Gent Sejko: Achievements in 2022 and setting the milestones for 2023
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Year-end event
organised by the Albanian Association of Banks, Tirana, 15 December 2022.
* * *
Honourable AAB Chairman,
Dear ladies and gentlemen,
As every year, it is a pleasure for me to joint this special meeting with banking industry,
sharing our achievements and efforts made throughout the past year, the most
meaningful experiences, and setting the milestones for 2023.
Let me first focus on the overall performance of the Albanian economy.
The sharp upsurge of prices and inflation in international markets in the wake of
Russia's war against Ukraine shaped the performance of the Albanian economy over
the course of 2022. This supply-side shock caused another steep challenge for the
Albanian economy, driving to the need for a review of public economic policies and
business-plans in both private sector and banking industry.
In this context, I would like to highlight that the Albanian economy was in sound
positions when this shock hit, following the rapid rebound from the pandemic-related
shocks in 2021. Also, the monetary and financial stability was consolidated. The sound
financial balance sheets of Albania, the strengthened confidence in banking system,
and the reduced risk premia reflect this stability. Also, the latter is anchored in the
positive experience that we both, public institutions and you, as financial sector, have
gained in tackling such shocks.
In addition, the monetary policy normalisation we have embarked on has established
the premises for controlling inflation and safeguarding the economic and financial
stability of Albania. In this view, I would like to welcome the positive role played by the
banking industry over 2022, by maintaining a positive approach towards lending to
private sector and taking the necessary measures to manage added risks in your
balance sheets.
I am confident that these measures, and others we may take in this regard, will pave
the way for a rapid return to normality. Though risks remain present, our projections
suggest inflation will return to target within the first half of 2024 and the Albanian
economy will continue to maintain a positive growth pace throughout this period.
As important actors in the economic and financial life of Albania, I would like to
reemphasise that our decision making should be forward-looking, decisive and
courageous. Albania has a solid economic growth prospects in both medium and long
term. They have enabled the continuous expansion of economy and of the banking and
financial system in the recent years, and should feed your confidence in the Albanian
economy in the future. These prospects will further benefit in the framework of Albania's
membership process in the European Union and from the agenda of structural reforms.
For this reason, I kindly invite you to stand up for these processes. Also, I invite you to
maintain your positive approach to expand financing to the Albanian economy in
addition to qualitatively increasing the banking products in a quantitative manner.
***
Dear ladies and gentlemen,
Year 2022 as well triggered some unexpected shocks for the banking sector (the war in
Ukraine, fluctuations in markets of financial instruments and recently the increase in
interest rates). The banking sector, despite the lingering effect of these shocks on the
profitability rate, re-affirmed once more the stability and the security this sector provides
to depositors and investors.
Throughout 2022, the activity of banking sector recorded a prudential increase across
all indicators, above 6% growth of total assets and similar expansion rates in main
items. The funds of individual depositors, who preferred the foreign currency as the
main instrument of their savings, largely underpinned this upturn.
The financing manner of credit portfolio and the upsurge in the foreign currency
investments in securities reflected the ample supply in foreign currency.
The amount of non-performing loans reduced again this year, by around ALL 2 billion,
thus strengthening the stability of this multi-year trend, further down to 5%, from 5.68%.
In 2022, the portfolio of financial instruments - unlike the previous years - provided a
negative contribution to the overall level of banking system profitability. The interest rate
hikes and the uncertainties caused by the war in Ukraine yielded subsequent shocks to
the market values of these portfolios. Banks succeeded in withstanding the first wave of
these shocks, remaining at positive territory, in terms of both system level and individual
level. Meanwhile, measures are gradually being taken to adequately manage
investment portfolio, in line with the established conditions.
Capitalisation of the banking system has continued to grow this year as well, to 19.26%,
from 18.53%, reflecting also the enhancement in the regulatory requirements on
macroprudential reserves and the minimum requirements for own funds and eligible liabilities
(MREL). Both elements have strengthened the resilience and security of the banking
system.
The purchasing and then the merger of the OTP Bank with Alpha Bank drove to the
further materialised consolidation of the banking system in 2022. This development
introduced another important player in the group of large banks, which share above
70% of market, and it is expected to contribute positively towards a more competitive
and expanded market.
The segment of payments and the supportive infrastructure have also marked rather
positive developments in terms of their processing during 2022, on the back of
measures undertaken in the framework of the Albania National Retail Payments
Strategy. The AIPS EURO system is already a reality, while your clients, consumers
and businesses are experiencing its benefits, together with you. Based on available
statistics, we see that the euro-denominated interbank transactions within Albania have
considerably picked up. The implementation of this system reduces costs and the
necessary time in managing cash in banks' windows, unlike the payments previously
conducted in cash desks with high commissions applied on the processing between
corresponding banks.
Also, the use of electronic payments have recorded a positive increase. Based on the
preliminary calculations by the Bank of Albania, in 2022, the Albanian citizens have
conducted averagely 16 electronic payments in a year, thus considerably exceeding the
12 payments target. Absolutely, these achievements reflect the measures taken by the
banking system through significantly expanding the necessary infrastructure and
services in this regard.
In view of these developments, the same intensity is needed for the realisation of
projects, as: open banking; instant payment, and the transition to ISO 20022
communication standards, which will digitalise and modernise the overall market and
will create potentials in the framework of the integration process with the European
Union markets. Last but not least, we should further intensify and enhance collaboration
in the framework of the National Financial Education Strategy, which is a crucial
mechanism for maximising the expected effects and the implemented measures so far
in view of financial digitalisation and inclusion.
***
Dear banking system executives,
Notwithstanding the challenges and hardships caused by the soaring inflation during
this year, forecasts for the Albanian economic growth remain positive. Nevertheless,
tackling this challenges needs a coordinated and carefully parametrised response, by
the monetary policy instruments coupled with an effective and visionary collaboration of
all market actors.
Let my brief some challenges foreseen for 2023.
First, the increase of inflation and rise of interest rates to balance its impact, as well as
the respective effects passed through in the economic and financial sector from this
interaction, have been the remit in all recent meetings and forums with national and
international partners and homologue. The structure of re-pricing credit portfolios, which
are dominant in our banking system, has enabled banks to begin to transfer this effect
to borrowers, while the relatively high share of non-interest bearing accounts on the
liability side has provided for the increase of interest margins, at least temporary. But
the increase of credit cost bears the risk of non-performing loans growing in the future,
so far as borrowers' solvency has not proportionally increased with the price upsurge.
The development of abilities to foresee and assess in an objective manner the solvency
of the existing clients - without being inclined to fast and short-term profits, which may
harm an already established long-term relationship - will be one of the main challenges
in the next year.
Second, requirements on capital (macro-prudential buffers and requirements on
regulatory capital instruments and eligible liabilities) will continue to increase in
compliance with the regulatory provisions and the respective gradual application
programme in 2023. The implementation of these measures, beyond the approximation
of our regulatory framework with the EU Acquis, ensures a stronger resilience of
banking system against the above-stated shocks, and the continuation of the provided
financial services, already being integrated in the daily life of citizens and businesses.
The consolidation of banking system and the increase in the number of banks with a
high share in the banking system impose differentiated addressing of the latter for
mitigating systemic risks and the effects on the taxpayers' money in case of possible
crisis in the future.
Concluding, I take the opportunity to re-assure that the Bank of Albania, in carrying out
its function as supervisor and regulator, will continue to support you and be your partner
both in good and rainy days, by providing transparency, cooperation and objective
assessment of your requests and proposals in every decision making.
I wish you a successful and prosperous new year!