ALBANIA ALBANIA Economy and the Economy and the Banking System Banking System ALBANIAN ASSO C IATIO N O F BAN KS SHO Q ATA SHQ IPTARE E BANKAVE Dr. Elvin MEKA Dr. Elvin MEKA ALBANIAN ASSOCIATION OF BANKS ALBANIAN ASSOCIATION OF BANKS 26 26 th th EBF Associates’ Meeting EBF Associates’ Meeting 5 June 2008, Tirana, ALBANIA 5 June 2008, Tirana, ALBANIA
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ALBANIA Economy and the Banking System Dr. Elvin MEKA ALBANIAN ASSOCIATION OF BANKS 26 th EBF Associates’ Meeting 5 June 2008, Tirana, ALBANIA 5 June 2008,
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ALBANIAALBANIAEconomy and theEconomy and theBanking SystemBanking System
ALBANIAN ASSOCIATION OF BANKS SHOQATA SHQIPTARE E BANKAVE
Dr. Elvin MEKADr. Elvin MEKAALBANIAN ASSOCIATION OF BANKSALBANIAN ASSOCIATION OF BANKS
2626thth EBF Associates’ Meeting EBF Associates’ Meeting 5 June 2008, Tirana, ALBANIA5 June 2008, Tirana, ALBANIA
ALBANIAN ECONOMYALBANIAN ECONOMY
ALBANIA - Located in Southeastern Europe (Western Balkans)
Economic Policy Framework
Open Market Economy,
No restrictions on profit and capital repatriation,
No exchange rate restriction, floating managed exchange rate regime,
Albania signed its Stabilization & Association Agreement with the European Union, the first formal step to eventual EU membership (12 June 2006).
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAALBANIAMain Economic Features & IndicatorsMain Economic Features & Indicators
Macroeconomic performance of the Albanian economy has been good overall, with sustained growth and low inflation.
Annual economic growth has been around 6% during the last 5 years; end-2007 at 6%.
Domestic demand mainly driven by migrants’ remittances (EUR 936 million by end-2007) which have significant impact on fiscal revenues and expenditures, as well as by other external current transfers, and rapidly expanding financial intermediation & credit.
Services, agriculture and industry share are respectively at 45%, 22.1% and 14.3%.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAALBANIAMain Economic Features & Indicators Main Economic Features & Indicators
(2)(2)
EU is the main trading partner: 87.7% of exports and 57.5% of imports. SEE is the second trading partner: 9.3% of exports and 16.9% of imports.
Exports and imports for 2007 reached respectively EUR 790 million and EUR 3,07 billion – Net importer
…but all current account financed by remittances.
Foreign Direct Investments, until Sep.07 reached ~ EUR 370 million.
Foreign reserves EUR 1.5 billion, covering more than5 months of imports of goods and services.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAALBANIAMain Economic Features & Indicators Main Economic Features & Indicators
(3)(3)
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
Upward tendency of consumer prices during 2007. Inflation reached 3%.
Fiscal PolicyFiscal PolicyPrudential implementation of fiscal policies, by observing the planned parameters of fiscal indicators, has not transmitted excessive inflationary pressures and has contributed to maintaining price stability. Flat tax rate (10%) introduced by July 2007.
Monetary PolicyMonetary policy of the Bank of Albania has generally had a neutral stance, but following the inflationary pressures during 2007, BoA has taken prudent measures to put reins of inflation and bring it within 2-4% target. Lending economy has been the main source of monetary expansion during 2007, unlike in the preceding years, when this function had been realized by government borrowing or foreign currency inflows.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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Albanian economy experienced relatively high growth rate.
With the exception of 1997 (following the collapse of the pyramid schemes), Albania has consistently outperformed the CEE countries.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAN ALBANIAN BANKING SYSTEMBANKING SYSTEM
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Brief HistoryBrief History
GenesisThe establishment of Imperial Ottoman Bank branch (1863) in Albanian territories.
Central bankingEstablishment of the National Bank of Albania, jointly with Italian and Austrian banking groups, 4 October 1913.
Mixed Central & Commercial BankingEstablishment of National Bank of Albania (NBoA), 02 September 1925.
