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Speech by Ms Elisabeta Gjoni, First Deputy Governor of the Bank of Albania, at the conference on "Innovation in the banking sector", Tirana, 14 May 2015. | Elisabeta Gjoni: Innovation in the banking sector Speech by Ms Elisabeta Gjoni, First Deputy Governor of the Bank of Albania, at the conference on “Innovation in the banking sector”, Tirana, 14 May 2015. * * * Good morning and welcome at the Bank of Albania to discuss about innovation in the banking sector. The Ministry of Innovation and the Bank of Albania, under the auspices of the Minister for Innovation and Public Administration, Ms Milena Harito, and the Governor of the Bank of Albania, Mr Gent Sejko, in collaboration with the Albanian Association of Banks, organise this activity jointly in a common approach to work together and discuss ideas among the main stakeholders of innovation in financial services. Honourable Minister Harito, Honourable Chairman of the Albanian Association of Banks, Your excellencies ambassadors, representatives of banks and businesses, and of the Albanian private sector, dear colleagues, I take this opportunity to thank you, on behalf of the Bank of Albania for your commitment and collaboration for this activity. We are living in a new phase of banking that is frequently qualified as a silent revolution in the way we do things, and the way we live, which poses challenges to any developing or influencing stakeholder. People use technology for the new ways of communication it offers: to create social groups, purchase online and why not, to use banking and financial services. That certainly implies a wide spectrum of actions: from generating online the account statement to transfers and payments via electronic platforms from various institutions, which are different from banks, digital money or virtual currency. Physical and digital worlds are intertwining rapidly. What do we imply with financial innovation, while speaking about financial technology ( Fin Tech)? An expert of this field says than Fin Tech should not indispensably be a rather complicated or sophisticated technical concept. Fin Tech supports business to be more effective and the systems to function better and faster, or simply to make life easier to individuals/businesses through the use of efficient financial services. Authorities have a decisive role in being committed to and supporting innovation. Advanced countries, such as Great Britain, are a good example of this approach. In the United Kingdom, the volume of transactions has grown by 74% since 2008, compared to 27% growth for the whole world or 13% for Silicon Valley. The British success is driven by the large support of government strategies and programs, from the regime of the points of sales, initiative to encourage investments and the establishment of the regulatory framework that provide grounds for the success of new initiatives, the possibility to access credit data for small-size enterprises, in the payment system and equal participation in the free competition. What can a Central Bank do? In its role as the regulator, the Bank of Albania’s vision is to contribute to the future, aiming to establish a highly adequate environment for boosting financial innovations and modernising the financial structure. Our regulatory regime aims at fostering innovation, being a positive catalyser and not a barrier. We aim at being avant-garde for a modern financial infrastructure. But experience shows that technology always is a step ahead and rapidly spreading. Technology has no limits and we, as regulators, should adopt rules and laws that these technologies be used by the consumers, individuals or businesses. At the same time, we should be aware of the risks that accompany these new technologies. Finding a perfect balance between the promotion of new ideas and the regulatory prudence constitutes one of the major challenges in this regard. BIS central bankers’ speeches Bank of Albania has designed a payments regulatory framework, which paved the way for the development and modernisation. This framework provides all banks or other suppliers of financial services with the possibility to access the payment system in an equal and transparent way, thus contributing to the development of a competitive payment industry, without any asymmetry. Bank of Albania welcomes the contribution of innovation and technology in financial services as a support for achieving its strategic objectives for financial inclusion and reduction of cash use in the economy. These objectives serve crucially to both the transmission of the monetary policy and the safeguarding of financial stability. The international experience has shown that the employment of innovative means in the banking and financial system contribute to reducing social costs in the economy from 1% to 2% of GDP. In the case of Albania, this figure may be higher, as cash use in economy is considered to be high. Allow me to highlight some of the considerable developments of banking system. Nowadays, businesses and individuals are increasingly using banking services, mainly in the payments market, where the adaptation of information technology to the development of banking services and products is more substantial. In recent years, the use of banking cards has been rising, not only for basic services, but also as a means of payment. This is followed by the development of the necessary infrastructure, such as PoS and ATM devices. As reported by banks, the number of PoS and ATM devices currently stands at 6.427 and 811, respectively. The number of physical Points of Sale grew 19% in 2014, compared to 2010. Recently, we have also seen an increase in virtual services through the development of infrastructure for the realisation of e-commerce. The expansion of infrastructure for the use of cards is accompanied by the considerable increase in the number of debit and credit cards in circulation. In 2014, 777.195 debit cards and 84.824 credit cards were issued, or, in relative terms, increasing 103% and 20%, respectively from 2010. Notwithstanding the innovations, cards in the world remain very convenient, preferred and secured instruments. (While these tendencies show progress, in Britain statistics reveal a decrease in the volume of transactions via cards, due to electronic transactions via mobile phone or other means.) The increasing use of electronic services such as home banking is a considerable development. Thus, in the last years, these services were more used and the users’ spectrum expanded, including not only businesses, which where the target group at the start of supplying this service, but also by individuals. At the end of 2014, the number of accounts accessible via internet stood at 145211, from 27368 at the end of 2010, followed by fourfold increase of such transactions conducted via these accounts. The encouragement of the use of payment instruments is reflected in the increase of activity of settlement and clearing systems operated by the Bank of Albania. In 2014, the activity of the Albanian Interbank Payment System (AIPS) grew by about 1.5 times, compared to the beginning of operations of this system in 2004. Also, the Albanian Electronic Clearing House System (AECH) shows a considerable increase. The value of transactions cleared in this system, during 2014, was 10 times higher than the value of transactions cleared in 2005, when this system started to operate. The measures taken by the Bank of Albania in March 2011 contributed to the use of the clearing and settlement systems. The measures consisted in the reduction of commissions applied to the users for transactions in the Albanian lek. I would like to underscore that large spaces still exist for improvement and narrowing the gap between the Albanian market and the advanced markets, and to some extent between the regional markets, .They should, therefore, constitute our common challenge for the future. In the framework of encouraging market towards these innovative services, the Bank of Albania as the regulator and catalyser has undertaken recently a set of measures. In more concrete terms, the establishment of legal and regulatory basis for the e-money institutions, followed by the licensing of the first institution of this type in March 2015, constitutes a BIS central bankers’ speeches premise to introduce the innovative services in the Albanian market of payments. The regulation of the activity of these institutions is based on the European practices not only in the framework of Albania’s adherence to the Single European Market, but also as one of the most optimum solutions in terms of security and efficiency at national level. The liberalisation of the payment systems market through the Law on Payment Systems will boost the development of the market. This legal framework provides the necessary space for private enterprises, and lays down the standards in terms of security and efficiency, and will support the development of a contemporary financial structure. That is shown by the licensing of the first operator of the national payment system by cards, which also plays the role of the local processor, and we hope to have a direct impact on promoting the use of cards as a means of payment. A priority in the near future for the Bank of Albania is to establish regulatory framework and provide for the operation of private payment clearing and settlement systems. This year marked the establishment of the central Albanian Financial Instrument Settlement and Registration (AFISaR) system of government’s securities. The new system provides premises for the development of the securities market, rendering these assesses more liquid and, consequently, promotes their use in the commercial exchanges in the domestic economy. Bank of Albania is aware that the needs for further and more programmed interventions are still high considering the low level of penetration of either financial services or relevant innovations. Banks, various operators and suppliers of services have great potentials for new mechanisms and instruments. In the framework of institutional architecture and understanding the need for coordinating of efforts at national level, in 2014, Bank of Albania approved the regulatory base for the establishment and organisation of the National Committee of Payments, which includes the Ministry of Innovation, Ministry of Economy, Ministry of Internal Affairs and representatives of the banking system. The committee that will be convened soon, will provide considerable contribution to promoting collaboration and interaction, for strengthening security, sustainability and effectiveness of the national payment system in Albania. Wishing for an open and fruitful discussion, I look forward, and I think I am not the only one, to listening attentively and hope that the following issues will be addressed: • Advancements that banks will adopt for the payments in the next 5–10 years; • Barriers, problems, opportunities and risks that prevent the progress; • Views of traditional banks about the payments via mobile phones supplied by mobile phone companies and assessment of the preparation degree of banks for cooperation or competitiveness; • New trends for the increase of payments security. Which is the place of biometric elements? Congratulations and Thank you for the work you do. You are part of the future. We all are looking forward to the next meeting of a continuous discussion on the forthcoming innovations. BIS central bankers’ speeches | bank of albania | 2,015 | 5 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF mission, Albanian MoF (Ministry of Finance) and MEDTTE (the Albanian Ministry of Economic Development, Tourism, Trade, and Entrepreneurship), Tirana, 30 June 2015. | Gent Sejko: Fifth review of the arrangement with the IMF concluded Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF mission, Albanian MoF (Ministry of Finance) and MEDTTE (the Albanian Ministry of Economic Development, Tourism, Trade, and Entrepreneurship), Tirana, 30 June 2015. * * * Dear media representatives, In line with the already established practice, in the past two weeks, we have constantly met and exchanged views and opinions with International Monetary Fund representatives. As always, these meetings serve to make a comprehensive analysis of economic and financial developments, with a view to identifying the necessary measures for a steady development. Following, I will present a summary of Bank of Albania’s opinion. The Albanian economy is on a positive development trajectory, irrespective of the shocks we have been facing in the first half of the year. Economic and financial balances in Albania are sound. The Banking system is liquid and well capitalised; Albania’s public debt is in control; and, the financial situation of Albanian businesses and households is improving. Long-term development resources for the country remain stable. This situation is an outcome of economic policies oriented towards stability, which we have undertaken. In view of the latest developments in Greece, I would like to emphasize that the external environment appears challenging, but Albania’s economy and financial system are capable to withstand even extreme shocks. The short-term costs that we have paid due to structural reforms and fiscal consolidation show their benefits exactly in such moments. Under the current circumstances, it is necessary for economic and financial policies to continue to be guided by the philosophy of prudence. We are able and ready to take additional measures, if necessary. I would like to assure the private sector that the development perspectives for the Albanian economy remain positive. Albanian businesses and households should continue, uninfluenced, with their consumption, investment and development plans. Let me be more concrete with regard to the above. Economic and financial developments have been overall in line with our year-start projections, but incoming information has resulted on the down side of our expectations. Therefore, the Bank of Albania has revised down the expected economic growth for 2015. Yet, in our judgment, shocks are expected to have only a transitory effect on economic activity indicators and not affect the medium and long-term trends of development. Economic growth is expected to improve in the second half of the current year and in the two years ahead, which would enable the return of inflation to equilibrium. Notwithstanding the above said, the Albanian economy continues to operate below its potential and inflation remains below Bank of Albania’s target. These developments require maintaining simulating macroeconomic policies for at least some quarters ahead. The Bank of Albania has urged and supported the fiscal consolidation trend, pursued by public finances. Fiscal data, overall, are in line with this target, albeit work should still be done with regard to the rigorous implementation of public borrowing and spending plan. The monetary policy implemented by the Bank of Albania is at very simulating parameters. Interest rates and financing costs are at historical low levels. The Bank of BIS central bankers’ speeches Albania has ensured that the market is fully supplied with liquidity and has provided longterm guidance on the monetary policy direction. In accordance with the monetary policy direction, the Bank of Albania has continued to implement easing supervisory and regulatory measures. Also, we will announce a major project very soon, aimed at addressing definitely the issues related with the treatment and reduction of non-performing loans. All these measures have contributed to and are expected to better support the Albanian economy with funds. As I said above, the economic and financial equilibriums of Albania are solid. The current account deficit improved in the first quarter and the Albanian foreign exchange position is quite positive. Banking system’s liquidity and capitalization indicators have been improving. The growth of non-performing loans decelerated and the Albanian banking system is profitable. Taking into account the international setting, I would like to guarantee the public that the banking system has no direct exposure to the Greek crisis. Our analyses, both at individual bank and system level, confirm that that it would maintain the soundness and normal operations even in extreme adverse scenarios. Lastly, the implementation of the IMF arrangement not only guarantees the stability of the public debt, but also provides us with the possibility for additional funds to withstand any unexpected and unwanted development. The arrangement is an insurance policy, which should assure all the economic actors for the country’s financial soundness. Dear media representatives, Concluding, I would like to re-emphasize Bank of Albania’s commitment to safeguarding the country’s economic and monetary stability. In our judgment, the adopted policy framework provides a sound and coordinated development platform. Pursuant to our legal requirements and the development programme, the Bank of Albania will continue to work on: • Maintaining price stability and sustaining the country’s development. Under the current scenarios, the monetary policy stance will remain accommodative for several quarters ahead. We are, however, willing to take any additional measures necessary to maintain price stability and the purchasing power of Albanian households. • Safeguarding the country’s financial stability, in cooperation with all the stakeholders. We are in on-going contact with our international partners and other public agencies. Our analyses show that the banking system is stable. However, even under shocks, we have detailed measure plans available to avoid financial constraints. • Developing the financial system further through the implementation of measures agreed upon under the FSAP arrangement and provided for in cooperation with the continued IMF assistance. • Continuous improvement of the Bank of Albania, with a view to enhancing its professionalism, reputation and independence. In this context, the Bank of Albania will continue to work on improving the control and management systems, to reduce operational risks and improve communication and transparency. In addition, the Bank of Albania emphasizes the need to continue structural reforms, which will allow faster, more sustainable and more inclusive growth for different social levels of the society. Thank you! BIS central bankers’ speeches | bank of albania | 2,015 | 7 |
Intervention by Mr Gent Sejko, Governor of the Bank of Albania, in 6th ECB Conference on CESEE: "CESEE, old and new policy challenges", session s topic "Supervisory policies after the start of the Banking Union - initial experiences and outlook for CESEE economies", Frankfurt am Main, 10 June 2015. | Gent Sejko: Supervisory policies after the start of the Banking Union – initial experiences and outlook for CESEE economies Intervention by Mr Gent Sejko, Governor of the Bank of Albania, in 6th ECB Conference on CESEE: “CESEE, old and new policy challenges”, session’s topic “Supervisory policies after the start of the Banking Union – initial experiences and outlook for CESEE economies”, Frankfurt am Main, 10 June 2015. * * * Dear participants: I am honored and pleased to be in this important conference among distinguished professionals of banking and financial industry! I want to start by thanking the organizers for the invitation to be here, but also to congratulate the ECB on its new building: I wish it is as functional, as it is beautiful! Coming from the banking industry, I have been feeling the impact on the banking activity arising from the changing economic and financial environment due to recent global financial crisis. Since my appointment as the new Governor of the Bank of Albania at the beginning of this year, I have been seriously estimating the challenges we face in order to maintain the stability of our banking sector and ensure that it is fit to play its role in support of Albania’s economic growth. In my intervention today, I would like to share with you how we see the impact of changes in the financial landscape, including those in supervision superstructure, on the financial system of CESEE countries and more specifically on Albania’s one. With that being said, please let me start with supervision superstructure and the relevant changes in the post-crisis financial landscape, on the first place. Since the beginning of the global financial crisis, there have been significant changes in the financial landscape. These changes have been driven by a combination of: 1) pre-crisis excesses; 2) restructuring measures; 3) international financial regulatory reforms; Pre-crisis excesses were due to: • increasing financial integration and innovation; • misalignments between incentives for risk-taking and risk-provision; • weaknesses in monitoring and supervision (especially lack of monitoring and assessment of systemic risk development, as well as cross-border interaction issues); Such pre-crisis excesses led to risks coming from: • higher (and often, hidden) concentration of exposures and interconnection, especially on a cross-border level; • over-indebtedness (both in private and public sectors); • unrealistic increase in both, financial and real asset prices; Hence, restructuring measures were necessary to address inherent risks in the financial institutions, which were coming from: BIS central bankers’ speeches • high leverage; • falling asset quality; • funding constraints; • insufficient capitalization; • fragmentation and conflicts of interest in supervision; Such measures were associated with public intervention in the financial system (mostly banks), increasing further the linkage between “banks and sovereigns” and creating more “moral hazard”. At this point, a financial regulatory reform was necessary at international level, to address such risks. Under the guidance of the G20, broader and more comprehensive regulatory reforms were designed, with a special contribution by Basel Committee, the Financial Stability Board, IMF/WB group and many other. Such reforms were aiming to: • strengthen the resilience of the financial system; • avoid future similar crisis; In more details, such reforms included: • Improving the surveillance superstructure of the financial system, through: – establishing institutions with macro-prudential powers to monitor, assess and address systemic risk (in EU – ESRB, ECB; in US – FSOC; in UK – FPC; etc.); – reducing fragmentation and possible conflicts of interest in supervision, and achieve supervision consistency: notably in EU through the “Banking Union/Single Supervisory Mechanism”: ECB – EBA – ESRB; in UK – BoE – PRA – FPC; – new directives to ensure timing and effective restructuring of banking business (BRRD); – better design and use of tools to assess resilience of financial institutions to risks, like stress-testing (in EU – EBA/ECB); • Improving the financial system infrastructure, through: – better protecting the “core” banking activity from other activities like “proprietary investment” through new rules and proposals (in US – the “Volcker” rule; in UK – proposals of the “Vickers” Commission; in EU – proposals in “Liikanen” report); – improving clearing and settlement of securities transactions and streamlining financial reporting; – improving deposit guarantee schemes • Improving in banks under “Basel III”: – the quantity and quality of the capital; – the funding structure – their risk management requirements and capabilities; To summarize, the legacy of previous financial