Gent Sejko: Albania's banking sector progresses but four key
challenges remain
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the third AAB Conference on
Banks for Sustainable Development, Tirana, 14 May 2019.
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1
Your Excellency Madame Minister ,
Dear Chairman of the Albanian Association of Banks,
Dear representatives of the banking sector, dear guests,
Let me first congratulate the Albanian Association of Banks on its 20th anniversary. The
Association, which came into being as token of emancipation in the banking sector, has become
now a genuine platform of communication and coordination within the banking industry, and a key
player in the economic and financial life of the country.
I would also like to congratulate the organisers for this event, which helps the banking sector,
regulators and policymakers alike, to identify the challenges lying ahead and explore the best
alternatives for addressing them.
Dear ladies and gentlemen,
The banking system in Albania has made considerable progress over the last two decades. To
illustrate my point, I would like to bring to your attention some facts and figures. Over the span of
two decades, the portfolio of bank credit has expanded significantly, leaping from 5% to 35% of
the country's GDP. Similarly, the volume of deposits - in other words, the volume of savings of
the Albanian public administered by the banking sector - has grown from 45% to 70% of the
GDP. At the same time, the number of households, whose deposits are guaranteed by the
deposit insurance scheme, has increased six fold, to 2.4 million. In parallel with quantitative
indicators, the Albanian banking sector has developed, has become more cutting-edge, and has
marked significant progress in the range of bank products and payment instruments that it
provides. Lastly, and equally important to the development indicators, this sector has proven
resilient to shocks and - unlike many other experiences in regional countries - it did not need to
use public funds.
While highlighting, on the one hand, the progress made insofar, I would like to point out that the
banking sector development - and of the financial system in general - has not been a linear one:
it has constantly faced challenges of different forms and types. These challenges have required
prudence as well as active, intelligent and courageous decision-making. I am confident that our
combined experience may and will help us in future decisions.
Therefore, I consider this conference as an excellent opportunity to reflect on certain challenges
that we may face in the period ahead.
First, let me present a brief overview of the economic and financial situation and development
perspective for Albania.
As we have repeatedly said, the Bank of Albania deems that the Albanian economy is set on a
steady path of improvement of its cyclical position. Aggregate demand has expanded leading, in
turn, to acceleration of economic growth, increase in employment and wages, better utilisation of
production capacities and improvement of the financial situation of enterprises and households.
In parallel, the balance sheets of the banking sector are sound and improving. The key
parameters of liquidity and capitalisation are above our regulatory requirements, the
nonperforming loans ratio is on a clearly downward trend, and the banking sector appears profitable.
In addition, as a result of the consolidation process underway in the banking sector, new actors
have been introduced to the market - I take this opportunity to welcome them - and premises for
fostering competition and efficiency in the banking system are created. Lastly, our stress tests
show that this sector is capable - overall - to withstand shocks.
This process has been anchored to prudent economic policies: monetary stimulus, fiscal
consolidation and prudential supervision and regulatory policies. In particular, let me point out that
the Bank of Albania has earnestly worked on the following:
Approximation of our regulations to European Union standards and Basel Committee
requirements;
Improving the supervision architecture of the financial system and strengthening safety nets;
Improving the credit environment by facilitating the solution of issues related to
nonperforming loans; and,
Developing and expanding further the financial and payment systems market.
Dear ladies and gentlemen,
The banking sector plays a key role with regard to the administration of the savings of the
Albanian households, intermediation and allocation of funds, and expansion of financing
instruments, risk management and payments. The level of accomplishment for these functions
will be mutually related to the pace of Albania's development in the long-term horizon.
From this perspective, let me identify four primary challenges for the sector:
First, the banking sector should accomplish better its intermediation role in the economy. The
improvement of soundness indicators, the reduction of credit risk and the consolidation of the
banking sector should pave the way for a more active approach of banks to lending. The financial
capacity of the country should be reflected better in lending to Albanian enterprises and
households.
Second, the banking sector should pay more attention to the efficient allocation of funds, toward
more productive and high-potential sectors in the long term. The banking system, in general, is
matured enough to discern between good and bad borrowers, thus minimising problems arising
from moral hazard and information asymmetry. Yet, the constant financing and the reallocation
of capital provide the basis for the development and restructuring of the economy. In this regard,
banks would need to identify profitable sectors, which may guarantee added value for the
economy and employment, and support them with funds.
Third, in parallel to the improvement in the allocation of funds, more efforts are needed for the
financial inclusion of the population. The improvement in access to finance, coupled with
concrete initiatives to deep financial education of the population, with which it is in a complete
symbiotic relationship, helps enterprises and households to capitalise their growth potential, by
generating profit for themselves and gains for the economy.
Lastly, modernisation and innovation should be an important and long-term priority of the banking
sector. A constant evolution would provide the premises for a sector that is competitive and
efficient and avant-garde with regard to technological development in Albania. Taking into
account the insofar substantial impact of the banking sector on the advancement and diffusion of
innovation to other sectors, this investment would be necessary and profitable to both the
financial industry and the overall Albanian society.
Forward looking, I remain confident that the banking sector will know to rise to these challenges
and that the conclusions of today's conference will serve as another stepping stone in this
regard.
Thank You!
1Ms. Anila Denaj, Minister of Finance and Economy