Mr Ardian Fullani: Towards a solid, sound and efficient banking system in
Albania
Greeting address by Mr Ardian Fullani, Governor of the Bank of Albania, at the 5th anniversary
ceremony of the privatisation of the National Commercial Bank, Tirana, 18 October 2005.
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Ladies and Gentlemen,
Today I am honoured to see in this jubilee meeting how the National Commercial Bank has grown and
consolidated and together with it the whole banking system in Albania. I am delighted to consider that
after a long restructuring period the banking system is now taking its proper role in the economy, that
of the provision of free funds to the growing needs of the Albanian business and consumer, improving
at the same time the number and quality of services.
For this reason, I am honoured to have the opportunity of taking the floor in this meeting, to address
and discuss jointly with you some present and future issues, which, I estimate, are important for the
further enhancement of the banking system contribution to the country's economic development.
Allow me to start discussing first about the work we are doing as Bank of Albania to create a
favourable climate for the business and economy development.
Monetary policy followed during the recent years in succession has targeted to further reduce money
price in order to give aspiration to the economy, while we have been successful in keeping inflation
under control. As a consequence, I deem that we have created essential incentives towards
establishing a sustained business climate where business decisions and plans are not exposed to
risks arising from the uncertainty of inflationary erosion.
Since almost a decade, Bank of Albania has been engaged in using all the capabilities to set up a
modern payment infrastructure, in order to bring the banking system closer to the clients, making it
open in relations with them. Thus, after implementing the Real Time Gross Settlements (RTGS) and
Automated Electronic Clearing House (AECH) systems, we have already mobilised all our efforts to
create the credit register. Currently, after the implementation of AECH system, we have provided one
more opportunity not only to the banking system but also to periodic service businesses, so as to
enhance its economic efficiency. On this occasion, we appeal to both parties, banks and businesses,
to cooperate with each other for making more effectively use of the priorities provided by this new
system.
Bank of Albania deems that a banking system supports the economic growth when it is first of all a
financially sound system. The emerging economies, like our economy, are generally characterized by
a fragile stability. For this reason, Bank of Albania has attempted to take all-encompassing measures
aiming at strengthening its supervisory capacities, in order to ensure a solid, sound and efficient
banking system.
The banking system performance:
During 2005 impressive developments have been highlighted. The up-to-now data indicate that credit
to the economy has increased by about 3-4 percentage points of GDP, giving clear signals for a
promissory excitement of the economy financing in the future. Till August 2005, compared to last
year's end, the system assets increased further by 14.5 per cent, while there was augmentation of
banking products as well as extension of their network. Compared to yearend of 2004, the banking
system has attained an increasing profit level, at ALL 4.65 per cent. Return on equity (ROE) has
resulted 24.8 per cent, while credit quality expressed as a ratio between (net) bad credit and total
credit portfolio is only 2.39 per cent, from 4.2 per cent it was at the end of 2004. However, there is no
room to be excited by figure euphoria, because credits are still new and their quality will have to
carefully be examined.
Another significant development of the banking system relates to the client's service, which through
the electronic terminals is being obviously accompanied by the increased number of electronic cards
in circulation. Banks already provide debit and credit cards in cooperation with international companies
such as Visa Card, MasterCard and Diners Club. Six banks provide the ATM service and ATMs
reached the number of 180 by the end of August 2005, while points of sale reached the number of
391.
Of course, an important aspect remains also the further expansion and consolidation of the banking
system. The geographical extension of territory coverage by the banking business, the strengthening
of competitiveness, the introduction of new products without mentioning other recent developments,
constitute an additional argument in the vital role the banking system has and will have to play in the
future. The country's map covering the banking business expanded further, including new regions ever
covered before. At the end of August, the total number of branches reached 109 or 21 branches more
than the end of the previous year.
I seize the opportunity of this event to express that positive assessments about the banking system
have been given also in the report prepared by both the World Bank and International Monetary Fund,
after conclusion of the assessment they formulated on the financial system in Albania (FSAP).
Of course, this is good news. The conclusions of FSAP, of this important international passport, are an
indication of our earlier conclusions that the Albanian financial system is characterized by a
supervised and effective banking system and by the other segments that are still in the initial
development stages where the core issue remains their regulation and supervision.