excesses and the following crisis, is a changing financial landscape ultimately determined by international financial regulatory reform, local financial market characteristics and the crisis impact itself. BIS central bankers’ speeches Following, in the second part of my speech I would like to briefly share some thoughts about possible implications for emerging markets and economies, including those in CESEE region. Such implications are determined by: local financial system features and inherent risks; political and macroeconomic developments; approach to reforms’ implementation; In terms of financial system features, compared to advance economies, in CESEE the financial system is generally characterized by: – more reliance in retail (longer-term) funding and more “buy to hold” business model – wider use of foreign currency in retail transactions; – less complex financial system, good level of capitalization and simpler approach to risk management; – serving as “host” to foreign financial institutions (usually from EU advanced economies) – higher reliance in banking to finance the public and private needs; – evolving regulatory framework of the financial system; In terms of political and macroeconomic developments, CESEEs are generally characterized by: – efforts to develop the financial system and integrate more the local economy in the regional and world one (in Europe, the process is driven by the process of European Integration); – stronger macroeconomic developments, which have seen improvement in the inflation due to more effective monetary policy, better use of economic resources and better fiscal management; However, in terms of approach to international financial regulatory reforms implementation, given their features, CESEE will have to consider that: – staying “out” is not an option; – less financial integration is not an option and, given the complexity of reforms, preparations should progress quickly, although the pace of change should be carefully weighted and prioritized with local market features. In this regard, to my opinion, CESEE may feel some stress impact during the process of reforms implementation which will come most likely from: – deleveraging, in terms of lower “parent” support for liquidity and lending to local economy; – cross-jurisdictions similarity in economic and financial cyclicality; – cross-border cooperation in supervision; – possible capital movements and impact on exchange rate; – political process as, in SEE, the EU integration process is determinant; Nevertheless, there is no option on “holding back” from the reforms for a long time, given the unstoppable process of financial integration and globalization. Hence, an early start of a pacing approach to financial regulatory reform is appropriate. BIS central bankers’ speeches In the last part of my speech I would like to stop by on the impact on Albania’s financial sector and economy and possible ways to avoid/mitigate negative externalities. The features of our financial system are similar to those of other CESEEs. In fact: – in Albania, the banking sector dominates the financial system; – banking activity is concentrated and controlled by foreign banks (87% of the assets); – in total there are 16 banks and the 4 biggest ones possess 68% of total assets. – home countries are: Austria (1 bank), Greece (3), France (2), Italy (2), Turkey (1), Bulgaria (1). – banks play the main role in meeting the private and public financing needs, and they rely heavily in local deposits to finance their activity; Changes in the regulatory superstructure, and enforcement of the regulatory requirements, have had important impact on Albania’s financial sector and economy. More concretely: In the financial sector, we have experienced: – deleveraging in local financial assets investments, particularly seen at subsidiaries of European banking groups, as they try to meet requirements coming after EBA and ECB stress tests; – increasing preference by financial institutions to place local funds in foreign investments (abroad); In the economy, such behavior by some of the banks has materialized in: – lower financial intermediation to both private and public sector; – negative impact on economic growth; However, the stability of both, financial system and macroeconomic framework, have been saved and at this point I would like to state that we believe that there can be found ways to further avoid or mitigate any negative externalities. On deleveraging, Bank of Albania has raised the concern on such phenomena directly with the EU counterparts, but also through its role in Vienna II initiative. In this regard, we have highlighted the need to establish effective mechanisms to restore healthy lending to economies of non-EU countries where subsidiaries of EU banking groups operate. Furthermore, we consider important to ensure that macro-prudential policies undertaken in the Euro-area, and banking group solutions originating from the EU, should take into account the relevant impact on non-EU host countries financial stability where systemically important EU bank subsidiaries operate. This could be bridged also by an effective exchange of information in the supervisory colleges, in accordance with the new EU directive for the recovery and resolution of banks, and particularly by working to remove barriers for non-EU host countries to come closer to the European forums and be able to participate and exchange their views. Despite some negative externalities that could be temporary, in the Bank of Albania we do believe that the Banking Union/Single Supervisory Mechanism and the new role provided to ECB, will also serve to improve the supervision of the banking sector in our country. This will come not only by much more consistent approach in supervision practices, but also through improving the coordination framework between home and host supervisors. In this regard, in the Bank of Albania, we are willing and hopeful that we can establish a much stronger working relationship with the ECB. Thank you very much for your attention! BIS central bankers’ speeches Glossary CESEE – Countries of Eastern and South-East Europe; SSM – Single Supervisory Mechanism (EU) ESRB – European Systemic Risk Board (EU) FSOC – Financial Supervision Oversight Council (USA) ECB – European Central Bank EBA – European Banking Authority FSB – Financial Stability Board PRA – Prudential Regulatory Authority (UK) FPC – Financial Policy Committee; BRRD – Banking Recovery and Resolution Directive (EU) BIS central bankers’ speeches | bank of albania | 2,015 | 7 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the round table on "The economy and banks, present and future challenges", organised by the Bank of Albania and Government of Albania with the banking system, Tirana, 16 September 2015. | Gent Sejko: The economy and banks, present and future challenges Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the round table on “The economy and banks, present and future challenges”, organised by the Bank of Albania and Government of Albania with the banking system, Tirana, 16 September 2015. * * * Your Excellency Prime Minister, Honoured representatives of international institutions, Dear bank executives and representatives, This meeting seeks to once again draw the attention on non-performing loans, an issue that has been discussed extensively over the recent years. It aims at fostering the shared and concrete commitment to reduce the stock of non-performing loans, increase the financial intermediation by the banking sector and underpin Albania’s economic growth. Following, I would like to list some facts. The high level of non-performing loans has not affected the banking sector’s stability. Liquidity and capitalisation indicators remain adequate and the financial performance has been positive and improving. But, the still-high percentage of non-performing loans has contributed to a higher perception of risk by banks; in turn, they have adopted a more conservative approach to lending. Our survey data point to tightened lending standards; meanwhile, the lending volume, albeit positive, is still considered as low. The credit quality has improved during this year. The non-performing loans ratio, after peaking 25%, fell to around 21% in July 2015. We believe this improvement reflects the measures taken in the last 2–3 years, of which I would like to single out: a) Amendments to the law “On income tax” at the end of 2013, to facilitate the loan loss write off from the balance sheet; b) Amendments to the Code of Civil Procedures in September 2013, to improve the collateral execution process; c) Entry into force of a regulation of the Bank of Albania, which renders obligatory the write off of loans classified by banks as “loss” for a period longer than 3 years; d) the work accomplished in cooperation with the commercial banks to restructure loans when the borrowers are exposed to more than one bank; Albeit the number of non-performing loans subject to the execution process has been significantly up, the improvement of the credit quality reflects mainly the loan loss write offs from banks’ balance sheet. For the first half of 2015, its value amounted to around ALL 11 billion. The write off from bank’s balance sheet is both healthy for the bank and useful for the economy, as it: – provides a more realistic picture of the banks’ loan portfolio, releases the capital and improves their financial balance; – improves bank processes, thanks to a more efficient use of human, financial and technical resources, and redirects the focus of the bank toward new loans; – improves the overall functioning of the financial market, as it contributes to the market “exit” of non-competitive businesses. BIS central bankers’ speeches – contributes positively to the market participants’ assessment of the banking sector (ratings) and, subsequently, to the assessment of Albania’s economy; – provides conditions to better manage debt collection, but always accompanied with the necessary message that this does not imply forgiving the borrowers debt. In our case, the process of loan loss write off from banks’ balance sheet is not a detached process from real developments. On the contrary, it reflects the gradual improvement in nonperforming loans. In concrete terms, over the last two years, the growth rate of non-performing loans has decelerated at extraordinary rates, banks’ annual spending for provisions has fallen, and new loans, especially those denominated in lek, have been stable. On their side, banks have been increasingly committed to this process. Usually, it happens when the effectiveness of the process improves and/or banks expectations for lending improve. Ladies and gentlemen, I would like to point out that although the credit quality has improved, the level of nonperforming loans is considered as still high, and it should be lowered at a faster pace. This is a complex process that puts to test the adequacy of the legal framework, as well as the coordination and consistent implementation of institutional policies. These challenges were identified in the Annual Forum organised in June. Some of them acknowledge the need for improving the legal framework. Others point to unifying, in a single law, important stipulations about the execution of executive title, which are currently envisaged across several laws. We should be aware that a part of the difficulties arise from the dimensions of this problem; also, until a while ago, the justice system lacked the experience and specialised expertise on these matters and is still facing inadequate capacities to handle such practices. However, inadequate legal provisions and their inconsistent implementation in practice render the collateral execution process tedious, uncertain and costly for the parties involved. The coordination of institutional policies is another key process to respond to various problems in a timely and appropriate fashion. For example, the recent Action Plan for the resolution of non-performing loans represents a new level of communication and commitment of public institutions and the Bank of Albania to find a sustainable solution. Many of the issues concerning the banking industry, which the Bank of Albania considers as crucial, have been incorporated in this Plan. For example, the preparation of the draft law “On bankruptcy”, a commendable effort by the Ministry of Justice represents a significant development and unique opportunity to render the resolution of a financial obligation as an enforceable, predictable, and efficient process. Concluding, I would like to underline that reducing the level of non-performing loans is closely related to the magnitude of financial intermediation by the banking sector. The need to redirect private investments towards new sectors in the economy, the small market size, problems related to the low quality of financial reporting by private entities, and slowdown of economic growth rates in Albania have dictated an unstable private demand for loans . Therefore, it is important to find, in addition to macroeconomic policies, new alternatives to boost domestic demand, promote optimism in the economy and contribute positively to businesses and consumer expectations. The acceleration of economic growth would provide the conditions for faster and steadier improvement in the level of non-performing loans. Thank you! BIS central bankers’ speeches | bank of albania | 2,015 | 9 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Conference "Do crises change economic fundamentals in SEE?", hosted by the Bank of Albania, organised in cooperation with the South East European Studies at Oxford, Tirana, 30 October 2015. | Gent Sejko: Do crises change economic fundamentals in SEE Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Conference “Do crises change economic fundamentals in SEE?”, hosted by the Bank of Albania, organised in cooperation with the South East European Studies at Oxford, Tirana, 30 October 2015. * * * Your Excellency Prime Minister, Dear Governor Hamza and senior central bank representatives, Your excellencies ambassadors, Dear guests, friends and colleagues, I am delighted to welcome you to the annual conference of the Bank of Albania organised in cooperation with the South East Europe Studies at Oxford. It is a pleasure to see that this cooperation brings together old and new partners. This has been a tough year full of challenges for the Albanian economy, consequently for the work of the Bank of Albania. The full recovery of economic growth and its further improvement in the future are and remain one of the top priorities of our work for the year. The prolonged crisis has impelled us and homologous institutions across the world to review many of the economic axioms, which we had taken for granted for a long time. It is not by accident that the main topic of the conference focuses on the causality and solutions for long-term problems we are facing during this period. Over the five year period, the Albanian economy has been growing in positive territory, yet, below its potential. This is a global phenomenon in the post-crisis period, extending across the entire South East Europe, which have experienced even lower growth rates. I hope that during this conference we will have the opportunity to analyse in depth the reasons behind this situation, sources that feed it and the difficulties it imposes on the business model and financial intermediation. Furthermore, it would be useful to discuss on the options available to policymakers and the way out of this situation, which, I believe, is a temporary situation rather than a long-term economic equilibrium. The Bank of Albania has been actively using two main instruments, the monetary policy and macro-prudential one, to give its contribution for a swift and systematic closure of the negative output gap in Albania. The Bank has continued to implement an accommodative monetary policy lowering the key interest rate to the historic 2% level. Notwithstanding the scepticism that has accompanied this process, the lowering of the key interest rate is reflected in a wide range of interest rates in the financial market, including those on loans and government securities. The fact the economy continues to grow below its potential, does not necessarily reflect the absence of an effective transmission channel for the monetary policy. We are more and more convinced that, above all, we have a weak aggregate demand, which is not generating the much needed stimuli for the recovery of the economic activity. Recent data, however, render us more optimistic. The real sector is showing signs of constant recovery, corroborated by some positive developments in the external economy. I would like to underline that a clearer prospect of the political and economic situation in Greece will have a positive impact over the upcoming period. The Bank of Albania has been continuously monitoring the developments in our Southern neighbour, aware of the various risks that could spill over in the Albanian economy. But, thanks to the precise and duly interventions, especially in the banking sector, these risks never materialised. BIS central bankers’ speeches The constant easing of the monetary policy seems to be reflected especially in investment indicators, with the domestic and foreign ones showing significant improvement over the first half of the year. On our side, we are happy that these investments were not only due to public sector interventions. There was also a substantial component by the private sector. This makes us believe that well-studied projects by the investors, coupled with an increasingly sound and pro-investment business climate, will serve as main drivers for the economy towards not only higher but also more sustainable growth in the near future. In accordance with the best contemporary practices, the Bank of Albania has endeavoured to enhance the transparency in its communication with the public, not only about the actual decisions but also about our forecasts. The Bank of Albania has constantly conveyed to the economic agents the idea that the monetary policy will remain accommodative and will sustain the revitalisation of the economy. As a result, we hope that the forward guidance on the monetary policy stance of the Bank of Albania will be adequately understood by all market agents and the public. Banks and entrepreneurs should use this opportunity to boost their activity resting assured that the central bank will continue to sustain and support their activity. In addition to the monetary policy easing, the Bank of Albania has paid special attention to the reform in the financial sector and the prudent supervision of the banking sector. The Chair of the Board of Governors of the Federal Reserve System, Ms. Yellen, in a statement not long ago leaves no doubt about the necessity of reforms in the financial sector, I quote “... a sine qua non for sustained economic recovery following a financial crisis is a thoroughgoing repair of the financial system.” From the perspective, in cooperation with the Parliament, government and other public regulatory entities we have undertaken a series of legislative and regulatory initiatives, aimed at creating incentives for the recovery and assurance in lending. Thanks to the reforms we have undertaken during this year, we have started to reap the first positive results as regards the situation of the non-performing loans. As a result, the ratio of the non-performing loans fell for the first time after almost seven years of continuous rise. The write off of loss loans, as I have explained in previous statements, was the finalisation of joint inter-institutional efforts. During this process, we have been assisted and overseen also by important international financial institutions such as the World Bank and the International Monetary Fund. Beyond the non-performing loans issue, the banking system continued to be well capitalised, liquid and financially sound. The issue of non-performing loans will require some more time to resolve, but this should not keep us from the recovery of the credit activity at home. For as long the positive performance of the other above-mentioned indicators continues, the banking sector has room and the potential to credit convincing projects and investments. In my judgement, it is important to administer with courage and persistence the prevalent perception that non-performing loan have forced banks to adopt a very conservative approach to lending. To permanently address this problem, additional measures have been taken and will be taken in the future. I would like to briefly focus on the latest initiative in this regard: a coordinated plan between the Bank of Albania, Government of Albania, Association of Banks, and International Monetary Fund, consisting in two main pillars: The first pillar relates to the drafting and completing the legislation that regulates lending from the moment of concluding a contract until the final repayment, including disputes among the parties. These changes aim at making more precise in legal terms all procedures related to banking activity, bailiff services, borrowers and other relevant state institutions. The second pillar is related to the regulatory framework of the activity of the banking system, therefore, related to the day to day activity of the Bank of Albania and the banking system. BIS central bankers’ speeches We have identified the regulations that will be subject to amendments. In addition to the objective for creating higher flexibility in relation to certain aspects of the activity in the treatment of the credit portfolio, we will aim at adopting a new concept: the “background check (biografi)” of the client in relation to bank borrowing. We believe that this new element will help banks assess the borrowing potential of each client. In spite of what I said above, it is a fact that, recently, lending in the national currency has seen positive growth over the months. This phenomenon, among others, has been accompanied with a positive side effect at a higher speed and intensity in the pass through mechanism of the monetary policy in the economy. Dear guests, As I pointed out, at the beginning, economic activity at home remains in a positive trajectory, but it has not yet reached the level we wish it were. Research at the Bank continues to confirm that the Albanian economy has unutilised potential and that the closing of the gap remains the main challenge for policymakers. Interventions through both the monetary policy and macro-prudential elements insofar have not succeeded to definitively close the gap. I listed these facts intentionally as the conference of this year is called “Do crisis change economic fundamentals?” These interventions are main actions central banks are allowed by the legislation, and recommended by the most modern theory. If these interventions fail to introduce a long-term positive equilibrium for the economy, then a question arises naturally: what else should be done? The answer is in the phrase “structural reforms”. While the phrase may have often been speculated, the truth firmly confirms: only the willingness to project and undertake courageous and visionary reforms is the golden key to success”. This fact was strongly emphasised in the final statement of the Ministers of Finance and central bank Governors of 24 most developed nations, (Financial Committee of the IMF) in the annual meeting of the IMF organised earlier this month in Lima, Peru. A secure sustainable long-term growth requires timely-implemented and well-sequenced structural