Ardian Fullani: Achievements and challenges facing the Albanian
banking sector
Address by Mr Ardian Fullani, Governor of the Bank of Albania, at the year-end event with
the Albanian Association of Banks, Tirana, 20 December 2012.
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Dear bank managers,
At the end of this calendar and financial year, I take this opportunity to share with you some
of the achievements and challenges facing the banking sector, confident that they will serve
to guide our actions in the future.
As expected, the year 2012 was a very challenging year for the financial and economic
activity of the country and of various economic agents. Very likely, this year's economic
growth will remain positive, but significantly lower than last year. This economic performance
is dictated by the weakening of the fiscal and monetary stimuli, as well as the slowdown of
private investment and consumption. The slowdown in the latter is, however, accompanied
by a reduction of imports. On the other hand, foreign demand has supported higher growth of
exports, especially of energy products. This has led to an improved trade balance during
2012, hence marking a decrease in the deficit-to-GDP ratio. The impact of the global
economic crisis continues to be present and its prospects to overcome it in 2013 remains our
hope, which is not supported by the expectations of international financial institutions and
public authorities, especially with regard to the economic situation in the euro area.
During 2012, the banking sector marked a positive financial result, overall. Net interest
income was stable but provisions on credit risk reduced the size of profit. Generally, the
banking sector maintained control over other costs of the activity. Liquidity indicators,
shortterm and structural ones, stand at satisfactory levels. All banks complied with the
requirements set out in the regulatory framework regarding the size of liquid assets, both in
the lek and in major foreign currencies. Deposits continued to grow at good rates, although at
lower levels than in the last year.
Due to the credit growth slowdown, the credit/deposit ratio appears at very suitable levels to
support the liquidity needs of the sector. Indicators of activity capitalization stood at good
levels, due to capital increase by some banks and slowdown in risk-bearing assets growth. In
the course of the year, the Bank of Albania applied tighter requirements for liquidity and
capitalization of banks in accordance with the risk profile of their activities.
In the interbank market, trading volumes and participation increased in the 2012. This
performance is influenced by structural liquidity movements, banks demand and market
operations of the Bank of Albania to support them.
Market interest rates were downward, reflecting the trend of policy interest rate and banks'
actions to control operations costs and profit margins. The foreign exchange market has
been stable, despite increasing trading volumes and higher number of participants in the
market. Banks were active and prudent in servicing their clients' demand for foreign
currency.
Dear bank managers,
Let me now focus on a number of issues of concern to the banking industry and the Bank of
Albania, which we believe should be addressed carefully during the next year.
I would like to start with lending as the activity that has the main impact on the banks'
financial result. We find that lending growth rates decreased and credit quality continued to
deteriorate, particularly for foreign-currency denominated loans. This performance is due to
the fall of demand for loans; however, it also reflects a persistent reluctance of banks to lend.
This trend needs to be reversed by addressing problems related to the pace of lending and
non-performing loans.
The stable growth of deposits as well as the significant increase in non-residential
investments show that banks have sufficient financial resources to lend at higher growth
rates. These resources should be used to lend mainly to the private sector in Albania, acting
in accordance with the established regulatory framework and your policies for investment
diversification. On the other hand, efforts to address the non-performing loans should
multiply, in terms of both prevention and addressing them properly. Your focus should be
placed on the cautious process of loan restructuring, especially before such loans are
transformed into non-performing loans. Further, you should act discreetly, but consistently,
for the execution of collateral. We are all aware of the problems that exist in this area.
Nonetheless, also thanks to your work, I find that the awareness of decision-making public
authorities in this regard has improved significantly. I had the opportunity to communicate
about these issues today to the parliamentary, Commission of Economy and Finance. I am
confident that the work started by the Ministry of Justice for the revision and improvement of
some important legal acts, including the Code of Civil Procedures, will be finalized,
incorporating and approving some concrete proposals for amendments submitted by the
banking industry and the Bank of Albania in order to enhance the process of collateral
execution.