Despite the positive developments there is still much to do. The degree of financial intermediation
continues to be relatively low (about 11 per cent of GDP). Some economy sectors, like agriculture, still
continue to be less or not at all credited. The contribution of bank crediting to the production
investments is still low and furthermore, considering the high share the credit takes in supporting trade
activity, we can come out with the conclusion that the major part of credit is going for the financing of
imports. Likewise, the degree of using the banking system is not within the required parameters of the
time and, furthermore, the degree of cash use continues to be high.
In addition, the financial markets continue to remain superficial and subject of speculations. The
restricted alternatives of investing free funds are indeed a reason to this situation. The financing of
budget deficit continues to be still as the best alternative. However, the banking system should think
seriously of enriching the market with other instruments rather than of using at maximum this riskless
investment.
To be more concrete, I will highlight further on some directions, which, I think, in the medium-term
perspective are of priority to further stimulate and activate the bank credit in the economy, as the main
instrument through which the banking system promotes the economic development of a market
economy.
Beginning with the Bank of Albania contribution, it relates first to the duty of meeting the legal
obligations to achieve the overall macroeconomic stability with a special emphasis on inflation control.
We remain determined in our position that inflation under control is a valuable contribution to achieve
the objectives of the country's economic growth, the enhancement of employment and of the living
standard in general.
On the other side, Bank of Albania will encourage and support without any hesitation the further
development and consolidation of the banking system in particular, and of the financial sector in
general. We are deeply committed to undertake the necessary steps to implement all the
recommendations given by FSAP. For this purpose, we are ready to offer all our human capacities to
contribute in this direction. I use this opportunity to appeal on taking immediate actions towards
redesigning the licensing and supervisory process of the other parts of the financial sector.
Bank of Albania will continue to pursue a prudential policy in performing its function as a licensing
authority of financial entities that are involved in the crediting activities. In the spirit of what I have
stated above, I use the opportunity to express our commitment to involve in our supervisory structure
all those credit companies or institutions, which one way or another mobilise the population's funds or
manage public funds in the crediting process.
Assessing the information issue as a critical element in facilitating the lending activity, I would like to
point out that Bank of Albania has already included the project of establishing the credit register in its
immediate plans and we are strongly committed to implement it as soon as possible. This register
shall be under administration of Bank of Albania and the participation of other member banks of the
system will be compulsory. Only in this way, the information evasion can be minimized as well as its
integrity can be ensured, and it would be simultaneously available for each of member banks of the
system.
Being aware that credit issue is complex and connected with many obstacles arising from inaccuracy
and misadministration of the mortgage system, from deficiencies in the civil procedure for mortgage
execution, which make the operation of Executor Office difficult in administering correctly these
procedures, we will undertake initiatives aiming at enhancing the effectiveness of mortgage system, as
a guaranteeing and selective instrument of great importance.
The banking system has a primary role in creating a warm climate in the relationships between
business and bank.
Above all, I would like to request that the banking system be more transparent and open to the public.
Transparency is one of the most important factors, which strengthens the relations between client and
bank and, furthermore, it gives a wider meaning to the reciprocity concept in the bilateral relations
bank-depositor and bank-business. I think that most of the common people still manifest a certain
hesitation to refer to banks. One cause might be also the lack of detailed information. Banks should be
more active, not only for advertising new products and services, but also for explaining more correctly
the prices/costs they hold and the necessary requirements that are to be met for their benefit. There
are not a few cases when clients are not well informed on the interest rate they have to pay for their
loans or on the criteria applied by the banks to benefit credit. Communication from depositors is
neither the best. While small changes of deposit interests may be justified by the changes of market
conditions, changes somewhat stronger need to be accompanied by full relevant information and
explanations. The strengthening of this transparency should be accomplished not only in the name of
ethics but also in the name of the increase of market competition.