Communist eraNBoA was nationalized in 13 January 1945 and the Albanian State Bank (ASB) was established, with both functions as central & commercial bank.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
Market EconomyTwo-tier banking system introduced and Bank of Albania established as the central bank of the Republic of Albania (1992).
To dateAlbanian banking system has 16 commercial banks (by 01.01.2008).
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Brief History (2)Brief History (2)
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Universal banking system,
The dominant sector within Albanian financial system, managing more than 97 % of total financial assets,
Mainly foreign-owned (14 out of 16 banks are foreign-owned),
Some big International names entered Albanian banking system in 2007:
- Intesa SanPaoloIMI bought American Bank of Albania and Italian-Albanian
Bank (both banks were merged and by 01.01.08 they operate under American Bank of Albania trademark);
- Société Générale bought 75.01% of Popular Bank.
Almost all privately-owned (some minor state shareholdings),
A highly concentrated banking system, where top four bankshave a share of ~ 73% of total assets.
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Main FeaturesMain Features
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Main Features (2)Main Features (2)
Continuous institutional expansion and development…
Other non-bank financial institutions
[2] Subjects licensed by Financial Supervision Authority, except for Leasing Companies.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Main Features (3)Main Features (3)
More coverage with banking services…
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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2004 2005 2006 2007
Number of employees 2,816 3,479 4,263 5,206 Number of outlets 188 250 292 392 Number of employees per: - bank 176 217 251 306 - bank unit 14 13 15 13 Number of residents per: - bank 194,971 184,410 188,235 186,235 - bank unit 16,593 12,539 10,958 8,077 - bank employee 1,108 901 751 608
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Main IndicatorsMain Indicators
Performance of total assets
Steady growth of banking assets…
Asset structure (in %) 2004 2005 2006
Interbank & Treasury Operations 74 60 51.5
Credit Outstanding 17 26 32
Securities Operations 7 12 15
Fixed Assets 2 2 1.5
0
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mln
EU
R
2001 2002 2003 2004 2005 2006 2007Year
Banking system assets vs. GDP 2001 - 2007
Banking assets GDP
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Indicator Dec ‘02 Dec ‘03 Dec ‘04 Dec ‘05 Dec ‘06 Dec ‘07
Total assets (mln EUR) 2,420.1 2,486.2 3,375.1 4,050.9 5,071.5 6,100 In % of GDP 51.6 50.2 51.9 59.5 69.4 76.6
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Main Indicators (2)Main Indicators (2)
Deposits’ growth
Continuous deposit growth – among the highest in SEE countries.
0
1000
2000
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2001 2002 2003 2004 2005 2006 2007Year
Deposits vs. GDP 2001 - 2007
R etail deposits Total deposits GDP
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in % of GDP 45.8 44.1 48.4 51.2 57 66.55 Retail Deposits (mln EUR) 1,137.7 1,106.5 2,581.0 3,069.3 3,343.4 4,223.3 in % of GDP 25.3 23.0 42.0 44.0 46 53.03
Deposits' Composition 2001 - 2007
8.7
7.7
6
9.4
18.2
16.5
13.1
59
60.2
63.4
59.2
46.3
45
44.3
32.3
32.2
30.6
31.4
35.5
38.5
42.6
0 10 20 30 40 50 60 70 80 90 100
2001
2002
2003
2004
2005
2006
2007
in %
Demand Deposits in AL L Time Deposits in AL L FX Deposits
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Main Indicators (3)Main Indicators (3)
Credit performance
Experiencing a credit boom, but credit ratios still low compared to EU and SEE standards.
Credit to economy 2001 - 2007
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mln
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R
02468101214161820222426283032
in %
Credit to Economy (mln EUR) in % to GDP
Credit/ Deposit ratio 2001 - 2007
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in m
ln E
UR
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in %
Credit to Economy (mln EUR) Deposits Credit/ deposit ratio
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2002 2003 2004 2005 2006 2007
Credit to Economy (mln EUR) 275.5 340.9 552.4 1,042.2 1,553.3 2,401 in % to GDP 5.7 6.8 8.4 14.6 21.3 30.1 in % to total assets 11.5 13.7 16.9 25.1 31.3 39.3 Credit/ deposit ratio 13.5 15.7 19.0 28.5 37.4 46.4
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Main Indicators (4)Main Indicators (4)
Private Sector Loan Structure
Credit Quality
Still good credit quality despite credit boom; retail loans in expansion.