In addition, upon the conclusion of legal processes, it is pivotal to proceed swiftly to write-off
loss loans from the bank's balance sheets, in accordance with the requirements of the
regulatory framework. We would kindly ask you and your shareholders for dedication in this
process, not only to find the necessary human and financial resources, but also the most
appropriate forms for a quick, transparent, and consistent handling of non-performing loans.
We need to bear in mind that lending carries along risks that are difficult to identify at the
time of disbursement. These risks are determined not only by the quality of bank lending
procedures, but also by significant external factors, including the performance of the
economy. This uncertainty permeates the current phase our banking sector is going through.
Therefore, it is indispensable that bank management structures and their shareholders
commit the necessary financial resources to cope with the possible additional costs in the
future. For shareholders, this implies not only retention of profits in the bank, but also adding
new capital in case of need. Remember that it also represents a more general trend in the
banking industry globally, with a number of new forthcoming standards that provide for
improving the quality of bank capital and increase of its size. Our banks should gradually
begin to adapt to these new standards.
For senior managers, strengthening the control systems of the bank activity remains a
primary objective, especially for those activities that generate the main revenues and
expenses arising from the activity. Risk management structures should be really empowered
and have a stronger voice in decision-making. Banks should continue to further improve the
efficiency of their operations, including the establishment of a better control over the costs of
the activity. Setting priority activities for your institution will allow you to identify new
investment needs as well as those activities that use bank resources inefficiently; they
should, in turn, be restructured. This process will positively affect the financial performance of
the institution, and will allow the implementation of other active policies in areas that benefit
the activity of the bank.
We all know that banking is an activity based on trust. For this reason, the bank's services to
customers should be "first class" across the entire bank network. This means that customers
should be served correctly, timely and transparently. Banking services should be provided in
accordance with the clients' financial literacy, in any case highlighting, the benefits and the
risks that customers may incur as they use your bank products.
In the context of its role as the supervisory and regulatory authority of banking operations,
the Bank of Albania will continue to carefully monitor and address the challenges facing this
activity. Our regulatory framework and supervisory and operational activities will be adapted
to provide all the necessary support for the banking activity to be safe and have multiple
benefits for the banking industry, customers, and the economy in general. The professional
and continuous communication with you will be at the basis of our activity, to identify together
the best solutions that address your needs and those of other interest groups.
Dear bank managers,
In conclusion, I would like to bring to your attention one of the biggest lessons learned from
the crisis of the latest global financial system, which I think remains applicable for Albania:
concentration on short-term time horizons is counterproductive to both individual financial
institutions that engage in them, and the overall financial system and economy of a country.
In this context, I invite you all to be farsighted in your analyses and decision-making
processes with regard to the future of the economy of Albania and its banking industry.
In my view as well as in the conclusions by all the analyses that focus on this issue, Albania
has huge potential, to a large extent unutilised, to support a sustainable economic growth,
convergent to the economies of our trade partner countries in the euro area. Despite
shortterm difficulties, originating largely from external sources, the fundamentals of Albania's
economic development remain sound. The macroeconomic stability, natural resources,
structure and cost of the labour force, render the long-term investment in the Albanian
economy an investment with a guaranteed return.
In invite you all to be partake in this vision; engage even more intensively in supporting the
Albanian economy with loans and financial services; and explore new areas and directions
for the country's economic development. I am confident that this is not only the best service
you may provide to Albania, but also the best strategy to ensure sustainable and profitable
development of the banking industry in Albania.
In unison, we should not allow short-term problems to be transformed into weaknesses and
lost opportunities in the long run.
You will always find in the Bank of Albania an institution that is fully determined to comply
with its objective on price and financial stability; a fair and farsighted regulator on banking
supervision; an efficient administrator of liquidity and financial markets; and a profoundly
professional institution and provider of useful macroeconomic analyses.
Finally, I would like to make my most sincere wishes for a successful New Year 2013 in your
professional career and personal life!
Thank you.