The system can play a greater role in reducing cash in the economy, by increasing and improving
further the level of services. The positive recent developments have given their effects in reducing
cash quantity in the economy. On the other hand, we have conducted an intense public activity, of
informative and promotional character, where meetings of another nature have frequently been held
and in which we were concretely involved as a banking system. Allow me just to remind you the open
meetings we have already organised with the business of utility services and with that of Treasury bills
primary market. I hope that now, after finalising the Automated Electronic Clearing House project,
each bank should think seriously of increasing the benefit degree from this new facility offered by the
Bank of Albania. After the implementation of this project, I estimate that we should think more
seriously of increasing the number and the quality of electronic payments. For this purpose, I would
appeal to start thinking from this moment on of future projects in the payment infrastructure. I
personally will insist that even in this direction we should focus as a banking system on the European
Union directives, so that to orient every step in the future towards the country's integration in the
European Union. Short time ago I was informed about a new initiative of EU, which requires
establishing within a certain period of time, a unified payment system within the euro area, including
payments with cards. For this purpose, I would suggest that respective specialists from the
Association and Bank of Albania be informed as soon as possible about this project and they should
come out with their relevant suggestions. Also, I remain persistent in my position that we have to
adopt in Albania the most advanced solutions for all the infrastructure projects we are going to
implement. I believe that we don't need to examine and consider old-fashioned models, which besides
the initial cost would require all the time new funds for their maintenance and modification.
In addition, now when the public administration became a client of the system, I think that there are
real opportunities to solve the payments of utility services through the banking system.
Returning to the financial markets, I think that in spite of the above-mentioned restrictions there is
room for improving competitiveness among banks even under the current conditions. I would like to
draw your attention on the following topics:
•
The system should be more active and keep its public promises to put its windows at
the service of selling Treasury bills directly to the interested public. We as Bank of
Albania have kept our promises, applying a commission, which is supposed to cover the
transaction cost, while this measure will be accompanied by the inhibition of cash receipts at
the Bank of Albania windows. Also, banks should invest in modern technology to enable the
reallocation of funds of their customers in various investment alternatives, by electronic
means and not as it happens more frequently today that individuals still move carrying cash
bags.
• Banks should be more active in the T-bills secondary market. We should clearly inform
the public that whoever is interested can discount his/her bills at any time like each individual
who has put little money aside can refer to the banking system not only to deposit but also to
purchase Treasury bills.
•
The interbank market can and must improve. Nowadays, commercial banks exchange a
big quantity of liquidity with the central bank. But, even exchange of this liquidity among
commercial banks must be intensified. This would ensure more financing and investing
opportunities for individuals and companies, including banks.
•
Banks should give more attention to foreign exchange and Treasury bills markets, to
further deepen and expand them. Thus, besides the introduction of new financial
instruments, it would be also necessary to activate the utilisation of the existing instruments.
These improvements would be for the benefit of the economy in general, that is for the
benefit of individuals, companies and banks themselves, but also of the central bank and
government. Thus, individuals will have more opportunities to invest their savings,
companies would have to make better use of new business activities, banks would have to
gain higher benefits and the central bank with government would become more efficient in
implementing their policies.
Allow me now to concentrate myself a little bit on the honoured businessmen guests, who, in spite of
the modest financial support offered in the beginning of transition period, have showed a really
impressive performance. In my position as Governor of one of the most important institutions in the
decision-making of economic policies, I would like to present you, using the opportunity of this event,
some suggestions that I sincerely hope you will welcome and well-understand. First of all, I would
require more professional performance in the relations between businesses and banks. Without
exaggerating, I would say that we are still far away from the best practices and standards, and as a
consequence all the economic, political, financial, social segments still leave to be desired. The
relations to be established between you and banks should be reciprocal, open and legal cooperative
relations. More concretely, business should understand that bank is an integral part of its activity, if it
is willing to be successful for a long-term period.
Finally, I would encourage more institutionalised links of the banking system with various
business organisations. Maybe it is time that Association of banks establishes regular contacts with
business representations, contacts that would certainly upgrade the relations between business and
bank to a higher level.
Also, I use the opportunity to renew the Bank of Albania commitment to participate in this initiative by
offering its expertise in projects, round tables, forums, debates, etc., which will aim at improving the
business climate as well as increasing and channelling more efficiently the bank credit.
Thank you.