Ardian Fullani: Albania's long-term sustainable economic growth
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the meeting with Prime Minister of
the Republic of Albania and Albanian Bankers Association, Tirana, 20 March 2006.
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Honoured Mr. Prime Minister,
Honoured bankers,
I believe the purpose of today's meeting has to do with a major problem, that of long-term sustainable
economic growth of the country. All actors present in this meeting play a key role in this direction;
therefore I think that such meetings are useful, with significant contributions to the country's economic
activity.
First of all, I would like to underline that during 2005 the Albanian economy had positive developments
in the following directions:
Monetary policy, standing neutral for most of the year, has ensured a constant money supply
to the economy, in accordance with the needs for the country's economic development;
Inflationary pressures remained under control, under the conditions of a more steady
exchange rate stability;
At year end, monetary conditions reflected extension of the economy financing by lending,
while Bank of Albania foreign reserves were further increased;
Banking system increased considerably its financial support to the economy in the form of
banking loans. Credit portfolio was increased by 74 percent or ALL 52 billion in absolute value.
At end of the year, outstanding credit recorded 14,6 percent of GDP, from 8.4 percent in 2004.
Also the short-term program for the country's economic development over 2006 has
forecasted a further growth of the outstanding credit to 50 percent, implying further incentives
for the country's economic activity. This has made domestic business have more guarantees to
invest in the economy, simultaneously inviting foreign investors for more foreign direct
investments in Albania.
As the Governor of the Bank of Albania, I must share with you a natural concern that is generally
related to credit portfolio quality, particularly when we are faced with such a rapid expansion of the
volume of lending. Even though the outstanding credit to the economy is still low, about 15 percent of
the GDP, its expansion over 2006 similar to that of the previous year, would increase the potential of
banks' s exposure to credit portfolio quality risks.
Therefore, the banking system should undertake all the measures to improve monitoring, analysing,
and controlling capacities, aiming at preventing any possible credit portfolio deterioration. On the other
hand, we will enhance our supervising capacities, particularly the on-site examinations, by working out
plans of measures to prudentially control each member bank of the system. Special attention will be
paid to control on specific lending procedures and review of re-rating made and of provisioning
performance for non-performing loans. Furthermore, the Bank of Albania has included in its priorities
of 2006 the project on creating the credit register, a facility that will help the process of controlling and
verifying loan borrowers.
I would like to clarify that the banking system stability is of special priority for us, therefore we remain
committed to carry out precisely all the recommendations given by the IMF' s report of Financial
Sector Assessment Program (FSAP) over 2005.
I think that the concept of bank is inevitably related with the concept of confidence. For me confidence
is transparency, transparency and only transparency. I deem that enhancement of transparency is a
primary condition that leads to increased access of the population to your business. This increase
implies deposits increase, credit extension, more competition and more effective financial
intermediation. Above all, enhancement of transparency means more opportunities and lower costs to
your clients.
Think for a moment that the quantity of money circulating and "sleeping" outside banking channels is
still high. Turning back to my discussion in the last meeting organised by the World Bank and the
Puglia Region, I would like to emphasize that more than half of remittances enter the country through
unofficial channels. According to Balance of Payments statistics of 2005, it speaks about a potential
close to Eur 700 - 800 million. I believe this fact does not need any comment. Out of our surveys the
causes are different. However, high fees applied by the banks are often brought up as a motive why
individuals do not prefer banking service.
On the other hand the increased circulation of money through banking channels requires enhanced
prudence for preventing money laundering and terrorism financing. The combat against money
laundering is an ongoing challenge that relates to the major problems our country is facing with, such
as: cash economy, fiscal evasion, and economy informality. Therefore, at the beginning of the year we
undertook a partial examination on 7 banks. It resulted out of the examination that in general banks
have the proper structures and policies on fighting against money laundering and terrorism financing.
However, we also observed some deficiencies having to do with staff training and better knowledge of
legal framework.
Taking into account what I said earlier, I believe that you understand the massage I want to transmit to
you today, that is not only banking business extension, but also significant contribution to reducing
cash and informality in the economy.
Recently we have made some concrete steps in this direction. Therefore, the banking system is more
extended geographically and richer in products. Increase of assets, rise in the number of clients,
modern infrastructure and other developments have made our contribution to cash reduction in the
economy be significant. I believe that the above accomplishments, combined with determined
administrative measures, will contribute to the closure of informality gates one by one in the economy.
However, I observe unexploited space particularly in terms of:
increasing opportunities for more electronic payments; The last year overturned the ratio in
the favour of electronic payments, when their level reached the figure of 320 thousand as
compared to the number of 300 thousand of payments effected at the windows. This is an
encouraging sign, urging us to better focus on this direction.
channelling periodic settlements for utility services through bank accounts; more
concretely AEC, Alb telecom and Water supplying should be related to the banking system
so that their services are settled electronically.
compulsory transfer of salaries of private sector's employees through the banking
system; The so-far experience with the private sector resulted successful, while even some
big private operators are applying this method efficiently. I think that the obligation to transfer
salaries through the banking system will significantly decrease the evasion existing on
income tax and social insurance contributions.
I personally think that it is just the time to enhance popularity for imposing the creation of a banking
culture and education. The obligation of each individual for opening a bank account in addition to an
important massive service the state does to the population, is more than necessary. More concretely,
I propose that new cards be associated with a bank account number.
In conclusion, it is understandable that for being successful in the long run, more focus is needed on
all the problems I briefly treated above. More loans, more prudence in the supervision, more
qualified services, more free prices, less cash in the economy, more banking business, will all
lead to more access of the population into your business.
I deem that this is an essential prerogative that ensures sustainable long-term development of the
Albanian economy.