reforms which remain critical to raise productivity, potential output, and living standards; they should bolster confidence in the economy and reduce social inequality. Concluding, I would like to underline the support of the Bank of Albania for a series of reforms undertaken recently as part of the medium-term agreement between the Government of Albania, Bank of Albania and the International Monetary Fund. Similarly to the rest of South East Europe, Albania needs a new path, in which investors will be able to see again profit opportunities. It is vital for all of us, for the region to detach itself as fast as possible from the perception as an irrelevant geographical areas, fragmented, with insignificant human, financial and economic potentials. We should do anything it takes, at any cost, to restore once again the trend and vitality this region showed before the crisis. Thank You! BIS central bankers’ speeches | bank of albania | 2,015 | 12 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the presentation of the Supreme State Audit Annual Review 2015, Tirana, 1 February 2016. | Gent Sejko: Oversight, analysis and vision of public governance in Albania Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the presentation of the Supreme State Audit Annual Review 2015, Tirana, 1 February 2016. * * * Your Excellency President of the Republic of Albania, Dear Chairman of the Supreme State Audit institution, Honourable Chairman of the Parliamentary Committee on Economy and Finance, Your excellency Ambassador Lu, Your excellency Minister, Dear representatives of public institutions, Honourable MPs, dear professors, dear participants, It is a special pleasure for me to be here today on the occasion of the annual review of the activity of the Supreme State Audit (ALSAI) for 2015. ALSAI is among the most important constitutional institutions in Albania, whose objective – ensuring good management of public finances – is highly significant. The effective use and certification of public funds in conformity with the laws regulating the economic and financial activity of the public sector, on-going public communication, in relation to irregularities and relevant responsibilities have been at the focus of ALSAI’s work in recent years. In this perspective, the role and mission of the ALSAI are highly important; therefore, the issues raised in ALSAI’s reports should be thoroughly analysed. They are both necessary and preventive instruments for the institutions subjected to ALSAI’s audit. Notably, the Bank of Albania and ALSAI have had a fruitful cooperation, in line with both current and prospective dynamics and developments. We have made constant and joint efforts so that the conclusions and recommendations left by ALSAI become a useful, guiding, helpful, and corrective tool. In view of the insofar experience, this combination is an essential component in the work of audit institutions. I have believed and still do believe that auditing is a key instrument, which serves to further perfecting public sector governance. The ALSAI has contributed and will continue to contribute to identifying various problems facing public institutions, divergences from legal and regulatory framework, with subsequent financial effects, and their correction, in accordance with legal requirements and international standards. Focusing on the future role of ALSAI, I am confident it will increase the contribution to perfecting the three main dimensions – oversight, analysis, and vision – of public governance. More specifically, • With regard to the oversight dimension, the great dilemma is whether public entities are accomplishing their mission in detecting and preventing corruption; • With regard to the analysis dimension, the great dilemma is whether these institutions are making responsible decisions about economic policies, development programmes, operations and the achieved results; • With regard to the long-term vision dimension, the great dilemma is whether the right directions and future challenges facing auditors are properly determined. Hence, approximation of the auditing role with the best and contemporary international standards, learning about specifics and characteristics of the audited entities, and further BIS central bankers’ speeches intensification of inter-institutional cooperation during the processes are some of the elements having a key role in the work and results of this institution. In conclusion, I am fully confident that, by promoting the above-stated factors, the ALSAI will continue to perform at its best vis-a-vis the duties and challenges imposed by current developments and will succeed in accomplishing its mission towards the improvement of institutional governance. Thanking you for your attention, I wish you success in your work in 2016. BIS central bankers’ speeches | bank of albania | 2,016 | 2 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the press conference on Bank of Albania highlights for 2015 and priorities for 2016, Tirana, 3 February 2016. | Gent Sejko: Bank of Albania highlights for 2015 and priorities for 2016 Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the press conference on Bank of Albania highlights for 2015 and priorities for 2016, Tirana, 3 February 2016. * * * Year 2015 was a challenging one in the light of maintaining and consolidating the economic and financial stability and of improving the institutional framework of the Bank of Albania. The Bank of Albania has provided substantial contribution to maintaining and consolidating macroeconomic balances and financial stability in Albania. The accommodative monetary policy, implemented throughout 2015, was a pivotal underlying factor for ensuring an economic and financial environment with low interest rates, amid ample liquidity. The prudential supervision of banks, the regulatory improvements, along with the intensive exchange of information with European and international counterparts contributed to strengthening and safeguarding banking system's financial stability. The beginning of 2015 coincided with a set of institutional decisions adopted by the Parliament of Albania and the Supervisory Council of the Bank of Albania, which provided the ground for the return of public confidence to the institution. In concrete terms: • the management structure of the Bank of Albania was completed; • the Audit Committee, composed of three Supervisory Council members, started its activity; • the Inspector General resumed reporting to the Supervisory Council; • the Medium-term Development Strategy and Medium-term Budget for 2016–18 were approved; • the new organisational structure was approved; • the head offices renovation and construction works were completed; • and the Museum of the Bank of Albania was launched. These highlights contributed to strengthening good governance, accountability and subsequently enhancing public confidence in the Bank of Albania. The monetary policy intensified the simulating stance during 2015. The Bank of Albania lowered the key rate twice, continued to inject the necessary liquidity in the financial markets and clearly communicated the future monetary policy stance. Our monetary policy was successful in easing the financing conditions in the economy and helped in the return of the Albanian economy to a positive development track. In particular, interest rates on new lek loans and servicing costs of existing credits fell. Lek credit increased, offsetting the continuous fall of the credit portfolio in foreign currency. Also, the share of lek credit in the total credit portfolio has been increasing, from around 28% in 2008 to 43% in 2015. These actions have played a vital role in accelerating the economic growth during the last two years. During 2015, the banking system continued to expand its activity. Financial soundness improved, while capitalisation and liquidity stand at optimal parameters, at 16% and 4%, respectively. According to the latest data, as at November 2015, the performance of deposits was positive, increasing over EUR 130 million, thus confirming the public trust in the banking system. BIS central bankers’ speeches After long-standing efforts, having increased for seven years, we provided for the reduction of non-performing loans below 20%. The lowering of the non-performing loans ratio, as financing costs in the financial market stand at minimum historical levels, allows for a reliable recovery of credit to economy in the period ahead. We believe that, as a result of the joint action plan with the Government, the non-performing loans ratio will continue to fall in the year ahead. Also, in 2015, a new investor, the American Bank of Investments, entered the banking market, being the first one after 2009. We consider the new investment as a very positive development for the promotion of competition within the system. The Bank of Albania will continue to promote banking system consolidation and adhere to rigorous requirements for a responsible and proactive management of each bank. In 2015, the most delicate developments coincided with the complex political and financial situation in Greece. The banking sector in general and individual banks in particular weathered with success all the difficulties. The Bank of Albania, in addition to the constant monitoring of developments in Albanian banks with Greek capital, intensified the communication with the respective authorities in Greece and in the euro area. The above-stated situation served to test the efficiency of the measures on securing liquidity. On the other hand, they promoted the spirit of solidarity and fair competition among banks. Another important aspect of our work was the contribution in the framework of Albania’s approximation to the European Union. In 2015, we intensified the cooperation with the European Central Bank, ESCB central banks, and other European bodies dealing with financial regulations of the Union, notably the cooperation agreement with the European Supervisory Authority. We strengthened, at the same intensity, the cooperation with the International Monetary Fund, World Bank and Bank for International Settlements, and regional central banks. The Bank of Albania has also undertaken concrete steps about the development of payment systems. The National Committee on Payment Systems was established in October 2015. This is an inter-institutional committee that will contribute to enhancing the security, stability and efficiency of the national payment systems in Albania. The Law on Savings and Loan Associations (SLAs) has been drafted and is pending approval by the Parliament. This law regulates the licensing, supervision and activity of the SLAs in compliance with the best standards. In close collaboration with the Albanian Deposit Insurance Agency, amendments to the Law on Deposits Insurance have been drafted. These amendments consist in new norms addressing the SLAs and include legal persons in the insurance deposits scheme. The past year was successful also regarding the information technology. Although such projects are less visible to the public, they are of key importance. At the beginning of 2015, the AFISaR system started operation - this is the central electronic register for the documentation of each element that accompanies the issue and transactions with securities issued by the Albanian state. In the meantime, other successes achieved with regard to information technology include: • automation of the reporting system of banks to the Bank of Albania; • integration and optimisation of the IT network utilisation, thus reducing operational costs of the Bank of Albania; • automation of accounting operations at BoA branches; • and increase of information processing and storing capacities. BIS central bankers’ speeches Bigger challenges lie ahead of us in 2016. Another important objective is boosting credit to support the private sector, certainly at lower interest rates. The business plans of banks for 2016 render us optimistic in this regard. Meanwhile, once again I emphasise that our monetary policy stance will remain accommodative in 2016. Furthermore, private sector's demand will be low throughout 2016, thus creating premises to increasingly channel the banking system's liquidity to the private sector. I would like to guarantee the banking system in Albania that the Bank of Albania will be a reliable, open and serious partner, in compliance with its mandate, implying its supervisory function. One of the main aspects in our work will be the compilation of a particular law to deal with banks facing a difficult financial situation, also known in our daily jargon as the Resolution Law. This is in the light of an important contemporary directive of European Union, which we are working to introduce in our banking legislation. Last, but not least, we will continue our efforts during 2016 for the further institutional perfection the Bank of Albania, aiming a fast approximation to the model of ESCB central banks. The new organisational structure and the three-year development strategy of the Bank of Albania will guide a set of decisions of the Bank of Albania's Supervisory Council to improve legal and sub-legal acts. The daily activity of the Bank of Albania's departments, the mobilisation and motivation of human resources, efficient management of funds for the financing of the activity, the strengthening of the internal audit and risk management in the activity of the Bank of Albania will be the main priorities in our work during 2016. Thank You! BIS central bankers’ speeches | bank of albania | 2,016 | 2 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the discussion forum on "Bank - Business relationships: lending perspective 2016" between representatives of the business community and the banking sector, Tirana, 3 March 2016. | Gent Sejko: Bank - business relationships: lending perspective 2016 Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the discussion forum on "Bank - Business relationships: lending perspective 2016" between representatives of the business community and the banking sector, Tirana, 3 March 2016. * * * Dear representatives of business community in Albania, Dear banking system executives, Dear participants, It is a great pleasure to open the discussions in this meeting between representatives of the business community and the banking sector. I have always believed that the business sector is the engine driving the economy forward. It is the main contributor to employment and, hence, to fulfilling the goal to improve the citizens’ welfare. The role of the banking sector in the economy is equally important. Its mission to effectively manage the savings of the population in supporting the economic development is vital to the long-term prosperity of a country. In the post-crisis period, we are facing a situation we had never imagined before. Many structural ambiguities and weaknesses surfaced along with their aggressiveness. The worsened credit portfolio was one of the most problematic developments, being highly intensive and uniform across all products. This undesirable development decelerated lending to the economy, contributing negatively to a further increase of non-performing loans (NPLs). The vicious circle continued for a long time, peaking when NPLs shared 25% in total loans. Notably, this problem is facing not only Albania but also the global economy. Emerging economies, especially the regional economies, experienced strong shocks. Financial systems, currencies, consumption and investments were mostly affected. Many of the business plans, compiled and implemented in the pre-crisis period, failed, driving to the increased insolvency for many large borrowers. This situation existed for 5-7 years, until 2015, the year I would consider as the long-expected turning point. For the first time, attributable to the coordinated efforts among all institutional stakeholders, we provided the grounds for a considerable reduction of NPLs. I have addressed this issue before. I would rather not repeat myself, but I would like to bring to your attention today an effort, an attempt, an initiative to analyse jointly the causes and the reasons why we are in this situation. Most importantly, we should discuss and reach clear conclusions on ways to boost lending to the economy. The developments in recent years drive to the conclusion that the relationship or interaction between the two communities represented in this room stands at low historical levels. The most meaningful indicator, in this regard, is the low level of lending. From the frequent contacts with the banking industry and business representatives, I understand that the parties see the problem in the other party. In many cases, banks adopt rather rigid and excluding positions, while many business' representatives do not understand that compliance with contractual obligations is the basis for the success of the market economy. I may bring numerous examples, but I assure you, this is not the goal of this meeting. Dear participants, The Albanian economy has entered into an interesting phase and the signs on its recovery are present on daily basis. In the second half of 2015, there is an increasing consensus on the acceleration of economic activity beyond the forecasts at the year start. Based on the BIS central bankers’ speeches current trends, I deem that the economic growth acceleration will be a distinctive feature during 2016 as well. The available information leads us to the conclusion that private investments have shown a positive performance. Foreign Direct Investments, easing of financing conditions in the banking system, and improved financial situation of businesses due to the payment of arrears have all contributed positively. The reforms implemented recently have provided the first effects. With time, in addition to the other reforms in the joint agenda with the International Monetary Fund, we will have higher and more stable economic recovery. Our expectations were reinforced by the recent comments by the IMF's Executive Board of Directors in the approval of the Fifth and Sixth Review under the Extended Arrangement, which enabled the disbursement of the next tranche for EUR 72.4 million, for Albania. The Albanian economy is on a positive development trajectory and domestic demand will continue to gather strength as a result of the further materialisation of reforms, the IMF notes. The IMF also assesses positively the accommodative monetary policy implemented by the Bank of Albania and constant efforts to reduce the stock of non-performing loans and boost lending. In addition, the IMF welcomed the structural reforms by Albanian authorities to strengthen public finances through a further fiscal consolidation. The IMF also noted the insofar progress and the need for the steadfast implementation of those measures aimed at improving the business environment and promoting economic growth. All the above lead to the conclusion that the environment is more attractive and the incentives to boost lending are more significant. I believe that the Bank of Albania has done its duties in this regard. In concrete terms: First, the strong accommodative monetary policy stance has brought interest rates in financial markets to historic minimum levels. The Bank of Albania deems that these rates will remain below the historical average level, over the next two years. In the light of achieving our inflation target and of economic growth approaching its potential, based on the available information, the Bank of Albania will not reduce the intensity of the monetary stimulus throughout 2016 and the monetary conditions will remain stimulating in the next two years. Second, the issue of the euro bond led to the reduction of public borrowing in domestic financial markets. This has brought interest rates further down - even beyond signals given by the monetary policy - thus increasing the monetary stimulus in the economy. Furthermore, the pullback of public sector from domestic borrowing provided for the liquidity "pie" to be made entirely available to the private sector. In accordance with the medium-term budget plan, the Bank of Albania deems that the effect of this factor will be also present over the next two years. Third, liquidity situation and financial soundness of banking system is rather promising to credit economy. During 2015, the banking system expanded the activity, improved the financial performance, and remained well-capitalised and had ample liquidity. The profit of the banking system amounted to around ALL 15.7 billion. The financial result improved attributable to lower financing costs and lower credit risk provisions. The return on assets and return on equity were further improved. The number of banks making profits increased. Albeit at a slower pace, public deposits expanded in 2015, maintaining their share of around 82%. The measures implemented in the last three years to tackle non-performing loans have started to yield results. The credit quality improved and the ratio of non-performing loans fell from 25% to 18%, mainly as a result of restructuring and write off of loss loans from banks' balance sheets. Fourth, the implementation of the plan of measures for reducing non-performing loans will free the banking system from the stress and the nervousness accumulated over time. This BIS central bankers’ speeches will drive to easing of credit standards and increase of banking credit supply by the banking system. Fifth, the expectations are more optimistic even in the overall international context, including the approach of supervisory and regulatory institutions, and at the level of large banking groups. All these reasons have led us to believe that there is a great potential to credit economy. In fact, we believe that lending to the economy in 2016 will grow at higher rates than in the previous year. This is reflected also in the business plans of the banking system for 2016, where particular banks with a considerable share in crediting, have planned ambitious growth compared to 2015. I hope, and I will insist, seeing this objective materialise in the economy. As I mentioned at the beginning of my address, I would like to invite you to discuss for a new beginning. The conditions are already ripe. The economy is growing, business opportunities are in place, liquidity is ample, and prices are convenient. I urge the banking system to leave behind a relatively passive approach. One should understand that it is time to turn back to the traditional activity of the commercial bank, that is, crediting to economy. This is the mission of commercial banks in the economy and I invite you to fulfil this goal successfully. Be no longer hostage of some old practices of failed loans! Draw the right lessons and increase the communication with your head offices! Explain the Albanian reality to them and the opportunities for investment! Convince them that there are a lot of activities with guaranteed return, hence they should be credited. I would like to let you know that the management chain of the Bank of Albania is not satisfied with the current situation. In the meantime, the many reasons or claims that may have risen cannot justify that apathy or lack of risk appetite for investment. We will be increasing our pressure in this regard. I invite you to swiftly take corrective measures to better credit the economy. On the other hand, I urge the business community to raise the level of professionalism in drafting and implementing the projects they submit for crediting. The business should pay great attention to the genuine financial and legal assistance, prior, during and after the signing of the contracts. You should adopt a contemporary management philosophy. The governance of your enterprises should be responsible; meanwhile it is to your benefit to build realistic projects, in terms of size, location and resources. Keep in mind that productivity guarantees high return. Do not neglect the research and invest in qualified human resources!. Although, they appear as simple pieces of advice, allow me to clarify that the underlying reasons for many unsuccessful practices are exactly the elements I mentioned. I would like to guarantee you that the Bank of Albania will be a reliable, open and serious partner, in compliance with its mandate, implying its supervisory function. We will continue to improve the legal and sublegal framework to reflect the relevant best standards and European directives regarding the micro and macro-prudential supervision. The Bank of Albania will place fulfilling the commitments deriving from the National Action Plan for Tackling Non-performing Loans at the centre of its efforts. We will firmly cooperate with other public authorities, the World Bank and the International Monetary Fund, or the further reducing the stock of non-performing loans. As in the past, the stability of the banking system is a top priority. In this regard, the Bank of Albania will continue to contribute also in the framework of the Financial Stability Committee in Albania. Dear representatives of business community and banking system, BIS central bankers’ speeches At the end of my speech I would like to emphasise once again that in this room we represent three groups of interest. In order to be successful, we need to help and cooperate with each other. I would like to appeal once again to you to enhance the mutual understanding and cooperation BIS central bankers’ speeches | bank of albania | 2,016 | 4 |
Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2015 to the Parliamentary Committee on Economy and Finance, Tirana, 29 March 2016. | Gent Sejko: Bank of Albania – strengthening governance and recent other challenges Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2015 to the Parliamentary Committee on Economy and Finance, Tirana, 29 March 2016. * * * Honourable Chair of the Parliamentary Committee on Economy and Finance, Honourable Members of the Committee, It is my special pleasure to present, in this hearing session with the Parliamentary Committee on Economy and Finance, the Annual Report of the Bank of Albania for 2015. In 2015, the Bank of Albania has worked to successfully fulfil its objectives stemming from the Law “On the Bank of Albania”, as well as all the other obligations arising from relevant sublegal acts and relations with our international partners. I would like to start my presentation, focusing on the activity of the Supervisory Council of the Bank of Albania. 1. Decisions of the Supervisory Council At the beginning of 2015, the management team of the Bank of Albania was rendered complete. Thus, thanks to the support of the Assembly of the Republic of Albania, the vacant positions in the Supervisory Council were completed, the Governor, the Second Deputy Governor and Inspector General of the Bank of Albania were appointed. During 2015, the Council met 15 times and approved 98 decisions. Of them, 63 consisted in acts approved for the first time, and 35 in amendments to existing acts. Eight meetings focused on the monetary policy decision, whereas four meetings focused on decisions about issues pertaining to supervision and financial stability. The decisions have been communicated to the public through press conferences, full publication of relevant reports and explanation, on a case by case basis, in accordance with requests by various media outlets. All the reports compiled by the Bank of Albania on the monetary policy and financial stability have been fully submitted, within the envisaged legal time frame, to the Assembly of the Republic of Albania and its Committee on Economy and Finance. In line with the above said, and in accordance with earlier public statements, the strengthening of governance has assumed a key place in the Supervisory Council decisionmaking process. From this perspective, I will now briefly focus on: Establishment of the Audit Committee The establishment of the Audit Committee is an important development with regard to strengthening the internal control at the Bank of Albania, especially the supervisory capacities of the Supervisory Council. The meetings held in 2015 discussed the organisation and functioning of the Control [Internal Audit] Department, the audit universe and annual plan, main findings, risk assessment and effectiveness of the internal control system at the Bank of Albania. Another important aspect of the activity was to monitor the work for the preparation of financial statements in accordance with the International Financial Reporting Standards. BIS central bankers’ speeches Approval of the internal audit policy The approved internal audit policy, followed by the revision of the Regulation on the Functioning of the Control Department, defines clearly the position of the activity of the internal audit within the organisational structure of the Bank of Albania. This document provides for the implementation of the Standards for the Professional Practice of Internal Auditing and the Code of Ethics, and specifies the line of reporting of the Inspector General to the Audit Committee, Supervisory Council and Assembly of the Republic of Albania. Approval of the new Statute of the Bank of Albania The new Statute provides for the compliance of many of the provisions for the organisation and functioning of the Bank of Albania with the best practices of the European System of Central Banks. Among others, I would like to mention: - specification of duties and responsibilities of the Administrators of the Bank of Albania; - specification of procedures for the replacement of the administrators, during their absence or when they are unable to act; - reformulation of provisions that stipulate the administrative and financial independence of the Bank of Albania by approximating them to the provisions stipulated in the Statute of the European Central Bank. Approval of the Medium-Term Development Strategy and Budget for 2016–18 The medium-term strategy summarises key objectives and major ambitions of the Bank of Albania for the next three years. Following are some of the strategic objectives of the Bank of Albania: - maintaining price stability around 3%; - strengthening financial stability; - strengthening banking supervision; - enhancing financial market security and efficiency; - enhancing and approximating institutional capacities to the European model. To materialise the strategy, the medium-term budget has been prepared for the financial management of the institution in the upcoming three years. Approval of the new organisational structure of the Bank of Albania The new structure of the Bank of Albania adapts the activity of its units to the needs and new process imposed by economic developments and changes in the banking legislation. Moreover, it aims at improving the institution’s management and strengthening the internal control. The establishment of the specialised unit to monitor and manage the operational risk is a crucial step in this regard. Also, the new structure aims to strengthen the vertical and horizontal control in compliance with international best practices, models and standards. Strengthening cash security and management systems The Supervisory Council and other administrative structures have reviewed the entire regulatory framework for the security and protection of physical values and information at the Bank of Albania, enhancing both human and technology-related elements. A series of decisions have been made to strengthen the security measures and physical monitoring of the premises where cash is stored and processed, in the form of banknotes and coins. Significant improvements have been made to procedures related to the inventory, processing BIS central bankers’ speeches and storage of banknotes, including those for destruction. Particular attention has been paid to setting clear criteria to guarantee high integrity of the employees designated in charge of values or assigned in other units engaged in control, supervision or other similar activities. 2. Economic developments and monetary policy The Albanian economy continued to improve in 2015. The growth rate accelerated compared to the previous year, and the main indicators of economic and financial equilibriums have been overall improving. Thus: • current account deficit reduced; • budget deficit fell 1.6 percentage points against the GDP; • firms’ balance sheet appear more liquid; • banking system non-performing loans and profitability indicators have been improving. However, aggregate demand remains insufficient to fully utilise production capacities. Subsequently, the internal economic environment has exercised low pressures for rising inflation, which have been further strengthened by the disinflationary trend noted in international markets. While upward, inflation continued to range below our 3.0% target, during the past year. Following, I will present a summary of the macroeconomic backdrop underlying Bank of Albania’s monetary policy decisions and their results. According to INSTAT data, the Gross Domestic Product rose 2.7% during the first three quarters of 2015. Available data suggest that the economy continued to grow at a similar pace even in the fourth quarter. From the sectorial perspective, the sources of growth are broader than in the previous year. With a few exceptions, all the sectors have contributed positively to the expansion of economic activity. From the demand perspective, economic growth was driven mainly by the expansion of private investments and improvement of the balance of trade exchanges with partner countries. Private consumption showed volatility, but its contribution was positive during the third quarter. Fiscal policy continued the consolidating stance. In line with previous statements, fiscal consolidation is the right approach for preserving the macroeconomic foundations. Consolidation creates more space for the expansion of the private sector and produces long-term benefits for the Albanian economy, for its capacity to withstand various shocks. However, while associated with higher employment and utilisation of production capacities, the growth of aggregate demand has not been adequate to absorb all the spare capacities in the economy. Unemployment averaged 17.5% in 2015, reflecting the unused capacities in the labour market. Thus, pressures on the rise of wages, productions costs and profit margins were weak. Annual inflation averaged 1.9% for 2015, up 0.3 percentage point from a year earlier. To address low inflationary pressures, the Bank of Albania continued to implement an accommodative monetary policy. It lowered the key interest rate, increased the liquidity injection in the banking system and engaged publicly in maintaining the accommodative monetary policy stance in the medium-term period. The key interest rate fell to the new historic level of 1.75% at the end of 2015. These decisions have aimed at creating the appropriate conditions for boosting domestic demand, and for the return of inflation to target in the medium term. Moreover, our monetary BIS central bankers’ speeches policy has been transmitted in lower interest rates across all financial instruments in the domestic currency. During the fourth quarter, the transmission was also helped by the shift of the budget deficit financing, from domestic to foreign resources. The shift has increased the liquidity in domestic financial markets significantly and has reinforced the downward trend of their interest rates. Consequently, the average interest rate on loans dropped further during 2015. Combined with the measures taken for reducing non-performing loans, monetary stimuli were reflected in the easing of credit standards. Excluding the effect of write offs from the balance sheets, credit to the private sector grew by ALL 12 billion, or 2.2% in the past year. The monetary policy pass through was reflected also in the reduction of the euroisation in the Albanian economy. At the end of 2015, lek credit to the private sector amounted to 41% of total loans, from 32% at the end of 2010. The Bank of Albania expects credit to perform better in the medium term, but this projection remains largely dictated by the further improvement of the crediting climate in Albania. Against this backdrop, I take the opportunity to reiterate that the national plan for addressing non-performing loans should be considered as a non-negotiable prerequisite for the growth of credit in the future. In parallel, pressing ahead with structural reforms agenda will provide for faster and more sustainable development of the Albanian economy. 3. Banking system highlights For 2015, indicators of banking sector soundness were evidently better than the regulatory requirements for solvency, liquidity and specific-risks provisioning levels. These indicators show a satisfactory level of resilience even when adverse macroeconomic scenarios are assumed. The number of banks operating in the Republic of Albania remained unchanged, at 16 banks. The major part of the banking sector is owned by subsidiaries of EU-based banking groups that exercise their activity in accordance with the Albanian legislation and in accordance with Bank of Albania’s regulatory framework in force. During 2015, the American Bank of Investments entered the Albanian banking market, the first investor since 2009. This development is considered as a very positive one for promoting competition within the banking system. At the end of 2015, banking sector assets expanded by 2%, reaching 91.3% of the Gross Domestic Product. The activity continued to be financed by the growth of public deposits by 2.6%, accounting for 83% of the total banking sector balance. Average profitability indicators improved during 2015. The Return on Assets (RoA) stood at 1.2% and the Return on Equity (RoE) stood at 13.2%. This financial result forms a good basis for the stability of the banking system. The capital adequacy ratio stood at 15.7%, notably higher than the 12% minimum required in the regulatory framework. Good capitalisation remains a feature of our banking system. It was maintained due to the continuation of positive values in net financial result. Addressing the non-performing loans issue has been one of the major engagements of the Bank of Albania throughout 2015. For the first time, after a four-year period, the level of nonperforming loans fell below 20%. Decisions taken by the Bank of Albania have constantly increased the pressure on the banking system, which, in turn, has added the efforts for managing non-performing loans through restructuring, execution, provisioning and their write off from the balance sheet, accordingly. BIS central bankers’ speeches The inter-institutional initiative materialised in the Plan of Measures for Reducing NonPerforming Loans, which consists in a multidimensional action of legal, fiscal and regulatory improvements, contributed to lowering the stock of non-performing loans to 18.2 % at the end of 2015. This plan includes other steps over the course of 2016, which will render the positive result even more visible in the system. Moreover, in 2015 the banking system was tested by the psychological pressure arising from the Greek crisis; however, it passed the test successfully. On the other hand, the situation served to test the effectiveness of prudential measures that the Bank of Albania had taken in due time. 4. Banking supervision During 2015, we have worked on further bolstering banking supervision. In concrete terms, we have worked on the following: - Implementation of the risk-based supervisory policy; - Implementation of the risk assessment manual and of the new bank assessment system; - Implementation of the new regulation for calculating the capital adequacy ratio in compliance with Pillar I of Basel II. The implementation of these contemporary methodologies guarantees a high degree of compliance with international best standards, rendering our approach able to identify the risks in due time and dictate taking corrective measures for preventing the occurrence. Another achievement in terms of the approximation with the standards of EU homologous institutions was the positive assessment of the confidentiality regime of the Bank of Albania by the European Banking Authority (EBA). In October 2015, through a Memorandum of Cooperation, this Authority certified this regime as in full compliance with the relevant EU standard, including the Bank of Albania in the list of non-EU supervisory authorities that may take part in the work of EU colleges of supervisors. In the framework of the system’s supervision, during 2015, a considerable number of on-site examinations were carried out. Upon completion, the examined institutions were left relevant recommendations to make the necessary improvements and to draft a plan of measures, whose implementation will be rigorously monitored. In the past year, the process of licencing continued for new financial institutions such as microcredit and electronic money institutions and a considerable number of foreign exchange bureaus. 5. Other activities of the Bank of Albania i. Payment systems In 2015, the Bank of Albania undertook a series of measures to improve the regulatory framework and oversight procedures for the payment systems. The approval of the Regulation “On licensing, regulation, and oversight of payment systems and clearing houses” is one of the main steps that will promote private initiatives for the clearing and settlement of payments. In October 2015, the National Committee of Payment Systems met for the first time. The Committee will serve as a forum for discussing issues related to payment systems and instruments, to support the decision-making process by the relevant institutions. Another development in the area of payments is related to the methodology “On the reporting of electronic money instruments by electronic money institutions”, which preceded the licencing of two electronic money institutions in 2015. BIS central bankers’ speeches ii. Currency issue In the framework of its unique function as the issuer of the national currency, the Bank of Albania continued to fulfil the needs of the economy for banknotes and coins, in accordance with contemporary standards for their quality and security features. Compared to 2014, the structure of the currency in circulation has changed. Thus, the number of higher denominations, ALL 2000 and ALL 5000 increased. Also the use of coins increased, as their value rose by 8.2%. iii. Foreign-exchange reserve management The reserve management continued to be conducted in accordance with the regulatory framework in force. The primary objective of the reserve management is the principle of liquidity and security. In line with our policy and international standards on adequacy, we continued in this year to ensure that the reserves are at adequate levels and in conformity with our goal. Year 2015 was characterised by a further decline in negative territory of interest rates for treasury issues in the euro area. Thus, for the euro portfolio, the possibilities of investment with a positive rate of return, compared to the previous year, are reduced significantly. Regardless of this fact, the result created by the management of the reserve portfolio for 2015 was positive. iv. Legal service The improvement of the legal and regulatory framework has been a constant priority for the Bank of Albania. During the year, the Law “On Savings and Loans Associations” was drafted, consulted and submitted to the Assembly of the Republic of Albania for review. The law regulates the SLAs licencing, supervision and activity in accordance with the best standards. In close cooperation with the Albanian Deposit Insurance Agency, amendments have been drafted to the Law “On deposit insurance”, which improve the implementation of the Law on SLAs and include certain categories of legal persons in the deposit insurance scheme. The law on the treatment of banks facing financial difficulties, also known as the Resolution Law is another important project we have been working on during 2015 and are still working in cooperation with the World Bank. Significant work has been carried out also with regard to the regulatory framework. v. Monetary and financial statistics Last year was a successful one for the Bank of Albania in its role as one of the three national agencies producing statistics. Expanding statistical information, and perfecting some of the methodologies underlying the statistical product of the Bank of Albania have been evaluated positively by international institutions, making thus significant progress towards the approximation with Eurostat and IMF standards. In 2015, the Bank of Albania published, for the first time, the annual information on the flow of foreign direct investments by country, flow of foreign direct investments by economic activity and situation of foreign direct investments by country and economic activity. vi. Research During 2015, the Bank of Albania completed over 20 empirical studies and analyses dedicated to problems and potential solutions for issues related monetary policy effectiveness and safeguarding financial stability. During 2015, the revaluation of the Macroeconometric Model of the Albanian Economy was completed. The process improved the identification and interpretation of cause-effect macroeconomic correlations. Research work has been presented in various events and conferences, including those organised by the Bank of Albania, notably, the 9th Workshop of Economic Research in BIS central bankers’ speeches Southeastern Europe “Rethinking Economic Policies and Central Banks’ Methodologies”, where 20 research papers were presented by central banks, academic institutions and the Bank of Albania. vii. Communication Enhancing the transparency is a constant priority of the Bank of Albania. During 2015, we have aimed at establishing permanent channels of communication with the public. They reflect Supervisory Council’s monetary policy decisions, the underlying factors and expected results. The periodic reports of the Bank of Albania publish comprehensive analysis on economic and financial developments, the outlook for the short and long term, and the performance of the banking sector along with the risks facing the financial stability of Albania. Events organised with representatives of the banking system, business community, specialised international institutions are another aspect of our communication with the public. Examples include the Forum on “Promoting credit growth” in April 2015, “Albania Financial Forum III” organised with the International Monetary Fund in June 2015, and a meeting with the banking system discussing on “The economy and banks: present and future challenges” in September 2015. viii. Public education The launching of the Museum of the Bank of Albania was the main highlight in the area of public education. Designed as an inter-disciplinary museum, it integrates numismatic, historic and educational functions, which contribute to enhancing the financial literacy of the public in general and of the younger generation in particular. ix. European integration Another important aspect of our work has been the contribution of the Bank of Albania in the context of