Albanian Association of Banks Round Table 16 September 2015.

Albanian Association of Banks

Round Table 16 September 2015

Albanian Association of Banks

Content

I. Banking growth and impact to the economy

II. Lending

III. Profitability & Interest rates

IV. NPLs and recovery challenges

Albanian Association of Banks

Banking Sector – in the last decade

Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014No. of Banks 16 17 17 17 16 16 16 16 16 16 16Total Assets (mio EUR) 3,375 4,051 5,072 6,100 6,690 6,424 7,189 8,063 7,984 8,546 8,798

Assets in % of GDP 57% 60% 69% 76% 81% 75% 81% 85% 89% 91% 92%Total Loans (mio EUR) 552 1,042 1,553 2,401 3,205 3,261 3,562 4,036 4,157 4,042 4,232

Lending in % of GDP 9% 16% 22% 30% 37% 39% 40% 43% 43% 41% 42%Total deposits (mio EUR) 2,975 3,570 4,151 4,949 5,007 5,032 5,927 6,586 7,134 7,310 7,624

Deposits in % of GDP 48% 51% 57% 62% 60% 59% 63% 70% 73% 74% 75%

Steady growth ….

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…increased capital invested

Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 15-JunShareholders' equity in (mio EUR)

160 203 266 343 433 577 615 671 700 730 737 792

Capital adequacy (%) 21.6 19 16.2 17.1 17.2 16.2 15.4 15.6 16.2 18 16.8 16

Compared to the region:

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…continuous infrastructure improvement

Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014No. of Bank Outlets 292 392 517 533 559 552 556 546 526 Number of employees 4,263 5,206 6,332 6,384 6,430 6,710 6,820 6,709 6,825 No of Banks - internet banking 1 4 6 10 11 11 11 11 12 No of Banks - mobile banking 5 7 8

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Lending in recent years

Albanian Association of Banks

…compared to the regionTotal Loans (in BN EURO) & Annual Change (In %) 2008 2009 2010 2011 2012 2013 2014

Greece198.0 190.5 251.3 241.9 221.8 212.4 206.8

∆ -3.8% 32.0% -3.7% -8.3% -4.3% -2.6%

Romania54.0 47.5 50.1 53.1 51.2 49.8 48.0

∆ -12.2% 5.5% 6.1% -3.6% -2.7% -3.7%

Bulgaria24.7 25.6 25.9 26.7 27.5 27.5 25.3

∆ 3.6% 1.2% 3.2% 2.9% 0.0% -8.2%

Serbia13.3 13.4 15.5 16.8 16.7 16.0 16.0

∆ 0.6% 15.8% 8.4% -0.7% -4.2% -0.1%Bosnia & Herzegovina

7.4 7.2 7.4 7.8 8.2 8.4 8.6∆ -3.2% 3.5% 5.3% 4.1% 3.0% 2.9%

Albania3.2 3.4 3.6 4.0 4.2 4.0 4.3∆ 5.3% 5.3% 12.5% 3.0% -2.7% 5.2%

Macedonia, FYR2.7 2.8 3.0 3.3 3.5 3.7 4.1∆ 3.4% 7.0% 8.5% 6.8% 6.3% 9.9%

Kosovo1.2 1.3 1.5 1.7 1.8 1.8 1.9∆ 8.9% 13.2% 16.4% 3.8% 2.4% 4.2%

Montenegro0.9 0.7 0.5 0.3 0.3 0.4 0.3∆ -30.2% -26.2% -30.1% -12.2% 22.9% -12.6%

Albanian Association of Banks

New loans & Recovery in 2015

Outstanding loans for year 2015 corrected with the amount of about 80 Mio Euro of bad loans written off by banks from January – June 2015

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Profitability

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Lending interest rates-regional comparison

Average lending interest rate, and spread between loans and deposits rates in domestic currency, as reported by IMF

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NPLs – a regional issue

NPL in % of total loans

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Albania 4.2 2.3 3.1 3.4 6.6 10.5 14.0 18.8 22.5 23.5 22.8

Bosnia and Herzegovina

6.1 5.3 4.0 3.0 3.1 5.9 11.4 11.8 13.5 15.1 14.0

Croatia 7.5 6.2 5.2 4.8 4.9 7.7 11.1 12.3 13.8 15.4 16.7

Kosovo .. .. .. .. .. .. 5.8 5.7 7.4 8.5 8.2

Macedonia, FYR 17.0 15.0 11.2 7.5 6.7 8.9 9.0 9.5 10.1 10.9 10.8

Montenegro 5.2 5.3 2.9 3.2 7.2 13.5 21.0 15.5 17.6 18.4 17.2

Serbia 22.2 23.8 4.1 8.4 11.3 15.7 16.9 20.0 18.6 20.6 23.0

Albanian Association of Banks

Economic slowdown - shortage of liquidity in the market.

Government arrears to businesses.

Lending boom between 2004-2008 with somewhat relaxed lending conditions.

Denominator: Low lending growth - low demand

Conservative regulatory framework (BoA) on the classification and provisioning of non-performing Loans

Judiciary System and lack of efficiency of execution processes

Main Reasons for high NPLs

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Difficult execution of collateral

Obstacles in the courts: Trials extended beyond deadlines specified in the CPC; Unjustified security measures established by Courts for creditors’

claims; Limited expertise of judges on loan contracts as executive titles; Not calculating liability for interest on unpaid amounts (accrued)

Lack of legal provisions, or misrepresentation of existing provisions related to the process of collateral execution

Inaccuracies in the registration system of real estate and missing information in the respective assets files

Lack of transparency in the auction processes conducted by bailiffs (public or private) for the execution of the collateral.

Lack of standards (subjectivity) in the appraisal process; Unreliable / delayed documentation from state institutions

(e.g. OSHEE, etc)

Albanian Association of Banks

Thank you!