, by declining with another 12% and 19%, compared to the same period for 2010 and 2009, respectively. Despite the decline in remittances, the deposits have been increasing. Deposits and remittances have moved in opposite directions, moreover, deposits have been increasing substantially. According to Bank of Albania’ s data, total deposits for 2010 reached ALL 816.7 billion, from ALL 649.3 billion in 2009, with the annual average growth of 15.5% (a 18.5% annual growth rate – yoy), thus marking the highest growth rate. The largest deposit inflow is recorded between the period of June – September. Time deposits accounts for 78.6% of all bank deposits, compared to 77.2% in 2009. So, the way how remittances are utilized, is more important than the amount of remittances, itself. According to the Study “Impacts of Remittances’ Decline in Albania”,
The market conducted and published by AGENDA Institute, about 57% of remittances’ recipient households, use all amount received, by no saving anything. The rest, or 43% of recipients, use up to 65% for consumption/food and the remaining part goes for savings and investments; only 6% save the entire amount. Up to 47%, out of savings, is kept home and is not deposited with a bank.
Migrants have started to come back home and use their savings to start new small businesses, in areas where they obtained experience and expertise. As per the above findings, it is clear that the deposits’ growth is mainly driven by growth in savings from citizens living and working in Albania. Practically, remittances increase the living standards, consumption, but not savings, at least not at those levels we believe they do. Economic crisis in neighbour countries and social integration of Albanian migrants in these countries led to remittances’ decline, but it, simultaneously, opens new opportunities for economic growth. Migrants have, following the recent economic distress in these countries, decided to come back home and use their savings to start new small businesses, in areas where they obtained experience and expertise. In Fier, for example, 270 small businesses, out of 310 new businesses, were registered during the first months of 210. This is the best signal for banks to wake up and refocus on needs and requirements of this business group. Banks must be more passionate with these businesses, listen to their requests and change the attitude towards them. Also, they must consider a review of their financing policies in this regard, by using various approaches for small and mid-size enterprises. Thus, banks could assist these businesses to increase their income, by increasing indirectly bank deposits, as the key source for necessary financing liquidity.
The Award is geared towards any academic work which addresses either the evolution of the savings banks systems or savings in the community in general. Specific attention to historical aspects of savings banks is particularly encouraged. The winner will be awarded a prize of €5,000, the second place finalist €2,500 and the third place finalist €1,500. Publication of the winning manuscript will be considered in one of the following publications dependent on the theme and relevance and readability of the work: • “Cahiers de l’épargne” of the “Association pour l’histoire des Caisses d’Epargne” • “Perspectives” of the “European Savings Banks Group” • “Sparkassen in der Geschichte” of the “Wissenschaftsförderung der Sparkassen-Finanzgruppe” • “Estudios” de la Fundación de las Cajas de Ahorros Confederadas para la Investigación Económica y Social For more information and to send your research, please contact the following address firstname.lastname@example.org.
www.aab.al • BANKIERI • 29
30 • BANKIERI • www.aab.al
Ask the expert
By Najada Xhaxha Chairwoman of AAB Committee for the Payment Systems
The new banking system in Albania has a 20-year history. Despite fluctuations in the early years, new banking system laws along 98 created significant opportunities for developments of the banking business. New foreign banks are already opened, followed by new features, different mentalities and high professionalism, quality and quantity of services enabling the breaking of a mentality related to the way of doing “banking”.
Speaking of stability and efficiency in the financial sector and nation economy, estimation are the most diversified. The same can be said also for the banking system, which has been studied and commented in many dimensions, presenting the advantages and occurred developments, for its support and the role it has played in setting priorities for the Albanian economy. This article will try to see the development of payment systems in Albania and the impact they have had as main pillars of monetary funds within the country.
Payment System in Albania a story of success Background
Before the ‘90s all potential functions of a banking system were performed by the Central Bank, starting from the currency emission, granting short or long term loans, beneficiaries of which were the state enterprises themselves, ministering the service of the unique cash, keeping the income and expenses accounts of state funds, conserving funds in local currency, caring out the economic and financial transactions with other states. There were no products or services concepts related to the consumer society, nor allowing the existence of private economies, either small or large.
Developments of payment systems With an extreme centralization basis start on, the new banking system in Albania has a 20-year history. Despite fluctuations in the early years, new banking system laws along ‘98 created significant opportunities for development of the banking business. New foreign banks are already opened, followed by new features, different mentalities and high professionalism, quality and quantity of services facilitating the breaking of a mentality in regards of doing “banking”. The same logic applies also to the operational part of banks functioning, which come into view throughout the operational systems infrastructure, part of which is that of payments. If we do compare with other countries, where dozen years systems, administered by Bankers Associations or other domestic institutions, regulated the functioning and performance of local payments
we cannot state the same thing. Up to 2000, Albania did not have a proper payments’ system. Banks communicated and performed these activities manually, regulated and adapted by the guidelines. Year 2000, together with the Euro, would require a general restructuring of the existing systems. To precede the economic and financial developments, conditioned from this new currency, the Central Banks of the European developed countries created a common system, which would carry out the well functioning of the financial relations between them. TARGET1 is named the first European system, through which central banks carried out their monetary operations. This period coincides with the decision of the Central Bank in Albania to implement a National Payment System. Coherent and with no nostalgic feelings for a payment system that did not really exist, the banking community in Albania
www.aab.al • BANKIERI • 31
Operational issues decided to build the infrastructure based on an European platform by adopting it to local conditions and currency. However, we can proudly state that our National Payment System, implemented and launched in 2003, is a modern, competitive and adequate to support the government and the Albanian economy towards the European integration. For the time being, it was a successful achievement of the Albanian banking system, this compared with some developed countries in the region.
The Albanian economy and functioning of payment system Is very important for the Albanian economy to promote the normal functioning of the payment systems, where Bank of Albania, as its manager, plays an administrative role. In Albania there does exist already two payment systems: central system AIPS, based on the concept of RTGS (Real-Time-Gross-Settlement) and the complementary one AECH, through which Bank of Albania offers the sense of net settlement payments in local currency. Bank of Albania defines standards and regulations to ensure the effectiveness of these payment systems and their instruments. Also, Bank of Albania assesses the system alignment with these standards acting also as a catalyst. These systems are analogous to the European ones and operate under their technology and regularity. Thus, AIPS based on RTGS principles operates under its infrastructure, representing a potential to its suitability for participation in TARGET 2. AECH is a complementary system that operates under the AIPS as part of its rules, simply compared with the European system SEPA (Single European Payment Area). Central Bank - Bank of Albania has a major role and an obligation towards the development of national payments systems. This way reflects the efficiency and safety of the payments systems, while commercial banks remains their main players. Also, parts of these systems are the processing and settlement of cards (credit or debit) payments that operate in the Albanian market through the ATMs or POS network, the settlement of Treasury bills transactions, collection of state budget revenues, etc. Graphic1. Transactions progress with AIPS during 2007 - 2010
An important project, end of the first stage Letâ€™s stop for a moment analyzing the relationship between State Budget actions and payment systems. Until late in 2009, financial operations of revenue collection and obligations payment that the state collects or has towards third parties were realized through the check/payment order instrument, closing the cycle of their settlement payments manually in AIPS system. Beginning of year 2010, Ministry of Finance has become part of the national payments systems, as a member with restricted rights. The project to realize this membership has taken three years and the first phase is finalized, setting the effectuation of state obligations through a consolidated life systems in the country. Ministry of Finance has become an â€‹â€‹indirect user of the SWIFT system by utilising the AIPS system for big value / or urgent payments, and the AECH system for non-urgent payments in a small values. The efficient use of these systems in performing payments generates rights and obligations that commercial banks and the Ministry of Finance should comply with in order to serve the economy and consumers. This includes organizational and functioning rules of the Ministry of Finance Treasury communication systems (AMoFT) and AIPS and AECH systems of the Bank of Albania. As shown in the above diagram, the all Treasury Department branches in the country of Ministry of Finance, which administers the state budget funds, are part of the system. Branches are connected in real time and work in accordance with the central system at Ministry of Finance, sending automatically information related to payments data. These instructions are sent to the central payments system at Bank of Albania,