approximation to the European Union. The Bank of Albania has intensified its cooperation with the European Central Bank, central banks of the European System, and European structures that regulate financial aspects in the EU. At the same intensity, we strengthened the cooperation with the International Monetary Fund, the World Bank and the Bank for International Settlements, as well as regional central banks. The Bank of Albania has continued its contribution to the reporting for the Progress Report and the National Plan for European Integration, leading Chapter 4 “Free movement of capital” and Chapter 17 “Economic and monetary policies” and contributing in 6 other chapters of the Acquis. x. Human resources Improvement to the organisational structure of the institution has constantly been at the focus of human resources policies, with the main aim to enhance the efficiency of the activity of the Bank of Albania. It seeks to provide a better coordination and communication between the units, especially the successful implementation of engagements arising from strategic objectives and the approximation with the model of the European System central banks or the European Central Bank. The policies in the area of human resources have aimed at promoting the most experienced and proficient employees, through a professional competition. Staff motivation policies have aimed at preserving the stability and continuity of staff. Particular attention has been paid to observing gender equality. The professional development of the staff is realised, among others, through participation in specialised training organised by central banks or international financial institutions. In addition to enhancing professional capacities, there are also possibilities for the exchange of professional experiences and familiarisation with the most contemporary central bank theories and practices. BIS central bankers’ speeches xi. Information technology In 2015, the aspect of Information Technology saw several achievements. The AFISaR system started to operate. It is a central electronic register for the documentation of each element involved in the issue and transactions with securities by the Albanian state. Other achievements include: - automation of the reporting system for banking activity indicators; - integration and optimisation of the IT network utilisation, reducing therefore operational costs of the Bank of Albania; - automation of accounting transactions in Bank of Albania branches and improving information processing and storing capacities. xii. Internal audit In 2015, in addition to planned audits, auditing and non-auditing commitments were carried out, upon the request of the Supervisory Council, Audit Committee, Administrators and Inspector General. Another important development in this regard was the Quality Assessment for the Control [Internal Audit] Department at the Bank of Albania by the De Nederlandsche Bank (DNB). Conducted for the first time, the assessment serves as an important development plan for strengthening the audit activity in the future. During 2015, nine full-scope audits were conducted. In addition, three full-scope audits started in 2015, but were completed in the first months of 2016, bringing the total number to 12. The findings and recommendations of each audit have been addressed to the heads of the respective units, the Administrators of the Bank of Albania, the Audit Committee and the Supervisory Council, as part of the periodic reporting by the Inspector General. xiii. Financial activities of the Bank of Albania After intensive efforts by our staff members with the assistance by foreign experts, and in close communication with the external auditor, for the first time in 2015 the financial statements were compiled in accordance with International Financial Reporting Standards (IFRS). This is a qualitative development for enhancing the financial transparency at the Bank of Albania. The Bank of Albania’s financial statements in accordance with the IFRS are expected to be finally approved on 30 March 2016, at the Supervisory Council meeting. It will also include the opinion of our external auditor, KPMG Albania. Following the Supervisory Council’s approval, the statements will be sent to the Assembly of the Republic of Albania for information. Honourable Chairman, Honourable Committee Members, The presentation of the activity of the Bank of Albania is a key moment for its annual activity. In my brief presentation, I tried to speak about all the aspects of our activity, and shared our expectations and objectives for the period ahead. In the full version, we have tried to include more data, analyses and informative sections. I hope that the Annual Report 2015 is in line with the expectations of the Assembly, and take this opportunity to assure you that the Bank of Albania will continue its endeavours to improve its performance towards perfection in the future. BIS central bankers’ speeches Price stability, banking system solidity, credit recovery, market supply with liquidity, reducing non-performing loans, implementation of best practices of supervision, strengthening of governance and enhancing communication with the Assembly, the state institutions and our strategic partners will be major objectives for our work in 2016 and beyond. Thank you for your attention! BIS central bankers’ speeches | bank of albania | 2,016 | 4 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF mission and the Minister of Finance, Tirana, 22 March 2016. | Gent Sejko: Seventh review of the arrangement with the IMF concluded Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF mission and the Minister of Finance, Tirana, 22 March 2016. * * * In accordance with the agreed agenda, during the last two weeks, we have held intensive talks with the IMF mission, which focused on the Review of the Arrangement with the IMF. Also, in the framework of Article IV discussions, talks focused on identifying those structural problems that hamper economic development in Albania. The Review concluded that economic indicators and macro-economic policies have been in line with our projections and commitments, despite the challenges facing the Albanian economy during this period. Moreover, Article IV discussions noted the need for accelerating structural reforms, which should pave the way for faster and steadier development. Let me now present a summarized opinion of the Bank of Albania on the country’s economic performance and the policies we have implemented and should continue to implement in the future. The Albanian economy continues to be on a positive development trajectory. Economic growth accelerated during 2015, driven by the expansion of investments and improvement of the balance of trade with abroad. Private consumption showed signs of recovery in the second half of the year, whereas public consumption remained limited, in accordance with the fiscal consolidation strategy. During this period, economic activity expanded, among others, thanks to the monetary policy and supervisory and regulatory measures by the Bank of Albania. Our accommodative monetary policy stance has contributed to lowering interest rates further down, mitigating liquidity pressures and maintaining the confidence of financial markets in price stability. In parallel, our supervisory and regulatory measures have contributed to reducing non-performing loans and improving the financial soundness of the banking sector. These developments are a prerequisite for sustainable crediting to the economy in the future. Inflation remains at low levels, below our target. This performance has reflected the unutilized production capacities in the Albanian economy, and the disinflationary tendencies arising from trade exchanges with abroad. In particular, over the first two months of 2016, inflation dropped, descending to 0.2% in February. Our analyses suggest that it dropped due to external factors, namely the pronounced fall in food and oil prices in global markets. As such, the rapid drop in inflation and its low levels represent a supply shock to the Albanian economy, rather than a disinflationary situation, which is related to actual or expected recessionary situations. Its effect on inflation is expected to persist for some time ahead; however, it will only be a transitory one. Regardless of these conclusions, the Bank of Albania is constantly monitoring the situation. It has all the proper instruments to prevent long-term negative effects that may arise from low inflation, and stands ready to use them, if necessary. Our projections suggest that the Albanian economy will improve progressively over the next two years. The improvement of the growth rate will contribute to strengthening the economic and financial equilibriums in Albania, and will be a determinant factor for the return of inflation to target in the medium term-horizon. The balance of risks surrounding this projection is mostly on the down side. Thus, the expansion of economic activity continues to be decelerated by unfavorable economic developments in the euro area, low oil prices in global markets, as well as the still hesitating behavior of many economic and financial agents to undertake long-term business projects. BIS central bankers’ speeches Against this backdrop, the Bank of Albania deems that economic policies and structural reforms should focus on the following: • Continuation of the actual combination of economic policies, based on the stimulating monetary policy and the consolidating fiscal policy. The monetary policy will remain accommodative over this horizon and the intensity of the monetary stimulus may be further strengthened if that is judged as necessary. Fiscal consolidation mitigates the structural weakness in Albania and creates more space for expansion in the private sector. • Implementation, without delay, of the plan of measures for tackling and finding a final solution for non-performing loans. This plan seeks to reduce the crediting risk and increase the bank credit supply in Albania. Its success is an essential precondition for the medium and long-term growth of the Albanian economy. • Acceleration of structural reforms, especially in relation to completing the infrastructure, improving the business climate, expanding the knowledge, and improving the labor market. In conclusion, I would like to once again thank the IMF Mission for the useful and constructive talks. Thank you for your attention! BIS central bankers’ speeches | bank of albania | 2,016 | 4 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level seminar on "Rethinking monetary-fiscal policy coordination", jointly organised by the Bank of Slovenia and the International Monetary Fund, Tirana, 20 May 2016. | Gent Sejko: Conducting monetary policy when fiscal space is limited Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level seminar on “Rethinking monetary-fiscal policy coordination”, jointly organised by the Bank of Slovenia and the International Monetary Fund, Tirana, 20 May 2016. * * * Dear Panel Moderator, My honorable fellow Panelists, I believe this seminar provides a perfect platform for exchanging insights on the coordination of monetary and fiscal policies. This issue is quite topical from the perspective of challenges central banks are facing today. Before going into more detail on the topic of this panel, I would like to share some thoughts with you regarding the coordination of monetary and fiscal policies. The price stability mandate of the central bank and their operational independence does not lessen the need of effective coordination between monetary and fiscal policies. At a strategic level, the foremost objective of the macroeconomic policy is to achieve sustainable growth, in a context of price stability and a viable external account. This goal requires the contribution of both the fiscal and the monetary policies, within their respective domains, as well as a fair degree of coordination amongst them. On a macro scale, a balanced policy mix and an effective policy coordination requires: – Policy sustainability: monetary and fiscal policies need to be on a sustainable path. Prevailing academic consensus requires this sustainability to be anchored in simple and effective policy rules, such as an inflation targeting regime and some kind of fiscal sustainability law. Furthermore, sustainability is mutually reinforcing: inflation expectations can only be anchored if the fiscal policy does not rise destabilizing fears while, at the same time, the fiscal policy can be more sustainable if it is not burdened by excessively high interest rates, fueled by a not so credible monetary policy; – Policy credibility: monetary and fiscal policies need to be credible. Policy credibility arises from a combination of a clear and sustainable policy framework, the right structure of incentives, as well as a positive track record; – Policy awareness: in other words, the recognition of different goals, different transmission channels and different time frames, informing and constraining monetary and fiscal policies. In the long run, a balanced policy mix would minimize demand volatility, enhance the allocation of resources, and promote long-term growth. Effective policy coordination would limit the fiscal deficit to a level that can be financed via capital markets, without recourse to monetary financing, without distorting the allocation of resources, and without unsustainable external borrowing. Effective policy coordination would also bind monetary policy towards achieving its price stability mandate, thus reducing long-term risk premia and supporting financial stability. As a corollary to all what I mentioned, a weak stance in one policy area burdens the other policy area with excessive demands. This brings me to the specific topic of this panel: conducting monetary policy when fiscal space is limited. BIS central bankers’ speeches The aftermath of the recent crisis left all economies in the region struggling to reignite economic growth. Most of the countries are doing this while at the same time facing the pressing need to consolidate their public finances. Albania is no exception. Although the repercussions of the crisis were not so severe, economic growth has almost halved compared to its pre-crisis trajectory. Aggregate demand is unable to generate full employment of labor and capital, while CPI inflation has continuously undershot our target. In this economic landscape, our monetary policy has taken an ever more expansionary stance: the policy rate – now at 1.25% – is at a historical minimum, which would have been unthinkable a few years ago; we have increased our liquidity injection operations as well as expanded the range of accepted collateral; and we have also made use of conditional forward guidance as an alternative instrument of monetary policy. On the other hand, our public debt jumped from around 55% of GDP in 2008 to around 72% of GDP today, on account of the joint action of automatic stabilizers and some degree of countercyclical fiscal stimulus. However, this fiscal expansion was thought to be unsustainable, especially given the difficult financing conditions in international financial markets. It was also thought to be counterproductive, because of crowding out concerns in the presence of tight liquidity conditions in domestic financial markets and because of negative feed-back loops through higher risk premia. As a result, our fiscal policy is now locked on a consolidation path, aiming to bring the public debt below 60% of GDP within the end of this decade. This means the monetary policy remains the only countercyclical tool to stimulate economic activity. Taking everything into account, I believe fiscal consolidation, coupled to an expansionary monetary policy, delivers the correct policy mix in the country. However, given our experience so far, I would like to conclude my speech on three observations: – First, monetary policy remains effective even in the presence of fiscal consolidation. In Albania, we have been able to steer interest rates into a downward trajectory and to stimulate credit growth in the domestic currency. However, the effectiveness of monetary policy is hampered by fiscal contraction. While the two policies moving in opposite directions would not be ideal in the best of times, it is doubly so in the presence of balance sheet adjustment in the private sector and heightened risk premia and deleveraging in the financial sector. – Second, monetary policy can still achieve its goal of price stability in the presence of fiscal consolidation. However, this statement needs to be qualified further. On a longer term perspective, inflation remains a monetary phenomenon. If a central bank is committed to its price stability mandate and given enough time for the monetary transmission mechanism to work, there should be no reason why we should not be able to meet our inflation targets. However, there are two caveats here: – In pursuit of its inflation target, a central bank can and might be forced to engage in un-conventional monetary policy tools. This is very much the case when central banks are flirting with the limits of conventional instruments of monetary policy (zero lower bound of policy rates or extreme risk aversion in the financial system). As we know, un-conventional tools can be both distortionary and present us with the risks of unintended consequences in terms of financial stability. Under certain premises, the risk associated with employing un-conventional monetary policy tools might be sufficiently strong to revisit the scope or the speed of fiscal consolidation; BIS central bankers’ speeches – – A prolonged undershooting of the inflation target might decouple inflation expectations from the inflation target of central banks requiring a more active monetary policy. This is not an argument against the policy mix per se; rather, it is a reminder of the crucial role that central bank communication and management of expectations should have. Third, we should avoid burdening monetary policy with too many goals or risk losing our credibility. With public finances highly indebted, politicians have been only too happy to place the burden of economic recovery on central banks. As central bankers, we might enjoy this visibility, but we must be cautious on not getting carried away. We must always remind ourselves of what monetary policy can and cannot achieve: we can ultimately affect nominal variables in the economy, i.e. the price level, but we can affect neither long-term growth nor general prosperity in the economy. To that extent, I think we must always remind politicians on carrying out their duties on structural reforms and make best use of the breathing space provided by monetary policy. Thank you for your attention! BIS central bankers’ speeches | bank of albania | 2,016 | 6 |
Statement by Mr Gent Sejko, Governor of the Bank of Albania, at the conclusion of discussions on the eighth review of the arrangement with the International Monetary Fund, Tirana, 28 June 2016. | Gent Sejko: Prospects and challenges facing Albania Statement by Mr Gent Sejko, Governor of the Bank of Albania, at the conclusion of discussions on the eighth review of the arrangement with the International Monetary Fund, Tirana, 28 June 2016. * * * In the last two weeks we have been engaged in intensive discussions with IMF Mission representatives, in the framework of the review of the IMF arrangement. The discussions focused on: the analysis of the current situation of the Albanian economy and financial system; identification of development prospects and challenges facing Albania; and the policies to be implemented with a view to supporting the country's development. The conclusions of our discussions may be summarised in three main points: (i) Economic activity appears upward and the development outlook remains positive. (ii) Yet, the external environment is unfavourable and the Albanian economy continues to face structural weaknesses, which decelerate the pace of growth. (iii) Therefore, the monetary and fiscal policies should continue to generate a prudent economic stimulus, whereas structural reforms should accelerate their pace. In this context, the Bank of Albania deems that the arrangement with the IMF and the measures envisaged as part of the Eighth Review provide a consistent framework for drafting and implementing a programme for the country’s development. Let me now present in greater detail the opinion of the Bank of Albania. The growth pace of the Albanian economy continues to show progressive improvement. The improvement reflects the expansion of domestic demand - that is increase in consumption and private investments - whereas foreign demand appears weak and fiscal policy continues the consolidating trend. The new information obtained in the first half of the year is in line with this judgement. The intensity of supply shocks, which led to the rapid decline in inflation over the first half of the year, seems to decrease. Inflation recorded a slight increase in May, reaching at 0.7%. This performance confirms our judgement about the transitory nature of the abovementioned shocks. However, our analyses confirm that the balance of inflationary pressures is still weak. Economic activity remains below potential, suggesting that the return of inflation to target will be a gradual and medium-term phenomenon. Our monetary policy has assumed a stronger stimulating stance over 2016. After two consecutive cuts in April and May, the key interest rate currently stands at 1.25%. The strengthening of the monetary stimulus has led to lowering the interest rates across all segments of the financial market, thus stimulating the increase in consumption and private investments. The Bank of Albania deems that the financial setting - characterised by low interest rates and ample liquidity - should encourage banks for a more positive approach towards lending. Banking sector’s soundness indicators have been improving, in response to economic activity recovery and other measures undertaken by Albanian authorities. Liquidity and capitalisation indicators maintain good parameters, whereas the stock of nonperforming loans - albeit fluctuating - has been put under control. Our projections have not changed: the Bank of Albania expects economic activity to improve progressively over the medium-term horizon. This performance will continue to be sustained by stimulating financial conditions and growth of private domestic demand. It will contribute to the improvement of economic and financial equilibriums in Albania and to the return of inflation to target within 2018. BIS central bankers’ speeches The realisation of these objectives requires maintaining the actual mix of economic policies. The monetary policy will maintain the stimulating trend over the medium-term horizon, while the intensity of the monetary stimulus will not decrease for some quarters ahead. On the other hand, the fiscal policy should maintain its consolidating trend. The balance of risks related to expected developments remains on the down side. The expansion of economic activity continues to be decelerated by the unfavourable economic performance in the euro area, which is further complicated by the Brexit, as well as by the behaviour of economic and financial agents, who continue to show reluctance in undertaking long-term business projects. Against this backdrop, the Bank of Albania deems that economic policies and structural reforms should focus on: – Maintaining and further strengthening the economic and financial stability. – Accelerating structural reforms, especially with regard to: improving the legal setting and business climate; encouraging domestic and foreign investments, completing the infrastructure; enhancing productivity; and, improving the labour market. – Expanding crediting, to support the country's medium-term development. Issues related to credit growth were addressed at length in the Albania Financial Forum IV. The Forum's conclusions will serve as a road map in our joint efforts for lending to return to the desired levels. Concluding, I would like to underline that the Bank of Albania will remain committed to maintaining price stability and strengthening financial stability in Albania. In parallel, and in accordance with the engagements in the framework of this arrangement, the Bank of Albania will continue to work to further improve the regulatory framework and to further develop the financial infrastructure in Albania. Thank you for your attention! BIS central bankers’ speeches | bank of albania | 2,016 | 7 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference 2016 "Aligning monetary policy with financial stability - their objectives, responses and interaction in times of uncertainty", Tirana, 27 October 2016. | Gent Sejko: Aligning monetary policy with financial stability - their objectives, responses and interaction in times of uncertainty Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference 2016 "Aligning monetary policy with financial stability - their objectives, responses and interaction in times of uncertainty", Tirana, 27 October 2016. * * * Your Excellency Prime Minister, Your Excellencies Ambassadors, Honourable Members of the Government, Ladies and Gentlemen, Dear Mr Anastasakis, Dear guests, It’s my great pleasure to welcome you to the Annual Conference of the Bank of Albania 2016. The conference is organised in cooperation with the European Studies Centre of St Antony’s College, University of Oxford. This year’s conference will focus on two main topics that prevail in the analyses and debates among policymakers, academia and professionals circles: First, possible implications from the Brexit; and Second, determining the modalities for coordinating the monetary policy with the macroprudential policy and measures, in the new reality we are facing. Together with guests from European and regional central banks, international institutions and academia, we will be discussing about the current challenges, and appropriate policies and instruments central banks need to employ. I am confident the proceedings of this Conference will produce more clarity for all participants, policy makers and private sector representatives alike. Let me elaborate in greater details the perspective of the Bank of Albania on these two topics. - Initially, I would like to present the backdrop of the current economic and financial situation. - Next, I would like to share the Albanian and regional perspective on the possible implications from Brexit. - Concluding, I would like to present an overview of challenges facing the two main central bank policies: the monetary policy and the macroprudential policy. 