Ardian Fullani: Banking system and economic development
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the joint press conference
with Mr Gani Gërguri, Governor of the Central Bank of the Republic of Kosovo, Tirana,
12 June 2012.
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Honourable Governor Gërguri,
Honourable participants,
I am honoured to take part in the proceedings of this joint activity organised by the Central
Bank of the Republic of Kosovo and the Bank of Albania. It is taking place during the jubilee
year that coincides with the 100th Anniversary of Albania's Declaration of Independence.
After a long cavalcade of torments and existential discourses, finally both our countries have
entered an irreversible process of transformation and convergence to democracy and market
economy standards. The respective financial systems have been part of this process, in
which thanks to the dedicated and hard work done by both our institutions, the achievements
are numerous. The banking industry of both countries has grown rapidly in recent years,
enjoying a stable financial health. It has made a significant contribution to the financing of our
economies, leading to a stable economic growth over the years.
It is my pleasure to see that the Central Bank of the Republic of Kosovo is growing day by
day, assuming more and more the characteristics of a modern central bank, like its
counterparts in the region.
Let me take this opportunity to express my appreciation for the commendable work done by
the Central Bank of the Republic of Kosovo's staff, led by my old friend, Mr. Gani Gerguri. I
am fully convinced that we have, and will have even in the future, a responsible and
committed institution that aims to successfully fulfil its challenging mission and confront with
dignity all the challenges ahead.
Distinguished guests,
For a long time, our economies are finding themselves under the global crisis pressure.
Recently, almost all our trading partners, such as the countries in our region and the
euroarea economies are displaying acute symptoms. This situation has induced elevated
uncertainties regarding probable macroeconomic implications and contamination of the
financial stability of our countries, mainly through the existence of several European banking
groups.
Despite this international turmoil, our economies have succeeded in maintaining a stable
performance. Consumption and private sector investments have continued to play a primary
role in expanding the Kosovo's economic activity, while in Albania, the external demand has
played a primary role. The other indicators have remained in check. However, their trends
must be monitored scrupulously and constantly.
At present, the maintaining of basic balances, i.e., the macroeconomic balance and the
financial one, is our major objective. These two pillars represent our legal mandate.
Therefore, we must do the utmost to consolidate the inherited balances, by making cautious
analyses and taking appropriate measures to best absorb all the risks posed to the country's
macro-financial stability. Currently, the fulfilment of our legal mission has become a difficult
and challenging task, full of surprises.
Our countries represent small economies, whose share and influence can not play an active
or imposing role in the international arena. Moreover, I am increasingly convinced that our
economies are net importers of both material goods and international crisis.
Personally, I think that the moments we are currently experiencing constitute an historic
opportunity for all of us, to leave a good name as competent managers in times of the great
crisis. As long as things go well, we fail to understand the need for ongoing adaptation, for
constant correction. This is the reason that mostly leads to creation of "financial bubbles" in
the economy. Apparently, decision-makers lack the ability or the willingness to stop blowing
bubbles, and hence they burst. From this viewpoint, I assess that the Bank of Albania's
experience carries over elements of preliminary correction, i.e., preventive elements.
Let me be more specific. Since early 2005, we have addressed the interplay between
macroeconomic stability and financial stability prudentially. While there was a historic stability
in keeping inflation in check, there existed many unclear things in the banking system
stability.
I would like to remind you, briefly, of the fact that we are talking about a period when the
banking system was transformed into a 100% private capital and when credit expansion
dominated the banking business.
Since 2005, the outstanding credit to the economy has expanded by 7-8 percentage points
of GDP. Moreover, 75% of credit was denominated in foreign currency and the hedging
against exchange rate risk was frequently overlooked. It was the time when competition for
market share increased tremendously among banks, even at the expense of credit quality.
Periodic examinations conducted by banking supervision identified several vulnerabilities that
could threaten the financial stability of the system. I would mention: lack of an electronic
credit register; risk management weaknesses, structural weaknesses in internal audit; lack of
transparency in dealing with customers about the supplied products.
One of the most important issues worth mentioning is bank management in general, and
their managers' role and integrity in particular.
Identification of weaknesses requires investigating, taking administrative measures, and
making legal and regulatory changes to solve the problems. To this end, several initiatives
were launched, including: establishing a credit register; creating the Financial Stability
Department; conducting prudential supervision; creating a regulatory base for protecting
Albanian consumers; and, undoubtedly, public education. The latter, in particular, is a very
important issue constituting one of the cornerstones of the financial stability and of the
central bank's monetary policy success.
A financially educated public makes fewer mistakes in financial decisions and reacts swiftly
and predictably to economic developments and policies pursued by a central bank and other
authorities. Therefore, financial education of the public has been and remains a priority of the
Bank of Albania.
Individual decision-making of households and businesses should be assessed as much as
the meeting of inflation target or the maintaining of financial stability. This assessment is
supported by the fact that individual choice based on financial literacy and good
interpretation of economic information provides benefits to the whole society.
Financial literacy is essential from the point of view of individuals and social welfare. It should
be seen as a public good that contributes to strengthening of stability, efficiency of economic
policies, but above all, it increases individual's financial welfare, and hence the overall
economic welfare. This is why the Bank of Albania has adopted the slogan: "Education costs,
but it is priceless."
The Bank of Albania's approach to financial education has been focused on three directions.
First, promoting deep knowledge and awareness of basic economic and financial concepts;
secondly, knowledge of the Bank of Albania, its role and policies, and its decision-making;
third, knowledge of economic information and its interpretation.
The Bank of Albania started financial education to the public by communicating openly and
actively with various groups of interest.
Our experience shows us that financial education should be an integral part of our national
strategy. Consequently, seeking the cooperation and understanding of the Albanian
Government (the Ministry of Education and Science), the Bank of Albania has become an
initiator for defining financial education strategies, policies and practices in the education
system.
The Bank of Albania has played an active role in preparing the teaching programs,
implementing and coordinating the teaching process, so that students perceive financial
education as part of high-school education curriculum. This activity is a special and
significant contribution that the Bank of Albania has made to financial education. It is
crowned with the publication of the book "Personal finance in your hands", conceptualised for
high schools, incorporated as an elective subject in high-school curriculum, and distributed at
schools, training of economics teachers also included.
This difficult process has consumed considerable human and financial resources, but the
interest aroused fully justify it. Education institutions, and students that will have long term
benefits from financial education, have positively expected this initiative. Along with them, the
whole economy will also benefit.
Financial education and financial stability are two important issues and two examples of the
avant-garde policies pursued by the Bank of Albania. These policies have in common the
fact that their effects on changing the behaviour of individuals, businesses and overall
economy are gradual and life-long. In both cases, what matters is the side of movement, the
direction in which these policies lead the economy.
Credibility to institutions, confidence in the financial system and financial literacy help people
not only in managing their financial affairs and raising their standard of living, but also in
proposing and supporting the right policies. They also contribute to sustainability and
efficiency of the financial system for the whole economy. Improved macro-financial
management and financial education help each-other for a successful journey. Today's
activity, organised by both central banks of one nation, is also part of this journey.
Currently, we should keep our focus on and harmonise the central banks' positions to ensure
macro-financial stability, as the only way that enhances the credibility of economies in our
region and improves the foreign investment climate. Cooperation and coordination of policies
of central banks and financial authorities for creating a regional market, will increase the
value of existing investments and of our economies in general. Harmonisation of economic
agendas to maintain macroeconomic and financial stability, increase opportunities for
regional cooperation and open new joint projects, is the only way for promoting new private
investments and attaining the real convergence of our economies.
Ladies and Gentlemen,
Let me once more congratulate you for organizing this event and for your good work done so
far. It is wonderful to see so many individuals and organisations working for one goal, for
economic education of Albanians, for boosting confidence in financial institutions, for good
management of the economy nation-wide, for making the best choices to ensure future
economic prosperity.