/PPGUSBOTBDUJPOT 7BMVFPG5SBOTBDUJPOT CJMMJPOT-&,
AECH system Number of transactions Value of Transactions (billions LEK)
Source: Bank of Albania
32 â€˘ BANKIERI â€˘ www.aab.al
#SBODIFTPG.P' DSFBUFTUIFQBZNFOU GJMFT
5SFBTVSZ CSBODI 5SFBTVSZ CSBODI 5SFBTVSZ CSBODI
5IF.P'TZTUFN FYQPSUTUIFGJMFTUP "*14"&$) TZTUFNJO#P"
"*144ZTUFN *NQPSUTBVUPNBUJBMMZQBZNFOUT GJMFTBNPVOUFEPWFS"--NJO &YFDVUFTUIFWBMJEBUFE QBZNFOUT
"&$)4ZTUFN *NQPSUTBVUPNBUJBMMZQBZNFOUT GJMFTBNPVOUFEVOEFS"--NJO &YFDVUFTUIFWBMJEBUFE QBZNFOUT
Source: Ministry of Finance Treasury system
#BOL #BOL #BOL #BOL #BOL
Operational issues A wider participation, being that of utility companies may be worthy and will expand the field of utility bills standardization, enabling the unification of their processing in the banking system. This will further reduce the operational costs of payment systems, strengthen the confidence and cooperation of businesses with banks and would create a modern system of finance management. where, according to the amount and systemic importance are processed from this system. According to their instructions, the payment ends at to the commercial banks, where the beneficiary’s customers hold their bank accounts. In this first stage, through the payment systems, Ministry of Finance carries out the effectuation of transactions on behalf of the state budget expenditures, including payments to third parties, budget salaries, benefits and other liabilities.
Less cash, less expenses The second stage of this project is about the inclusion and processing of income payments in favor of the State Budget, through these systems. This is an ongoing project and its full successful implementation will complete the payments automation cycle to and from the State Budget. Their execution by the National Payment System bears a full monitoring and reducing of the uncontrolled cash movement. Also, it reduces costs for these operational transactions, from the Government part as well as for other participants. Closely linked with this second stage is the construction of a contemporary infrastructure from the General
In the next number you will read:
Physical security in banks By: Mr. Bajram Ibraj; Mr. Qirjako Taçe & Mr. Sokrat Dylgjeri
Directorate of Taxation for tax administration. Collecting taxes from entities that perform their activities in the country is very important for the state budget therefore this institution, in cooperation with the Ministry of Finance and Banks in Albania, realizes the execution of these duties. The use of electronic alternatives launched on the market from the banking system, brings an innovation in this service. Through the e-banking service could be realised the payment settlement and the on-line declaration of business obligations. This process requires the participation of all the factors that operate and benefit from these services. Standardization and unification of obligations documents (tax forms, social security & health care, bills for collection) certified and equipped with the “bar code”, will be a useful investment for building a modern infrastructure, efficient and a long-term one. Commercial banks, Ministry of Finance and the Bank of Albania should cooperate in the selection and the successful implementation of this infrastructure, considering its cost. Experiences and examples from region countries, but not only, can be a significant guide for us. Meanwhile, a wider participation, being that of utility companies may be worthy and will expand the field of utility bills standardization, enabling the unification of their processing in the banking system. This will further reduce the operational costs of payment systems, strengthen the confidence and cooperation of businesses with banks and would create a modern system of finance management. Also, the government legislative support plays an important role in this project.
www.aab.al • BANKIERI • 33
34 • BANKIERI • www.aab.al
An overview, some assessments
ALBANIAN BANKS cautious to keep the system intact As the economy becomes more formalized more salaries are paid through banks, financial statements of businesses become more reliable and the chances for credit increase. Yet some experts still prefer to be cautious.
By Klodi Tomorri
n March 1997, when the law had ceded and Albania was thrust into the street’s anarchy, a bunch of armed gangsters attacked with an armoured tank the local branch of the former Savings Bank in Gjirokastër. The event, which was covered also by the foreign media, left everybody speechless. Unlike the spectacular robberies in the classic movie scenes or the ordinary theft at the cash tills, the world had never witnessed a bank robbery with a tank. For most of the adult Albanians, memories of the tremendous anxiety of that bad year are still vivid today. The collapse of pyramidal schemes, where Albanians lost about 1.2 billion dollars savings, was followed by anarchy at the edge of civil war, with robberies and murders, where the state did not exist and the law was made by street gangs. More than 12 years after these events nobody could have imagined that the Albanian banking system would have been among the few in Europe that would successfully face the global financial crisis, which did not spare even the giants of the world banking system. That was due to several reasons. First, the limited integration of the country in the world economy and the global financial system kept it safe from exposure to the so called toxic assets and bad banks. The market for corporate securities did not exist then and neither does now, and there was no stock exchange to collapse.
Caution pays However it would be naive to think that the Albanian banking system survived the crisis only because it was underdeveloped. The International Monetary Fund declares that today Albania has a solid banking system due also to prudent policies that were pursued in the past. “In 20072008 when we designed a series of regulations, which reinforces the supervision and were based on cautiousness, we were often accused of being conservative. But today we are benefiting the results of such cautious policies” says Indrit Banka, head of the Supervision Department
at Bank of Albania. At the end of the first half of this year the total banking system deposits were 825.4 billion Lekë with an increase of 15.2 percent compared with last year. The 16 banks rely on a strong deposit base, an indicator that has always kept on above 80 percent of the sector assets. The ratio of loans to deposits at the end of June 2011 was 62.5 percent, significantly below the average of Central Europe where this figure stands at over 106 percent. The capital adequacy ratio at the end of last year was 16.2 percent, notably above the 12 percent limit. During this time Bank of Albania has been
www.aab.al • BANKIERI • 35
An overview, some assessments prudent to thoroughly supervise the system and to strengthen the regulatory measures. In December 2009, the Supervisory Council approved a new regulation “On liquidity risk management”, which basically changed the definitions of what is considered as liquid assets, by being more conservative. The new regulation on liquidity introduced a regulatory limit for the indicator of liquid assets to short-term liabilities, an indicator that is reported by banks each month on weekly basis and for all currencies should not fall under 20%. In December 2010 this indicator stood at 30.6%, and by currencies was at 42.9% in ALL, 15.6% in EURO, and 23.9% in USD. While the world’s financial system was beginning to experience the first signs of what would later be regarded as one of the worst crises since World War II, Bank of Albania in cooperation with the private banks was projecting new regulatory measures to keep the system intact.
The revival of lending According to Bank of Albania, in the first 6 months of this year, lending to the private sector grew by 11.5%, a rate about 1.5 percentage points higher than that of the second half of last year. Unlike past years, the lending activity shows a higher orientation towards lending in the domestic currency. Credit in Lekë had grown by about 14% until May 2011. Lending performance continues to be affected by the moderate demand for loans, while the banking system has adopted prudent lending practices, keeping credit conditions tight for specific market segments. For example, financing of private consumption through consumer loans remains
Return to stability With all these caution measures, the collapse of Lehman Brothers in September of 2008 transmitted some panic to the market. Customers rushed to the bank counters withdrawing around 15 percent of the deposits. But because the system was liquid there was no sign that banks were in danger. In the first months of 2009, deposits started returning in the system. During the more difficult year, in 2009, the Albanian economy grew by 3.3 percent and accelerated to 3.9 percent in 2010. Similarly, banking sector assets grew by 6.3 percent in 2009 and 11.8 percent in 2010 reaching over 990 billion Lekë or 81 percent of the Domestic Product. The net profit of banks last year was 6.7 billion or 89 percent more than in 2009. RoAA indicator was estimated at 0.72 percent, much higher than that of end of 2009 at 0.42 per cent, while the return per share (ROE) was 7.58 per cent, compared to 4.58 per cent in 2009. Yet, this indicator remains below the 10.3 percent level recorded in 2008-en due to the impact of nonperforming loans.
36 • BANKIERI • www.aab.al
low; the outstanding consumer credit has a very slight annual increase of only 0.4% during the first quarter of 2011. Mr. Gazmend Kadriu, CEO of Union Bank says that consumer loans are hindered to a great extent by the lack of infrastructure such as the shortage of a formal system of addresses. However, experts expect that the revitalization of credit for the remainder of the year shall persist more for businesses rather than for individuals. Good performance of deposits has helped banks have ample liquidity and create more space for their involvement in lending. Nevertheless, even business loans face many barriers. Many bankers highlight the weak governance of businesses and their
often unreliable financial statements, as inhibitors for the lending. “The Albanian Economy is still subject to high informality”, said one of them.
Better lending For many experts, one of the main challenges of the banking system in general shall be lending to good customers. They think that the lessons of the crisis will not be easily forgotten and will serve to hold banks careful to the importance of prudent lending criteria. In fact, some signs of improvement are already visible. In February last year the Government inaugurated a national database of addresses, while from several months now private bailiffs have started to function in the country. The slow execution system has been an old distress for banks; the introduction of the private bailiff is likely to improve the situation. Government has done is part through the establishment of private bailiff, it is now time for the courts to have their say. Mr. Petrit Qarri, from the National Chamber of Bailiff says that generally, on loans involving large amounts the courts tend to be rigid and procrastinate the processes. According to him, this must end quickly because a fast execution system is in the best interest of all. “It would be good for the country, it is good for banks and even for the clients themselves,” says Qarri. Furthermore, some other laws are pushing economy towards its formalization. Transactions greater than 300 thousand Lekë are now obligatory to be carried out through banks, and finally all the businesses are equipped with the fiscal electronic devices and the public administration should now monitor their usage. As the economy becomes more formalized more salaries are paid through banks, financial statements of businesses become more reliable and the chances for credit increase. Yet some experts still prefer to be cautious.
SOCIAL RESPONSABILITY, part of banks’ management and culture
TIRANA BANK The initiative of the Albanian Red Cross “Blood Donation”
Tirana Bank has been the initiator of the of blood donation activity among Albanian Banks. Also this year its employees have participated extensively in this humanitarian act, organized in collaboration with the Albanian Red Cross, ranking this institution in first place on a national scale on regard to blood donation.
“One citizen one tree” initiative of the Municipality of Tirana
Tirana Bank has supported for 3 consecutive years the “One citizen, one tree” project launched by the Municipality of Tirana. Since 2009 has been contributed to increasing green space along Rruga Elbasanit and Rruga Durrësit and Parku Rinia.
ALPHA BANK Social responsability awarness, handyman support
During year 2010, Alpha Bank-Albania had: Sponsored the Fair Handyman Masters of Pogradec city. Visited the Elderly House of Tirana, a visit which brought smiles and joyful moments for the elderly people, a community that needs’ care and love. Alpha Bank employees delivered various gifts relevant to urgent needs of the asylum, and spent several hours talking with its inhabitants.
FIBANK Supports students' employment
FIBANK sponsored also this year the project organized by the Municipality of Korça city on Students Seasonal Employment. The Korca Branch in cooperation with city hall officials organized the closing ceremony of this event at the branch premises. During the ceremony, where attended by the Major of Korça, city hall officials, the Executive Director of Fibank, Fibank employees and around 60 students involved in this project, were distributed certificates signed by both institutions. This project is considered a successful one for our bank because it had created a sustainable relationship with the municipality.
www.aab.al • BANKIERI • 37
A retrospective view
By Kasem Seferi Economist
reek capital has contributed so much in transforming the economy of Greece’s neighboring countries, as it has been recently estimated that, more than 8,000 Greek enterprises have invested throughout Balkan countries, whereas up to 20% of their total turnover is realized in these countries. There are many ways, this Greek capital “invasion” is conducted in Balkan countries, but the most interesting is that of banking channels, where Greece owns a modern and economically profitable banking system, playing a crucial role in the frame of the recent crisis in Greece and other Balkan countries, especially in Albania, where Greek banks hold a substantial market share. The main reasons why Greek banks invested heavily in Albania could be summarized at: high rates of economic growth and the existence of an underdeveloped and inefficient banking system, which was under a large privatization process. These factors offered unique profit opportunities, due to increased demand for bank loans, either form households, or various manufacturing and service enterprises mostly foreign ones. Albania’s average GDP’s growth rate, for some 5-10 years in a row has been at 6%, obviously higher than the average EU 27 GDP’s growth rate, of 1-3%. The list could be also added with the so-called “matured” Greek banking system, which has been experiencing withering profit margins, and
38 • BANKIERI • www.aab.al
The neighbour country and its banks in Albania In which ways will be helped the Balkan countries, especially those tightened by external debts, in facing the crisis? therefore the need to weather direct competition from other European banks, coming from Austria, France, Italy and Germany, which, for the same reason as Greek banks, were concurrently interested to seize and build market share in the Albanian banking system. Additionally, Albanian labor costs, which are 2-3 times lower than Greek ones (and 30 to 70% of those in Central & Eastern European countries, respectively), as well as the overall Greek State, EU and other Western geostrategic plans for Balkan Countries.
Greek Banks and the State Greek banks, in their attempts to expand their business, have been widely supported by the Greek State through the so-called “economic diplomacy”, which helped “the national interest”, as well as the overall Western military and economic presence in the Balkan Countries. HiPERB, the Hellenic Plan for the Economic Reconstruction of the Balkans, undertaken by Greece as an EU country and mainly focused on Albania, Bosnia & Herzegovina, Bulgaria, FYROM, Montenegro, Romania and Serbia was an effort to ensure a social, economic and political stability in Southeast Europe, through infrastructure’s modernization, promotion of manufacturing investments, as well as supporting democratic institutions and rule of law. Another important objective of HiPERB was supporting Albania to-
wards its European perspective, given the two countries’ proximity, historical and cultural links, as well as the existence of Greek minority, as an essential rationale for the increased presence of Greek banks in Albania, not to mention low tax rates and other incentives, offered by Albania. During the last ten years, Greek banks have deeply penetrated into Albanian banking system by pursuing a strategic goal of gradual growth for retail banking services. In 2005, Greek banks held 35.7% of total loan portfolio; but they were not the only foreign banks, which have invested in Albania, as statistics show that until end-2007, foreign banks owned 94.2% of total loan portfolio within Albanian banking system.
Albania and its economy By the viewpoint of Greek banks, the situation in Albania, during the precrisis period, could be prescribed as follows: high economic growth rates
(According to EBRD: 1997 – 10.9 %, 1998 - 8.6 %, 1999 - 13.2 %, 2000 - 6.5 %, 2001 - 7.1 %, 2002 - 4.2 %, 2003 - 5.8 %, 2004 - 5.7 %, 2005 - 5.7 %, 2006 5.5 %, 2007 - 6.2 %, 2008 - 6.9 % and 2009 - 3.3 %), fast pace of privatization process, penetration of foreign capital into vital sectors of economy (including banking sector), economic growth caused by the demand side and based upon national consumption and by external demand (exports plus remittances). However, the economic crisis has revealed its own symptoms, according to EBRD, the 2009 marked a decreasing GDP growth rate. The high economic growth rates of previous years were commonly based on consumer demand, which was financed by increasing-in-parallel bank loans, which means that, the lack of liquidity at Western European banks will primarily impact the loan conditions of their subsidiaries in Albania. The Greek example is quite exceptional, because when Greek Government provided a EUR 128 billion package for domestic banks, the Governor of Greek central bank was quick “to advise” them (Greek banks) “being prudent” to expand funds for their own subsidiaries throughout Balkan countries The consequences of credit contraction, if it was really meant and implemented, may have been quite detrimental to Albania, as we witnessed, during 2010-2011, an accelerated decline in consumption and investments.
In addition, foreign investments, which are utilized as an important source of income for Albania, are expected to decline, mainly because of economic troubles, accompanying developed countries. Also, the remittances from Albanian immigrants, a key factor for the Albanian economy’s health (IMF estimates remittances from Albanian immigrants, living in Greece were on average at US$ 778 million/year, during the last decade, with a total number of immigrants at 500 thousand), are expected to be negatively impacted by the crisis. Massive layoffs and lack of job offer, as direct consequence of the crisis, would push these immigrants to turn back home (in Albania), which was associated with increased pressure in the labor market and increased unemployment.
The economy against currency stability The devaluation pressure on national currency (ALL) against EURO and US$, has become an additional burden on national economy, thus dragging it into the dilemma: devaluing or defending the ALL value! Keeping ALL stronger risks dragging the economy deeper into troubles and decline, whereas devaluing it means increased default, as businesses and households would be unable to repay bank loans, in a time when exports have declined, following shrinking imports form Greece. The effects of crisis in Albania could mean everything, because the comparative advantage of prominent presence of Greek banks in this region could turn into a comparative disadvantage, for the following reason: the imminent economic turmoil may cause adverse effects in the domestic
market of Greek mother banks, since the default risk from loans granted, by those subsidiaries during recent years, is not substantial, especially in cases when a devaluation of the national currency (ALL) occurs, which increases the household’s obligations for loans they got through Greek banks’ subsidiaries. According to Greek Government and Bank of Greece, Greek banks are secure, despite the fact of having an extensive presence in the Balkan countries. Furthermore, Greek banks risk losing their market share in Albania, because bank deposits would move toward other banks. This is not a Greek concern only, instead Austrian authorities, which immediately realized a clear Balkan collapse, were so active in this regard, given the substantial exposure of Austrian banking interests in the Balkan region. Practically, the Austrian Government was asking EU to intervene and support the economies of Southeastern Europe with a special aid package, a proposal rejected by EU. In this regard, there are some complex issues, which must be addresed by Western European countries and international institutions, like: (1) What kind of support would be provided for Balkan countries to weather the cirisis, especially for those which are faced with a sizeable foreign debt? (2) Could be any room for an EU role in supporting Balkan Countries’ economies, either new EU members, or potential candidates? Albania, under current circumstances, seems to be in a better position, thanks to relatively limited integration with world economy, and also because of its well-capitalized and solvent banking sector, as Bank of Albania puts it.
www.aab.al • BANKIERI • 39
40 • BANKIERI • www.aab.al
AAB & Statistics
Albanian Association of Banks Activity during January - September 2011 OPERATIONAL ISSUES
On Banks’ fees and commissions
Law on Fiscal Amnesty and capital legalisation
To provide more information in view of the public debate on fees and commissions of banking services, AAB Secretariat prepared a report / analysis comparing the fees and commissions of banks in Albania with those applied by 15 banks in 9 different countries in the region, which was shared with the public through a press release, and published in AAB’s website.
The proposal for changes to the Law On Income Tax In quality of member of the Business Advisory Council (BAC), AAB received in April 2011 a draft proposal for changes to the “On the Income Tax” that aims at non recognizing as tax deductible expenses employees’ bonuses, and changing the corporate income tax rate from flat (10%) into a progressive one, based on profits margins of companies. AAB, in behalf of all its Member Banks, addressed its opposition to the proposed changes to BAC and the Ministry of Finance, based on many arguments, both political/economical and technical such as: the importance of bonuses to the management of banking activity, the adverse effects that the progressive income tax shall have on the economy in general due to the unprecedented type of rate proposed to be applied, that affect also small businesses, and the adverse effects in the foreign direct investments, so much needed for Albania.
In view of the new Law on Fiscal Amnesty, and in order to facilitate for the proper implementation of the Guideline issued by Ministry of Finance for the assets and capital legalization at banks, AAB Secretariat organized a meeting in June 2011 with representatives from the Ministry of Finance and Bank of Albania. Subsequently AAB required some amendments to the Guideline which were accomplished and a further Workshop was organized by AAB with the purpose of informing banks’ personnel about the procedures to follow with the customers in the operational side of the implementation of the whole process. In addition, AAB sponsored an informative TV spot to inform customers on the facilities offered by all banks in the process of the legalisation, which was broadcasted in five TV channels during July 2011.
AAB COMMITTEES’ ACTIVITY AAB Card Fraud Committee (CFC)
AAB Compliance Committee (CC)
CFC had two meetings during the first half of the year where its Members mainly discussed on the latest developments on the Card Fraud activity in Albania as well as prepared for the Albanian National Fraud Forum. Two more meetings of the CFC followed in July 2011, (the last one joined with the BSC) where the main topic of discussion were the latest developments and card fraud activities, and on the joint efforts to be undertaken by banks and the police forces in order to detect and capture the fraudsters.
The ongoing communication between CC and the General Directorate for Prevention of Money Laundry continued throughout the first half of 2011, where 3 meetings were organized with representatives of both parties and those of BoA, with the major aim of improving the reporting of banks to the Directorate for an enhanced fighting of money laundering activities. Main issues were the new Law on AML approved by the Parliament in March, its interpretation and implication for the banks and on the preparation of the Guidelines for its implementation.
www.aab.al • BANKIERI • 41
AAB & Statistics AAB Legal Committee (LC)
AAB Payments Systems Committee (PSC)
LC gathered in January 2011, in a meeting with representatives of the Municipality of Tirana, in order to discuss regarding the procedures of execution of the blocking orders of the Municipality of Tirana. In June, representatives of the LC had a meeting with the Head of the Central Office of Registration of Immovable Properties (ZQRPP), to discuss issues of concern for banks related to immovable properties used as collateral for mortgage loans. It was a constructive meeting that resulted in administrative solution for some of the issues.
PSC had its first meeting of the year on February 2011, with the participation of representatives from the Ministry of Finance, and Bank of Albania. Participants discussed issues of concern of banks related to the payments of treasury of public institutions. In the meeting held in June participated representatives of Bank of Italy in the context of their twining project with BoA, which presented the possibility of realization of a national scheme for debit cards.
AAB Bank Security Committee (BSC)
AAB Information Security Committee (ISC)
BSC had five meetings during the first half of 2011. In the first meeting in January the Committee elected its new chairmanship where Mr. Bajram Ibraj and Mr. Sokrat Dylgjeri were reconfirmed as the Chairman and Vice Chairman respectively, and the second Vice Chairman was elected Mr. Roland Tashi, from Procredit Bank. In its meetings BSC members shared information on events and experiences with security issues, and discussed on relevant topics such as strategies and best practices on preventing banks’ robberies; Business Continuity Management; obligations and procedures of safety at work, as well as more practical issues.
The newly established AAB ISC had its first meeting in January 2011, in which its Members elected the Chairwoman – Ms. Anila Hoxha from Raiffeisen Bank, and two Vice Chairmen – Mr. Akil Ndrenika from BKT and Mr. Valsi Thomollari from Alpha Bank. ISC had two more meetings in April and June where its members discussed on the program and objectives of the future work of the Committee; Business continuity and Crisis management; the ISO standards; types of attacks such as phishing and malware; Data protection law in Albania and applicability in Banks; Online security in eBanking and mobile banking; Centralized Logging; importance and tools for Awareness; on digital signatures, legal framework and usage; etc.
EVENTS Albanian National Fraud Forum
This first Albanian National Fraud Forum was organized by AAB and its Card Fraud Committee, on April 15th, 2011, at Sheraton Hotel, Tirana. It covered key industry developments from both technical and management, and fraud prevention and investigation perspectives. Participants were
42 • BANKIERI • www.aab.al
representatives of the Albanian commercial banks, employees of the State Police forces and Albanian Prosecution, as well as representatives from: OPDAT, Bank of Albania, partner companies Visa Cards International and MasterCard, Intesa Sanpaolo Card, the company Printec Albania, and representatives of the Kosovo Card Fraud Forum. There were several presentations regarding: the risk analysis of the value of fraud transactions in Albania for year 2010; best practices of tools and techniques used to monitor and prevent card fraud; overview of fraud trends and the best methods for effective monitoring, as well as the recent developments from
MasterCard; the strategy of VISA Card in relation to the reshaping of the security of payment systems; technological solutions and devices for preventing fraud offered currently in Albania; successful concrete cases of investigation, prosecution and arrest of criminal groups; etc..
AAB & Statistics TBA Training for Albanian bankers
Membership at BACEE
The Turkish Banking Association organized a one week training seminar on “Banking and Finance” for 10 Albanian bankers, where all participants had the chance to extend their knowledge’s on the topics such as: financial products, on IFRS standards, risk management and branch management, as well as were presented with facts and experiences on the development of Turkish banking sector after the financial crisis and the regulatory framework adopted.
The Secretariat completed the membership of the Albanian Association of Banks in BACEE after having confirmed that AAB Members would have same benefit as being BACEE members at BACEE’s events.
General Data For Banking System - AugUst 2010 / 2011
mio ALL No.
2.1 Retail loans
2.2 Corporate loans
3.1 Retail deposits
3.2 Corporate deposits
90,689.4 in % 16.85
Problem loans/Total loans Ratio
No. of outlets**
Card with a cash function
Card with payment function
No. of ATMs
No. of POS
No. of Transactions with Cards*** Transactions’ Volume with cards (mil LEK)***
* June 2010 / 2011 ** December 2009 / 2010 *** Accumulative data for the relevant year.
www.aab.al • BANKIERI • 43
44 • BANKIERI • www.aab.al
“BANKIERI” will be the industry’s voice to be heard by the authorities, business partners, media and other stakeholders. It will add some fl...
Published on Nov 1, 2011
“BANKIERI” will be the industry’s voice to be heard by the authorities, business partners, media and other stakeholders. It will add some fl...