1. Albania and Western Balkans in the post-crisis period The last global crisis affected the economic, financial and social dimensions of the human activity. By size of shock, complexity of challenges and interdependence of transmission channels, the crisis was unprecedented, for decades. It started as turbulence in certain segments of the financial system to later transform into a fully-fledged crisis of the system; before long, it was transferred to the real sector. This shock caused immense loss in production 1/4 BIS central bankers' speeches and employment levels, reduced the welfare and put to test the stability of growth and development models in many countries. Western Balkan countries were not at the eye of the cyclone of the global crisis. Yet, while at the periphery, the effects of the crisis became increasingly stronger on the region, as well. The decline in foreign demand, increased uncertainties, tightening of financing conditions and deleveraging in the region decelerated the economic activity and evidenced a series of structural problems. I would rather not list all the channels and consequences of the global crisis, but I would like to say that withstanding the crisis required revising many conventional policies and practices. First, central banks were obliged to explore untrodden paths. The intensity of the accommodative monetary policy was unimaginable a few years ago. Oftentimes, this policy relied on employing non-conventional instruments, which had not been tested before, but now have a legitimate claim to be enlisted in the arsenal of central banks. Second, to guarantee the sustainable and long-term development of the economy, special attention was paid to the financial stability aspect, both at system and institutional level. In this regard, a series of supervisory and regulatory policies were adopted. Third, interaction between fiscal soundness and economic and financial stability became necessary, thus conditioning the space for action and reaction by public finances. Lastly, many development models – relying more on debt and consumption, rather than in investments and productivity – proved to be short lived. These models have required and still require the continuation of radical structural reforms to reconceptualise business models in many countries and guarantee sustainable and long-term growth. While debates continue on the suitability and efficiency of the instruments used to withstand the crisis, it is unquestionable that – overall – these instruments managed to prevent the worst and gradually create premises for further growth of the global economy. The situation described above is true for the Western Balkans as well. The stimulating economic policies, structural reforms and adjustment of internal and external imbalances have yielded their effects. The economies in the region seem to be set on the growth path, and are now based on a better understanding of the determining factors for the long-term development, and a more comprehensive framework of endorsing policies. The experience gained and the lessons learnt are undoubtedly elements that will help us steer safely, as we navigate our way into the future. As a typical Western Balkan country, Albania is in a similar development stage to its peers. Our analyses and forecasts confirm that the Albanian economy is on a positive track. Economic growth is expected to improve progressively over the next three years. Such growth continues to be fuelled by the recovery of the domestic private demand. The accommodative monetary policy of the Bank of Albania, the improved financing conditions and strengthening of private agents’ confidence are considered as the main elements underlying the recovery. The gradual return of the economy to equilibrium will help improve economic indicators across the board, more specifically: increase in employment; return of inflation to target; reduction of public debt; and 2/4 BIS central bankers' speeches further strengthening of private sector balance sheets. The acceleration of economic growth in Albania attests the private sector dynamism. This is an encouraging development given that the fiscal policy implemented over this period focused on showing prudence and rendering public finance healthy, while the macroprudential policy and measures of the Bank of Albania have sought to further strengthen financial stability. As a result of our measures, the Albanian banking sector is sound, with high degree of capitalisation and liquidity, and positive levels of profitability. The conditions for lending in Albania have improved and are on the course of constantly improving. In the light of its mission, the banking sector should translate these positive premises in more lending: showing far-sighted decisions; assessing properly the development perspective of the Albanian reality; utilising the potential from various sectors of the economy. On the other hand, the phenomenon of non-performing loans – which reflects to a large extent the retroactive effect from the crisis shocks – is being addressed, although a lot remains to be done until its eventual solution. *** Dear guests, When we discuss about the development perspectives, as policy makers, we may not ignore the risks and challenges we face. Relations with our economic and financial partners in the euro area have been and continue to be a source of progress as well as an open channel of shocks. As a region, we have generated and consumed crisis, but recently the balance has been notably on the consumption side. Beyond economic and financial problems, the global crisis was also reflected in notable social problems. These problems have materialised in different forms in different countries, but the antiglobalisation movement is a common thread of tension in global economic developments. This movement has produced various results: in some places it has been reflected in increased protectionist barriers, in other places in isolationist policies, in others in repatriation of capital and refocusing of activity in home countries. The result of the 23 June referendum on the relationship between the UK and the European Union is one of them. The anti-globalist movement and barriers to the free movement of goods, people and capital appear as harmful to the overall global economy. However, their negative effects fall disproportionally on emerging countries, such as Albania, and the Western Balkans in a broader sense. Let me know outline our assessment on the potential negative implications resulting from Brexit and the relevant effects on the central banks in the region. 2. Potential implications resulting from Brexit for Albania and the region Brexit is certainly a determinant factor for the European Union and the euro area. As such, it has left its mark in Albania and the region. It may be accompanied by direct or indirect, short-term or long-term negative effects in the labour, goods and services markets. Overall, the direct implications for Albania and the region are assessed as minor ones, given that 3/4 BIS central bankers' speeches trade exchange with the United Kingdom is low. To illustrate my point, the export of Albanian goods to the UK accounts for only 0.2% to the total over the past ten years, whereas the share of imports amounted to around 1.1%. The stock of British foreign investments in Albania shows low rates, whereas the impact of emigration and remittances indicators is somewhat higher, but still a non-determinant factor. On the other hand, indirect effects would depend on Brexit’s impact on the European economy and banking system. Brexit may also translate into institutional developments that will affect the rules of European economic and financial market development, as well as European integration processes. In other words, implications for Albania and the region potentially exist, but still remain difficult to identify. I would rather not dwell very long on this topic; however, I do believe that today’s discussions will help us understand these processes and assess in advance the potential political and economic implications and consequences for our countries. I would like to stress that all of us in the Western Balkans remain hopeful that Brexit will not generate centrifugal forces, which harm our European integration processes, initiate setting barriers to free trade and movement of people, and encourage further fragmentation of the European financial system. 3. Monetary policy and financial stability in the post-Brexit period The coordination of the monetary policy with the necessary measures for safeguarding financial stability remains a challenging issue for policy makers even in better days. The challenges to this coordination may only strengthen, if Brexit implications assume the negative dimensions listed above. Let me emphasise that, in Bank of Albania’s vision, the monetary policy oriented toward price stability, and the supervisory and regulatory policy oriented toward financial stability contribute to the sustainable and long-term development, and are complementary to each other. This creed is fully tested by experience, both in the world and in Albania. In the long-term horizon, the Bank of Albania is confident that the investment we have made in promoting financial stability will bear its fruit with regard to sustainable development, and will increase the space for monetary policy manoeuvring. In addition, accomplishing our price stability objective would enhance the confidence in the national currency, reduce volatility and foster transparency in financial markets, thus contributing to the sustainable development of the financial system. Meanwhile, in the short-term, the coordination of monetary policy and financial stability often present challenges and compromises. In this context, setting clear priorities, using the right instruments, and communicating transparently central bank actions and objectives are key elements for the success of our work. Concluding, I would like to reiterate that I am fully confident that in the course of the day, all the issues I posed above will be elaborated in greater detail. I do believe that the contribution of the eminent panellists and active input from all participants will be an added value in this regard. I wish the best of success look forward with the greatest interest to the outcome of your deliberations. *** Thank you for your attention! 4/4 BIS central bankers' speeches | bank of albania | 2,016 | 12 |
Statement by Mr Gent Sejko, Governor of the Bank of Albania, to the hearing session of the Parliamentary Committee on Economy and Finance, about the draft-budget 2017, Tirana, 22 November 2016. | Gent Sejko: Albania’s economy and its interaction with monetary and fiscal policies Statement by Mr Gent Sejko, Governor of the Bank of Albania, to the hearing session of the Parliamentary Committee on Economy and Finance, about the draft-budget 2017, Tirana, 22 November 2016. * * * Honourable Chairman, Honourable Members of the Committee, The steady and long-term development of Albania has been and is a constant priority of Bank of Albania’s work. Therefore, accomplishing this objective requires not only applying prudent monetary and fiscal policies, but also their constant and efficient coordination. The approval of the budget and the accompanying fiscal package is decisive for the country’s economic development. The budget and the relevant fiscal package outline the short and medium-term priorities for public finance, contribute to the long-term profile of growth and development by supporting with funds the structural reforms, and orientate the private sector development by determining the incentives on consumption and investments. Therefore, the Bank of Albania appreciates the opportunity to be able to present to this hearing session our opinion on the draft-budget 2017. In compliance with our legal mandate and the scope of our expertise, the opinion of the Bank of Albania on the draft-budget 2017 will focus on the following: Albania’s development perspectives, intertwined with the monetary and fiscal policies; Fiscal projections and public finance stability; and, Effects of projected public borrowing on the domestic financial markets. At the end, there are some suggestions on possible measures to boost the effectiveness and stability of public finances. 1. The expected performance of the economy and its interaction with the monetary and fiscal policies The Albanian economy has shown signs of recovery over the past two years. This performance reflects the recovery of private consumption and investments, whereas the external environment has been and remains unfavourable. The expansion of the private sector activity was supported by our accommodative monetary policy and was favoured by the consolidating fiscal policy implemented during this period. This policy mix has brought financing costs down for the private sector and has improved the liquidity situation in the economy. The 2017 budget takes into account forecasts for the real economic growth at 3.8% and an increase in the nominal value of the gross domestic product to 6.3%. As detailed in the draftbudget and in the accompanying explanatory notes, such economic growth will be supported by the continuation of the combination of the monetary stimulus with the fiscal consolidation policy. However, the intensity of the fiscal consolidation in 2017 is foreseen to be somewhat lower than in 2016. The Bank of Albania deems that the expected economic developments and the sustaining 1/5 BIS central bankers' speeches policies constitute an acceptable and consistent starting point for drafting the budget for 2017. Economic activity at home is expected to mark an improved growth over the next two years. The monetary stimulus will support boosting domestic demand, keeping financing costs down for private consumption and investments. In parallel, the fiscal policy is expected to pursue a consolidating trend, as illustrated by the improvement by 0.2 percentage point in the primary balance-to-GDP ratio and the forecast for the reduction by 2.7 percentage points in public debtto-GDP ratio. The Bank of Albania has supported and continues to support the fiscal consolidation policy, deeming that – in balance – it contributes positively to the country’s long-term and stable growth. The continuation of the consolidating trend in the fiscal policy reduces risk premiums, mitigates the effect of the public sector on domestic financial markets, and increases the space for lending to the private sector. 2. Fiscal projections and public finance stability Based on the macroeconomic backdrop and measures regarding the fiscal package, described above, the draft-budget 2017 envisages: - Public revenues amounting to ALL 436 billion, or 27.3% of the GDP. This forecast implies an increase by 6.9% from the expected revenues level for 2016 and reflects mainly the broadening of the taxable base, in response to the expected economic growth. On the other hand, the effect from changes to the fiscal package is relatively small; - Public expenditures amounting to ALL 467.2 billion, or 29.3% of the GDP. This projection implies an increase by 6.5% from the expected level of expenditures level for 2016; - The budget deficit amounting to ALL 31.2 billion, or 2% of the GDP. This level of the deficit stands 2.4% higher than that expected for 2016. In terms of financing, the deficit is envisaged to be financed at around 60% from domestic resources and 40% from external resources; - A reduction of the public debt, from the expected 71.8% of GDP, at the end of 2016, to 69.1% of GDP at the end of 2017. This projection is in conformity with a requirement of the Organic Budget Law (OBL). Moreover, it is consistent with the programmed budget deficit level and economic growth projections, but it does not take into account the effects of potential volatilities in the exchange rate. In relation to these projections and their implications for the stability of public finance, the Bank of Albania identifies the following: 2.1 On fiscal projections Excluding the potential effects of the electoral year, which often – and regrettably – are materialised in a reduced efficiency of the tax administration, the Bank of Albania deems that the projected level of public revenues is realisable. However, the Bank of Albania considers that, like in the case of macroeconomic projections, the balance of risks to this projection has shifted on the down side. Against this backdrop, it is encouraging that the budget of 2017 incorporates some buffers against the potential non-realisation of revenues, in the form of various budget contingencies envisaged up to 0.5% of the GDP. However, such contingencies may not be sufficient. Our opinion about the optimum manners for the treatment of uncertainties and risks in forecasting is detailed in the last section. 2.2 On compliance with OBL requirements As noted in the accompanying explanatory notes, the Bank of Albania finds that the draft-budget 2017 complies with the legal requirements laid down in the OBL. 2/5 BIS central bankers' speeches Thus, beyond the reduction of the public debt: - The expected nominal GDP is within the International Monetary Fund projections, detailed in the last publication of the World Economic Outlook. - The projected level of capital expenditure is higher than the programmed level of public borrowing; - The draft-budget 2017 envisages a contingency of funds equal to 0.9% of total expenditures (ALL 4 billion), to offset adverse effects from the exchange rate and interest rate volatility on the level of public debt; - The draft-budget 2017 does not envisage revenues from privatisations. 2.3. On public finance stability The Bank of Albania deems that the programmed reduction of public debt is a positive step toward enhancing the fiscal stability and reducing the weaknesses that arise from the still-high level of public debt. Also, the OBL sets out certain legal requirements, which: - require the progressive reduction of the public debt during each fiscal year; - anchor the macroeconomic framework to IMF projections; and, - limit the concentration of the budget deficit in certain periods of electoral years, These requirements help to discipline the fiscal policy, improve public finance stability, and enhance the interest of investors, both domestically and internationally, in Albanian debt instruments. 3. Public sector borrowing and domestic financial market The draft-budget 2017 envisages domestic borrowing amounting to ALL 19.8 billion. The liquidity situation in the domestic financial market and the low interest rates provide the premises for accommodating the aimed borrowing level. However, the Ministry of Finance and the Government of Albania should give due attention to the even distribution of borrowing and budget expenditures, in order to reduce domestic markets’ volatility. Also, the Ministry of Finance should constantly monitor the absorption of borrowing in domestic financial markets, in order to enable the constant re-calibration of debt instruments with market requirements. *** Concluding, the Bank of Albania would like to present some suggestions, which – in our opinion – would contribute to the process of drafting and implementing the Budget in the future. 4. Suggestions and recommendations 4.1 Forecasting, Uncertainty and Risk Management The forecast on the revenue of the budget – like any other economic forecast – is surrounded by uncertainties and risks. The proper acknowledgment and understanding of this fact necessitates measures to identify and quantify them, and paves the way to effectively manage the possible consequences. 3/5 BIS central bankers' speeches In line with our previous suggestions, Bank of Albania deems that the drafting and implementation process of Budget would benefit from the establishment of alternative budget scenarios, which would be implemented in the event of large deviations from the forecast. The Bank of Albania, in the light of priority to comply with budget deficit and fiscal consolidation objectives, suggests that the implementation of the budget 2017 should regard the following: - In the event the budget revenues are less than the planned level and the difference is higher than the contingencies foreseen in the budget, then the Government should take additional measures to comply with the budget deficit levels. This implies the reduction of budget expenditures commensurate to the level of unrealised income. - In the event the budget revenues are above the planned level, and the difference stems from faster than projected economic growth, such revenues should be saved, by proportionally reducing the budget deficit. - In the event the budget revenues are above the planned level and the difference stems from the improved fiscal management, such revenues may be spent, affecting neither the budget deficit nor the fiscal consolidation intensity. 