15% 85%
18% 82%
24% 76%
31% 69%
32% 68%
33% 67%
35% 65%
0% 20% 40% 60% 80% 100%
2001
2002
2003
2004
2005
2006
2007
Loan structure 2001 - 2007
retail corporate
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Regulatory FrameworkRegulatory Framework
Law no.9662, dt.18.12.2006 “On Banks in the Republic of Albania”.
Main Licensing Requirements for Credit Institutions: Banks shall be founded as joint stock companies. No
discriminatory restrictions in terms of capital participation and formation.
The minimum amount of initial capital required, paid in cash, in respect of a bank, is not less than ALL 1 billion (for existing banks: ALL 850 million, but from March 1st, 2008 is raised to ALL 1 billion);
Administrators having a business or professional history for the past 3 years,
The bank shall have at least two general executive directors.
Licensing Requirements for bank’s branch office:Similar requirements as those required for Albanian banks.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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Licensing Preliminary approval or deny, within 3 months from
the date of its receipt of the application for a license at Bank of Albania.
A bank or branch of foreign bank, which has been granted preliminary approval shall, within one year starting from the day of the preliminary approval, request in writing from the Bank of Albania granting of the final license.
Scope of activity Universal banking principle.
The range of allowed banking & financial activities a bank may provide is subject of central bank’s approval (no capital quota qualifications).
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Regulatory Framework (2)Regulatory Framework (2)
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Prudential Banking Supervision
The supervision process is carrying out through the following instruments:
Periodic data reporting regarding banking financial indicators, through unified reporting system (reporting various balance and off-balance sheet items, as well as other indicators, as the supervision regulatory framework requires);
Ad hoc (special) reporting of various data;On-site (full scale or targeted) examinations;Off-site analysis.CAMELS system is employed during on-site examinations (CAMELS rankings range from “1” – top performance- to “5” – poor performance).
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Banking SupervisionBanking Supervision
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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Bank of Albania has already approved a set of all necessary and well-detailed rules and regulations, whose implementation help to ensure prudential banking supervision, as follows:
Regulation “On Capital Adequacy”, Regulation “On the amount and fulfillment of minimum
initial capital of the allowed activities of banks and branches of foreign banks”,
Guideline “On Bank’s Regulatory Capital”, Regulation “On Market Risks”, Guideline “On the Liquidity of the Bank”, Regulation “On Significant Risk Management”, Regulation “On Open Foreign Positions”, Regulation “On Bank Relations with persons related to
bank”.
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Banking Supervision (2)Banking Supervision (2)
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Bank of Albania passed the Regulation “On Credit Register Operation”, (18.07.2007), which has entered into force by 01.01.2008.
Its purpose is to define the organization and operational rules of the Bank of Albania Credit Register, as an electronic database.
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Credit RegisterCredit Register
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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The Albanian payment system is run and regulated by Bank of Albania.
Postal service network, part of payment system also, mainly for money transfer ordered by individuals.
Bank of Albania is the operator of two payment systems:
AIPS (Albanian Interbank Payment System), a real-time gross settlement system (RTGS), which processes all interbank big value (equal to or exceeding ALL 1,000,000 (~USD 10,000)) payments (a SWIFT-based Y-copy service, “live” from January 2004).
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Payment SystemPayment System
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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AECH (Albanian Electronic Clearing House) System, an automated clearing system, for processing banks’ payments to their clients (small value payments; “live” from 2005). The system is fully integrated with AIPS and the net clearing position is settled daily in AIPS.
Both systems are owned by Bank of Albania.
Yet to come:- Regulation “On usage of IBAN” (mandatory by May
2009);- Regulation “On Direct Debit”.
ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Payment System (2)Payment System (2)
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ALBANIAN BANKING SYSTEM ALBANIAN BANKING SYSTEM Future Developments & Future Developments &
ChallengesChallenges
Reduction of informal economy,
Further expansion of banking retail networks and products, more banking service coverage,
Introduction of new technology: e-banking,
Full implementation of IAS/IFRS, by January 2008,
Increasing the beneficial effects of remittances, by attempting to channel most of them through the financial system.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE