Ardian Fullani: Recent developments in the Albanian banking system
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at a meeting organised by
Raiffeisen Bank with business representatives and its major clients, Tirana, 14 June 2011.
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Dear Minister of Finances,
Dear Mr. Lennkh and Mr. Hodell,
Dear Mr. Canacaris,
Dear Ladies and Gentlemen,
Today's meeting organised by the Raiffeisen Bank with the business community is very
significant. Firstly, it shows a well-defined strategy of the Raiffeisen group to increase its
market share in Albania through dialogue with business partners. Secondly, such forums
serve also as a platform to generate development ideas and projects of national, and why
not, regional importance. Thirdly, I think that today's meeting is indicative of the maturity and
rising awareness of the banking system and the business community. Personally, I would
wish that such meetings be intensified in the future: they should also be more structured,
oriented towards a constructive debate, and involve the entire system and all sectors of the
economy. In short, banks and businesses need to sit together for the best.
Dear Ladies and Gentlemen,
We are in mid-2011 now, which is a complex year in terms of its challenges for objective
reasons owing to the international financial dynamics of the past 3-4 years. Whilst our
economy has posted positive growth, it continues to operate below its potential.
The international setting is filled with uncertainty for a group of advanced economies, while
agricultural products and raw materials prices remain high. Despite last year's narrowing
current deficit, Albania's external position remains a constant structural weakness.
The Albanian banking system is considered to have adapted commendably to this complex
situation. I would like to underline that we have done an immense amount of work so far.
Therefore, I take this opportunity to congratulate all central and local managing units of
banks operating in Albania. During this period, the Albanian banking system has continued to
expand its activity and lending to the economy. Financial soundness and profitability
indicators have improved and system's activity capitalization is in a good position. The
banking sector remains the main actor of financial intermediation in Albania, whose financing
continues to rely mainly on public deposits.
The main problem of the banking system has been the growing non-performing loans share,
which has also reflected the active policy of the Bank of Albania to enhance the transparency
of banks' balance sheets. Credit risk remains the primary risk to our banking sector. In
response, the banking sector has established adequate reserve funds to buffer major shocks
on the borrowers repayment capacity and market equilibrium. Stress tests support our
conclusion on banking system resilience.
The presence in this room of both the business community and the banking system suggests
me to refer once again to the need for sincere cooperation of mutual benefit. With a few
exceptions, I think this cooperation has been present and operational and has certainly
supported in particular the country's economic activity over the past years. The global
financial crisis that erupted in late 2008 had its influence on our economy by stiffening this
cooperation. On the one hand, the system found itself in a difficult liquidity situation, while on
the other hand businesses found it difficult to access markets. With some additional
subjective reasons, the outcome of this was a deterioration of the system's loan portfolio and
companies' liquidating capacity. Consequently, 2009-2010 marked a slowdown of lending
growth to the economy, reflecting the increased prudence, fully justified by the system, and
business inability to earn a meritable new loan. The period coincided with a review of
balances and portfolio restructuring, when possible with provisions, directly affecting the
system's financial performance.
The Bank of Albania has played a major role as a guardian of the country's macroeconomic
and financial stability. Macroprudence has been the prevalent word in our communication
with the market, authorities and the public. We have translated macroprudence as a need for
more capital and liquidity, and increased banking system payment capacity. Consequently,
the Albanian banking sector did not experience contracting. The Bank of Albania has
provided and continues to provide the necessary liquidity to the banking system, to stimulate
not only to the market but also to the entire economy. Prudent policies and timely legal
regulations guaranteed effective banking supervision and enabled satisfactory businesses'
access to bank loans. Actually, I would like to point out that the Albanian banking system left
the crisis in healthy condition and that it guarantees growing stability.
Our banking system, during this period, has carried out a considerable amount of work,
which has served to consolidate each bank's position prior, during and after the crisis.
Hence, the banks are now able to use again their full lending potential. For the truth's sake, it
must be underlined that the latest figures speak of growth in the order of 10 per cent in
annual terms, a figure which should not go unnoticed or be considered as inadequate. I
would suggest the same philosophy to the business community. For objective reasons, the
concept of free money belongs to the past. By that I mean that a bank loan should be
earned, which means unconditional and honest cooperation within the legal and regulatory
framework approved by the country's authorities. Of course, banks are established to lend
money, but first and foremost we need to bear in mind that the public deposits' stability is
more important than an individual business loan or bank portfolio. Moreover, the business
community needs to recalibrate its position in relation to recent developments both in the
national and global economy context. It must aim a higher productivity, primarily through
identifying comparative advantages in the framework of global changes.
In that regard, it is necessary to adopt new business administration philosophies on capacity
building and investment in human resources, governance, internal control, financial
and legal expertise, and risk management. Besides a legal relation, the bank-client
relation is a human relation, one of trust. When a business delays the payment of a bank
loan instalment, it should consider its judgement on the bank if the bank delayed the
payment of the matured interest to that business.
Dear ladies and gentlemen,
On behalf of the Bank of Albania, I would like to invite the communities present in this event
to strengthen their communication bridges, which is of benefit not only to them but also to the
economy in general.