4.2 Structure of financing and public debt The way the budget deficit and public debt are financed is as important as their level. The financing structure of the Albanian debt was and remains stable. The domestic debt is shifting towards longer-term maturities, and its sensitivity against short-term volatilities on interest rates is downward. In parallel, the external debt is mostly in concessionary terms and has long-term maturity. Nevertheless, the Albanian public debt showed an increasing trend of financing from external resources. In the last decade, the share of external debt to total debt increased by 16 percentage points. For this reason, the Bank of Albania draws the attention on the increasing exposure of debt servicing cost and level against exchange rate volatilities. This implies the need for added attention to external borrowing, in particular to the one in commercial terms, which should be considered as the last option in the list of possible financing resources. 4.3 Further rationalisation of the selection process of public investments The selection process of public investments has improved considerably over the last years. This is realised, amid others, through the rationalisation of non-budgeted public commitments, the disciplining of several-years-long projects, and the improvement of selection mechanisms. Nevertheless, the Bank of Albania deems that there is still room for improvement. The application of a formal cost-profit analysis for public investments in certain fields, such as health and education, culture, defence or various social programmes may be difficult from the economic standpoint, even problematic from the ethic one. Nevertheless, the selection process of other public investments, in particular those in infrastructure, may be further improved, through the formalisation of the process and the standardisation of assessment techniques for the economic profitability provided by alternative projects. This would be another positive step to increase the efficiency of the Albanian public finances and support the stable and long-term growth of our economy. 4 .4 Budget implementation pattern throughout the year The uneven distribution of expenditures and public borrowing has been and remains a problem in 4/5 BIS central bankers' speeches the Albanian public finances. The Bank of Albania has been emphasising constantly that their concentration in the last quarter of the year tends to reduce the effectiveness and increase the volatility of financial markets. In this context, we deem that further efforts should be made to improve the distribution of expenses and borrowing throughout the year. The anchoring of the budget implementation and monitoring in quarterly plans could be a valuable instrument in this regard. Thank you for your attention! 5/5 BIS central bankers' speeches | bank of albania | 2,016 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Tenth South-Eastern European Economic Research Workshop "Including monetary policy and financial shocks and trends in modelling and policy analysis", Tirana, 1 December 2016. | Gent Sejko: Including monetary policy and financial shocks and trends in modelling and policy analysis Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Tenth South-Eastern European Economic Research Workshop “Including monetary policy and financial shocks and trends in modelling and policy analysis”, Tirana, 1 December 2016. * * * Dear participants, I am privileged to open the 10th South-Eastern European Economic Research Workshop organised by the Bank of Albania, and welcome all new and returning friends. I would like to congratulate Bank of Albania’ experts that present every year their research works for discussion. This year’s workshop will focus on the main topics that prevail in the economic, political and academic debates in the field of economy, finance and central banking. The topic of this workshop is: “Including monetary policy and financial shocks and trends in modelling and policy analysis". The focus was placed on these topics on the grounds that the central bank and policy decisions should take into account an increasing number of shocks that are arising not only as a consequence of economic, but also of political, legal and regulatory phenomena. The challenges that monetary policy and financial stability are facing reflect the problems of the society in the economic, social and geo-political aspects. These challenges are best reflected in the noneffective functioning of the pass-through mechanism that should transmit and amplify the positive effects of central banks’ decisions. These challenges increase ambiguity, uncertainty and volatility in goods, services and financial, markets, broaden and intertwine the nature of shocks and place the authorities vis-à-vis new and unprecedented phenomena. These developments render the well management of monetary policies and financial stability even more difficult As a result, scientific research needs to: explore and propose new solutions, more efficient empirical and theoretical models for policy implementation by central banks; assess the effects of the adopted policies; and, carefully observe the side effects in the economy or the financial system, which may potentially accompany such policies. Due to unconventional monetary policies, central banking is practically in unexplored territories; therefore, it is necessary to carry out an assessment of how the economy reacts to shocks under such circumstances. The Bank of Albania is interested in identifying potential shocks and their modelling with a view to guaranteeing optimal solutions in terms of prices, economic activity, employment and financial system soundness. For that reason, we invite you to discuss openly and thoroughly all the papers that will be presented during these two days. This would serve to discuss about their findings, improve them and assess their effectiveness for the Bank of Albania’ decision making. The Bank of Albania deems that the economy and the financial system are currently sound and in line with our expectations and forecasts. The present indicators of prices and economic growth are not yet at their long-term equilibriums; however, they do not present surprises that would call for immediate attention of the Bank of Albania and change of monetary and financial stability policies. They are in line with our expectations and are very well serviced by the actual decision-making course of action. In concrete terms, consumer prices, the main objective of the monetary policy, returned to an upward trajectory and are expected to progressively approach the 3% target. Economic activity 1/2 BIS central bankers' speeches remains stable, at positive figures, reflecting a slight upward trend, and is expected to perform along similar trends in the future. Nevertheless, the current figures appear still far from the optimal conditions and there is place for further improvement in both the inflation rate and the economic activity. In addition, there is place for faster growth of lending and monetary expansion, yet, subject to the situation in the balance sheets of the private sector and banking system. The fall in interest rates is transmitted to all segments of the financial market, contributing to the decrease of existing credit costs and providing the possibility for investments in new projects. The monetary policy transmission has helped somewhat to mitigate the negative effects and improve the households and firms’ balance sheets. Also, it is noteworthy that, during this time, lending in the domestic currency has increased; this is translated into a success for both the transmission of the monetary policy and the soundness of the financial system and the private sector. The monetary policy decisions have helped the economy by not causing adverse effects on the banking system soundness indicators. An accommodative monetary policy, potentially, has side effects; but, they have not materialised thanks to the duly and prudential management of the monetary policy intervention. In our daily work, we pay special attention to maintaining a sound system and our decisions take into account potential implications on the banking system at home. In perspective, the short-term shocks of the past have turned into stable equilibriums in the medium term and the non-traditional policies, which are turning into conventional instruments of policy making in our partners, have encouraged a new behaviour among economic and financial agents. These changes affect the Bank of Albania’s ability to stimulate the economy and mitigate the effects from economic shocks during times of difficulties that may arise in the future. The researches will assess whether we are experiencing a new equilibrium or other problems exist in the transmission of accommodative policies, and whether the resilience and reactions against these shocks remain similar to the pre-crisis periods. In the meantime, regulatory and adjustment processes that accompany monetary policy decision-making (especially those that will follow the return of the past to normality) may trigger temporary shocks with effects on both the European economy and the small economies related to it. Again, it is the duty of research to investigate potential shocks and model them in the framework of models corroborating central banks decision-making. This situation is not unique to Albania, but is a global-wide problem. Therefore, we are happy to see here participation from all the regions, whose research will introduce new experiences, of benefit to us not only from their conclusions but also from the methodologies they have applied. Fortunately, the topics that will be discussed address the whole spectrum of central banks’ interest and will enrich our experience with the opinion and focus of your scientific research. I hope you will find Bank of Albania’s experience interesting, informative and valuable for your current and future scientific research. I take this opportunity to thank the regional and European central banks for their high consideration and valuable contribution to the reputation of our research workshop. Finally, I wish you a successful and fruitful Workshop and hope to meet you again in future activities of the Bank of Albania. Thank You! 2/2 BIS central bankers' speeches | bank of albania | 2,016 | 12 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF mission and the Minister of Finance, Tirana, 24 January 2017. | Gent Sejko: Ninth and tenth review of the arrangement with the IMF concluded Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF mission and the Minister of Finance, Tirana, 24 January 2017. * * * On the completion of the ninth and tenth review of the Arrangement with the IMF The beginning of 2017 coincides with the conclusion of Albania’s arrangement with the IMF. This Arrangement has guided our development policies over the past three years, and has been a roadmap for our structural reforms agenda in the long term. Against this backdrop, the last review of the Arrangement not only provides for a comprehensive assessment on the achievement of its objectives, but also helps in identifying challenges to the country’s development and contributes to discussions on the policies that need to be designed and implemented for supporting the development. Let me now outline the opinion of the Bank of Albania on this review. The Arrangement with the IMF was signed amid an external economic and financial environment surrounded by uncertainties, and in response to deepening internal development challenges. Economic growth was on the downtrend, public debt and nonperforming loans were set on the uptrend, and uncertainties in the Albanian economy and financial markets were relatively high. With the support provided through expertise and funds, the agreed programme with the IMF has aimed at drawing up an appropriate monetary and fiscal policy mix, correcting fiscal imbalances, improving the balance sheets of economic agents, and implementing an ambitious structural reforms programme, to support the long-term development of Albania. The Bank of Albania assesses that the Arrangement has achieved its major objectives: correcting structural imbalances and setting the country on a steadier path to longterm development. Economic growth has been improving in the recent years, driven – among others – by the combination of the monetary stimulus and fiscal consolidation, reduction of risk premiums in the economy and improvement of the balance sheets in the real sector of the economy. From a longer-term perspective, the structural reforms and the improved business climate should open the way for faster, more balanced and stable growth. In addition, excluding the effects of supply-side shocks, inflation has trended upward recently. The improvement of economic activity, implementation of a prudent monetary policy and a better anchoring of inflation expectations render us confident for the stable return of inflation to our 3% target. Lastly, Albania has made notable progress with regard to strengthening other economic and financial equilibriums. Safety nets in the financial system have been strengthened. The institutional framework that shapes the coordination, design and implementation of measures for safeguarding financial stability has been improved. The legal framework that disciplines contract enforcement has been improved. Credit risk has been lowered and non-performing loans have been reduced, although their level remains high. After peaking in 2015, Albania’s public debt appears to be set on a downward trend. Also, our external position remains stable and current account deficits have been financed by high levels of foreign direct investments. Turning to the latest developments, the Bank of Albania deems that the recent economic 1/2 BIS central bankers' speeches and financial indicators have been in line with our projections. This performance reconfirms our scenario of expectations for the outlook. The Bank of Albania expects economic activity to improve in the medium-term horizon. This improvement will enable the return of the economy to equilibrium, the further improvement of indicators in the labour market, and the return of inflation to target. The outlook remains positive, but its guaranteeing requires prudent economic policies and further structural reforms. Such policies and reforms should be, in essence, a continuation of the philosophy that has guided the initiatives and steps we have undertaken in the recent years. To sum up, the Bank of Albania judges that: The actual economic policy combination, based on an accommodative monetary policy and fiscal policy stance set on public debt reduction, should be maintained. The monetary policy should maintain the accommodative stance in the medium-term horizon, whereas the intensity of the monetary stimulus should adapt to the needs of the country’s development. The business climate at home should be further improved. The Bank of Albania considers that the attraction of foreign investments as well as the support and stimulation of domestic investments should be at the focus of decision makers. Structural reforms should be accelerated and Albania’s competitive advantages should be enhanced further. In conclusion, I would like to once again thank the IMF Mission for the useful and constructive discussions. 2/2 BIS central bankers' speeches | bank of albania | 2,017 | 3 |
Opening address by Mr Gent Sejko, Governor of the Bank of Albania, at the the presentation of the EBRD's Transition Report 2016-2017, Tirana, 27 January 2017. | Gent Sejko: Judging the progress achieved regarding reforms and economic policies Opening address by Mr Gent Sejko, Governor of the Bank of Albania, at the the presentation of the EBRD's Transition Report 2016-2017, Tirana, 27 January 2017. * * * Dear EBRD representatives, Dear participants, It is a special pleasure for us to host this event again and offer our cooperation for the presentation of the Transition Report 2016–2017, compiled by the European Bank for Reconstruction and Development. While only one year has passed since the last presentation, the challenges facing the global economy have been numerous. They are rather complex, creating the perception that we are before a new era. The existing problems, combined with the political, economic, and social developments in recent years, have contributed to the insofar convergence process. Nonetheless, the Transition Report evidences and documents, professionally and reliably, the economic, legal and institutional progress made in terms of transition and convergence, providing the appropriate space and priority for the future reforms. This is notably an independent assessment and a contemporary standard that helps us objectively judge on the progress achieved regarding reforms and economic policies implemented by the authorities in the relevant country. Figuratively, it sets the pace with which the society may assess the responsibility and accountability of the authorities to the public and the market. In this context, the report assesses as positive the reforms and economic policies undertaken by the Albanian authorities. Moreover, the conclusions of the report on economic developments and monetary and financial situation are similar to the analyses and conclusions of the Bank of Albania at the end of 2016. In concrete terms, the Albanian economy has accelerated the growth pace driven mainly by the accommodative monetary policy of the Bank of Albania and its effective pass-through to the economy. These factors, coupled with the further recovery of domestic demand will play a significant role in the further growth of economic activity during 2017. The Report points to the important fact that the banking system is liquid, well capitalised and capable to withstand shocks that may come from the external sector. It identifies non-performing loans as the main risk not only to the system’s soundness but also to the monetary policy passthrough in credit growth for the private sector. The report assesses positively the coordinated plan of actions by the Bank of Albania in cooperation with the Government of Albania and international institutions, to address comprehensively and definitively the issues of nonperforming loans. The action plan of the Bank of Albania is a broad and complex process, which consists in legal and institutional regulations and decisions. I am happy to see that the EBRD has reached the conclusion that this legal, regulatory and institutional process will contribute to reducing the nonperforming loans, in the long term. It is also encouraging to note that the report makes a similar positive assessment for a group of reforms undertaken by the Albanian government and other authorities in the area of market liberalisation, privatisations, energy sector and infrastructure. 1/2 BIS central bankers' speeches Looking ahead, the report assesses objectively the global macroeconomic environment as overall favourable. The nature and origin of capital flows toward the transition economies is immune from the adverse effects from the Brexit or increase in interest rates in the US economy. For the Central and Southeastern Europe, during 2017, the economy is expected to grow faster, driven by domestic factors and a slight and stable improvement of the economic situation in foreign trading partners. The main risks relate to the performance of commodity prices, and in particular to geopolitical and global economic developments. The deepening social inequality is an issue of particular concern that has been present across the board in transition countries. The report evidences that inequality in the economy, in terms of opportunities and financial inclusion, has been expanding, contributing negatively to economic welfare in transition countries. Finding solutions is a difficult challenge, with financial education and financial inclusion considered as tools for addressing this issue successfully. I would like to take advantage of this opportunity to emphasise that the Bank of Albania and the banking system are paying particular attention to these two topics. Our financial education programmes, informative publications on banking products and services, coupled with regulation, licencing, introduction and support for new payment and financial services technology and instruments, are aimed at enhancing financial inclusion and generating opportunities for financial access for all groups of the society. The Bank of Albania deems that more may be done with regard to designing and promoting financial products that satisfy better the needs of such groups. In addition, we think that there is more space for faster growth of credit to the private sector, particularly for certain sectors, in which inequality is more notable. More concretely, agriculture is a good example to illustrate this point. While it contributes a significant share to the gross national product, it only gets a small share of credit and other financial products. Beyond these policies and strategies for developing financial products, the real fight against poverty and inequality in the long term should be based on accomplishing structural economic, legal and institutional reforms, designed in the framework of the European integration process. The priorities of our economies should focus on maintaining macroeconomic and financial stability, continuing structural reforms in infrastructure and the labour market. Creating favourable conditions for doing business and for honest investors, by fighting informality, should be accompanied with the creation of human capital and preparation of the workforce in accordance with the actual technological developments and challenges. Dear participants, The Transition Report 2016–2017 of the European Bank for Reconstruction and Development is an important document for all of us. Regardless of our status – decision-makers, policy makers, researchers, academia or journalists – the report provides abundant information for furthering our analyses and conclusions. I invite you all to read it, and rationally and responsibly materialise its conclusions in your analyses for the present and the outlook of the economy. Thank you! 2/2 BIS central bankers' speeches | bank of albania | 2,017 | 4 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the launching ceremony of the Global Money Week, Tirana, 27 March 2017. | Gent Sejko: "Learn. Save. Earn." Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the launching ceremony of the Global Money Week, Tirana, 27 March 2017. * * * Honourable Minister Nikolla, Dear AAB Chairman Drougkas, Dear guests, I have the pleasure to welcome you at the Bank of Albania premises. In addition to being a second home for its employees, since the opening of the Museum, it has become an attractive learning place about finance for students. The Global Money Week an event that involves local stakeholders in more than 140 countries is the highlight of all the educational activities conducted throughout the year. I am proud to say that, thanks to the persistent commitment of the Bank of Albania regarding financial education, Albania has been featuring in the map of countries that organize this Week. This persistence ensures the effectiveness of our educational programmes, and keeps active the connection between institutions engaged in the financial education of the public in general and the youth in particular. I take this opportunity to extend my most sincere gratitude for their commitment and support to the Ministry of Education and Sports, the Albanian Association of Banks, and other institutions present here today. Under the motto “Learn. Save. Earn.”, this year’s Global Money Week is dedicated to raising awareness of young Albanians on the importance of money and their involvement in the economic and financial system in Albania and, why not, in the region and the world. The activities that will be organised during this week will especially aim at inspiring Albanian children and youth to learn more about money, saving, creating prosperity, increasing employment and entrepreneurship. To illustrate this better, more than 45 activities will be organised and more than 3500 pupils and students will participate in these activities during this very busy week, with educational institutions: universities, high schools and nine-year schools. These numbers make us very proud, since they serve to raise the awareness on highly important issues, such as consumer information and financial inclusion. These two key issues contribute directly the economic wellbeing of households and businesses. Financial education, especially of youth, is the best channel to put that effect in practice, as affirmed by the OECD, a reputable international institution. The Bank of Albania is and will remain dedicated to this mission, with the support of the Ministry of Education and other partners. Their support and cooperation have had a decisive contribution in the success of such activities. Also, the elective course “Personal financial in your hands” for high school students has been, for seven years, another example of successful cooperation. I would like to thank the Albanian Association of Banks for its valuable support through commercial banks to enhance financial education and add channels and related activities in this regard. In conclusion, let me once again take this opportunity to invite the participating institutions to further expand our collaboration on this pleasant and challenging issue, and an important one for the next generations. 1/1 BIS central bankers' speeches | bank of albania | 2,017 | 4 |
Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2016 to the Parliamentary Committee on Economy and Finance, Tirana, 2 May 2017. | Gent Sejko: Albania's economic and financial developments in 2016 Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2016 to the Parliamentary Committee on Economy and Finance, Tirana, 2 May 2017. * * * Honourable Chair, Honourable Members of the Committee, I have the pleasure of presenting today the Annual Report of the Bank of Albania 2016. This report is a synthesis of the activity of the Bank in accordance with our legal objectives, obligations that arise from relevant by-laws, and commitments with our international partners. Overall, I reckon the Bank of Albania has worked with dedication, seriousness and efficiency, in all such aspects. The policies, measures and legal and regulatory amendments we have initiated, and have provided a substantial contribution to addressing macroeconomic misbalances, bolstering economic activity, enhancing financial stability, and promoting Albania’s European integration process. In parallel to complying with our legal obligation, the presentation of the Annual Report is an important pillar of accountability and transparency for the Bank of Albania. These two commitments accompany and balance our institutional independence. In this context, I believe the Annual Report addresses many of the recommendations the Committee left for us in the Resolution “On the assessment of the activity of the Bank of Albania for 2015”. In line with the above-stated overview, the presentation will address the following: (i) activity of the Supervisory Council and strengthening corporate governance; (ii) monetary policy decisions, achieved results and future challenges; (iii) measures taken to enhance financial stability and promote lending; (iv) steps taken to foster internal control and monitoring systems and procedures; and, (v) work carried out to strengthen independence, accountability and transparency. I would like to start with the activity of the Supervisory Council of the Bank of Albania and our work toward good governance. 1. Activity of the Supervisory Council and strengthening institutional governance The Supervisory Council has performed its activity in line with the competences set out in the Law “On the Bank of Albania” and the procedures established in the regulation on its organisation and functioning. During 2016, the Council met 15 times and approved 136 decisions, of which 82 were acts approved for the first time, and 54 were amendments to existing acts. Eight meetings were dedicated to monetary policy decisions, four meetings focused on issues related to supervision and financial stability, and three other meetings were dedicated to control and oversight of the activity of the institution. The decisions have been thoroughly communicated to the public through press conferences, publication of relevant reports and public explanation, on a case by case basis, of various issues. Beyond formulating policies and monitoring their implementation, the vision of the Supervisory Council is to raise the public trust in the Bank of Albania by enhancing the governance of this institution. In this regard, the Council has paid particular attention to this process, building on the 1/8 BIS central bankers' speeches structures and processes that had been established in 2015. I would like to update you briefly on their progress insofar and introduce you to new developments for 2016. Established in 2015, the Audit Committee conducted its activity independently in 2016. During the period, the Committee met seven times, exercising its functions as the supervisor and coordinator of internal and external audit functions, with a view to enhancing their efficiency. In accordance with the Internal Audit Policy, the Council adopted for the first time the annual plan of activities of the Inspector General and of the Internal Audit Department. The Audit Committee, and in turn, the Supervisory Council have been informed regularly on audit findings and recommendations by the Internal Audit Department, which provide additional guarantee on the effectiveness and quality of the internal audit systems. In July, the Supervisory Council adopted for the first time the Operational Risk Management Policy at the Bank of Albania. The document sets out the objectives, resources and key risk assessment principles, reporting lines and responsibilities of the relevant units. On these grounds, in August, rules were adopted on the organisation and functioning of the Operational Risk Management Unit, which is now operational. Also, in July, the Council approved the new budget regulation, which disciplines budget drafting, and planning and control of capital expenditure. In December, the Supervisory Council adopted the annual budget for 2017. For the first time, based on the alignment of the regulatory budgeting framework with the best national and international practices, the budget included projections for the medium-term horizon (2017 – 2019). After the overview on the activity of the Council, I would like to focus a little longer on its monetary policy decisions, in view of conformity with the main mandate of the Bank of Albania. I would like to start with a short description of the underlying macroeconomic backdrop for monetary policy decisions. 2. Albanian Economy and Monetary Policy In 2016, economic developments were positive and some of the main macroeconomic balances improved. According to INSTAT data, the Albanian economy grew at 3.5% in 2016, accelerating against the 2.6% growth rate in 2015. Economic growth was driven mainly by domestic demand, private investments and consumption, and was reflected, to a larger extent, in the expansion of the activity in services and construction sectors. In parallel, the unemployment rate fell to 14.2%, driven by the constant increase in employment, and the economic agents’ confidence hit the record high of the last five years. Likewise, public debt took a downward turn, for the first time after six years. Lastly, inflation has been upward, after the low rates recorded in the first months of the year. It settled at 2.2% in December and IINSTAT publications for the first months of 2017 point to further rise in inflation rates. For 2017, we expect these trends to consolidate. The return of the economy to potential is accompanied with the strengthening of inflationary pressures and the return of inflation to target within 2018. Notwithstanding positive trends, the economic and financial environment has been a challenging one for the monetary policy. At the year start, we faced a rapid and sharp decline in inflation, as a result of acute disinflationary shocks from the external environment. Downside risks intensified. Also, extraordinary events such as Brexit or geo-political tensions in the external environment led to heightened uncertainty. 2/8 BIS central bankers' speeches Against this backdrop, the Bank of Albania reacted with determination. The policy rate was lowered in two stages, in April and in May, down to 1.25%. The corridor of interbank rates – the floor is the rate on the overnight deposit and the ceiling is the rate on overnight loan – narrowed to two percentage points. In addition, the Bank of Albania continued to use the forward guidance to inform the public on its the monetary policy stance in the future. The use of this instrument was strengthened over the year, and was enriched with time frames. These actions signalled the willingness and capability of the Bank of Albania to fulfill its objective of price stability. The operational framework of the monetary policy did not undergo significant changes and the banking system was supplied with liquidity through traditional monetary policy instruments. The latter were adopted to better satisfy the needs of the banking system for liquidity. In our assessment, the accommodative monetary policy has contributed to strengthening economic growth and creating the necessary conditions for maintaining price stability, through a number of channels. First, the accommodative monetary policy has contributed to lowering the interest rates in all the products in the financial market. The monetary stimulus is assessed to have been transmitted completely. The average interest rates on credit, deposits and 12-month T-bills in ALL were respectively 0.8, 0.5, and 1.5 percentage points lower than in the previous year. Second, the reduction of financing costs contributed to the expansion of credit. Credit portfolio in ALL to private sector grew by 10.2%, over 2016, while total credit grew by 3.2%. The growth of credit in the Albanian lek is a welcomed development, as it expands the monetary policy scope and serves to fostering financial stability, by reducing the economic agents’ exposure to the exchange rate risk. Despite this positive development, credit recovery remains sluggish, due to the limited qualitative demand and the banks’ conservative credit policies. For 2017, we expect a better performance of lending to the economy. The expansion of private demand is expected to absorb enterprises’ excess liquidity, thus increasing the incentives for boosting credit demand. Similarly, the credit supply is expected to rise, in line with the lowering of uncertainties and reflecting the implementation of the action plan of measures for reducing non-performing loans and measures for Sound Credit Growth. Third, the low interest rates helped to reduce the service costs of the existing loans and to lower their re-financing costs. This has facilitated the activity of borrowing enterprises and households. Fourth, the low interest rates supported the increase of private consumption and investments in the economy, through encouraging a behaviour oriented more towards consumption and less towards savings. According to our economic models, in the absence of monetary policy effects, economic growth and inflation for 2016 would have scored respectively 0.5 and 0.4 percentage point lower than their actual values. Honourable committee members, The Bank of Albania is independent in formulating and implementing its monetary policy. It is, however, aware of the mutual impact between the monetary policy and the fiscal policy in achieving the respective objectives. Therefore, for a right combination of macroeconomic policies, we are constantly mindful to coordinate the monetary policy stance with the fiscal policy stance; similarly, the latter is detailed in the budget per calendar year, and in medium-term draft 3/8 BIS central bankers' speeches budgets. As I have said previously, the inclusion in 2016 of specific provisions for guaranteeing fiscal stability in the Organic Budget Law, established more solid basis for a better coordination of the two macroeconomic policies, as it contributes to increasing the discipline and foreseeability of the fiscal policy. About the latter, the Bank of Albania finds that the fiscal policy has been on a consolidation path during in 2016, reflected in the reduction of the public deficit and public debt. Although it has injected a weak stimulus to the economy, the consolidating fiscal policy has facilitated the accommodative monetary policy pass through, by reducing the risk premia in the economy, favouring the reduction of financing costs, and increasing the space for lending to the private sector. According to reports from the Ministry of Finance, for the first time after six years, the public debt was reduced from 72.7% of the GDP in 2015, to 71% in 2016. The Bank of Albania has been and is certain in the position that efforts for reducing public debt should continue. The functioning of the monetary policy pass through mechanism, and factors contributing to or preventing it, are an integral part of the work of the Bank of Albania. Research efforts in 2016 aimed to assess the ability of the tools used for generating economic projections at the Bank, as well as the understanding of the functioning of monetary transmission vis-a-vis the current challenges in the financial system. In this context, I would like to point out that the Bank of Albania has identified two main obstacles in the monetary policy pass through mechanism, whose solution requires broader-scale cooperation. The first obstacle relates to the high level of non-performing loans. To reduce this risk, a national action plan for reducing non-performing loans has been drafted, and is currently underway. The second obstacle relates to the high level of euroisation in the economy, which creates potential risks in the financial system and renders the monetary policy pass through more difficult. Preparing a plan for reducing euroisation in our economy is a joint commitment by a number of authorities and the Bank of Albania is in the process of identifying measures that may be taken in this regard. Amid a complex and challenging economic and financial environment, the coordination of the monetary, micro and macro-prudential policies assumes primary importance in promoting monetary and financial stability. In 2016, the Bank of Albania has worked with the same intensity in all three aspects, aiming at an optimum calibration for them. Following, is an overview of our work for maintaining and promoting financial stability. 3. Promoting financial stability and sound lending In accordance with its mandate and institutional responsibilities, the Bank of Albania is jointly responsible for safeguarding financial stability in Albania. It communicates its assessment on the financial stability regularly, and coordinates its policies with other institutions, through the Financial Stability Advisory Group (FSAG). With regard to financial stability, during 2016, we continued to work for drafting a comprehensive framework of the macro-prudential policy and constructing macro-prudential instruments. This framework is based on recommendations of the European Systemic Risk Board and standards of the Financial Stability Board. Moreover, in accordance with its institutional mandate and responsibilities, the Bank of Albania is tasked with safeguarding the stability of the banking system and addressing potential risks that may jeopardise it. The main financial indicators of banking sector soundness – capitalization, liquidity and profitability – show it has full capacity to withstand operational risks under normal conditions, as 4/8 BIS central bankers' speeches well as good resilience against shocks. The share of banking sector assets in the Gross Domestic Product was 95.8% at the end of 2016, up by around 4.5 percentage points from a year earlier. Credit and deposits rose by 2.5% and 5.2%, respectively. In terms of capitalisation, the capital adequacy ratio stands significantly above the regulatory requirement. It stood at 15.7% for 2016, against the 12% regulatory requirement. Good capitalisation remains a characteristic feature of our banking system; it was maintained due to continued positive values in the net financial result. However, the financial result of the system fell slightly during 2016, mainly reflecting the increase in provisioning for the credit risk. The increase was a result of the conservative approach adopted by the Bank of Albania requesting banks to reclassify under non-performing loans those of certain large borrowers facing financial difficulties or a bankruptcy situation. The Return on Assets (ROA) of the system fell to 0.7% from 1.2% a year earlier, whereas the Return on Equity (RoE) fell to 7.2% from 13.2%. In terms of risks, the Bank of Albania deems that the banking system’s exposure to liquidity risk and market volatility is within acceptable parameters, but the management of such risk requires on-going attention by the banking industry. In the meantime, credit risk is the main risk to which the banking sector remains exposed. This risk becomes even more present as a result of its persistence and continuous problems that banks face in the process of collateral enforcement. Following the rise in non-performing loans in the first half of the year and their fall in the second half, the ratio of non-performing loans to total loans fell to 18.2% at the end of 2016, at the same level as in the previous year. Therefore, the reduction of non-performing loans and creation of stimuli to boost sound lending has been and remains a priority issue for us. The Bank of Albania has worked in several aspects to address this problem. First, the assessment of the credit risk and the recoverability of non-performing loans have been subject to intensive monitoring during our on-site examinations. In parallel, we have maintained a prudent approach in assessing lending policies and practices applied by banks. Second, the Bank of Albania has fulfilled its engagements under the National Plan for the Reduction of Non-performing loans. In this regard, the Bank of Albania has made regulatory amendments to clarify the concept of non-performing loans write off and the administration of properties taken into ownership as a result of collateral enforcement. Moreover, the Bank of Albania has cooperated with the IMF to review the regulatory framework about the licencing of companies that purchase bad debt. Third, we have strengthened the regulatory and reporting requirements for banks as regards the due management of credit risk, in accordance with European practices. Fourth, we have intensified the communication with the banks to address the credit portfolio quality, concerning both the treatment of non-performing loan borrowers and loss loan write off. Fifth, the coordinative role of the Bank of Albania has produced results in terms of restructuring borrowers exposed to more than one bank and will continue in this year to prepare an interbank cooperation platform for a solution to common borrowers; the Bank of Albania is drafting it in cooperation with World Bank’s FinSAC project. In our judgement, the steps taken insofar for resolving non-performing loans will contribute to a fruitful environment to boost sustainable and sound lending. This is a major priority, which requires a multidimensional action matrix and a broad cooperation between state authorities and the banking system. In this aspect, the Bank of Albania drafted and promoted the signing of a joint Memorandum of Understanding for the Sound Growth of Credit in Albania1. In the supervisory process, the Bank of Albania has supported the pursuit of pro-active policies 5/8 BIS central bankers' speeches against potential risks, with regard to both the quality of the risk analysis performed by banks, and the creation of adequate provisions. This new approach, introduced a year ago, has required amending the regulatory framework, as well as internal practices and capacities. The regulatory framework and respective methodologies are drafted pursuant to the requirements of Basel II, and in accordance with European Union directives. About regulatory amendments, I would like to highlight two of the most important ones, which have now taken the form of a law: The Law on the Functioning of Savings and Loan Associations and their Unions and the Law on Recovery and Resolution in Banks. The first provided for a comprehensive revision of the regulatory framework for the supervision of savings and loan associations, which consists in respective regulations on licencing and risk management in these institutions, as well as the reporting system about their financial activity. The second provides the Bank of Albania with the attributes of the Resolution Authority, through a set of legal instruments. This law is an important qualitative step towards guarantees for safeguarding financial stability in Albania. Moreover, in response to the negative events in the previous year, when the security related to transportation and keeping monetary values was affected, the Bank of Albania has urged the cooperation between banks and law enforcement authorities to take measures for eliminating the deficiencies; it has added on-site inspections to examine the probability of occurrence of a risk; and, has strengthened the regulatory framework for establishing criteria on the minimum physical security. Lastly, a good functioning of the financial system in general and the banking sector in particular has been endorsed by efficient payment systems. The national payment systems operated by the Bank of Albania have operated uninterruptedly and correctly. During 2016, we intensified our work to enhance the effectiveness of electronic payment instruments, and reduce the use of cash in the economy. For that purpose, in accordance with EU directives, the regulatory framework on electronic payment instruments was revised. Moreover, to fulfil the recommendations of the National Payments System Committee, a project was finalised on the standardisation of the payment-order; meanwhile, the implementation of the Interbank Direct Debit project is underway. It is aimed at increasing the use of this instrument by the clients of all banks, contributing thus the reduction of cash in the economy. In our judgement, the coordination of the monetary policy with the micro and macro-prudential measures by the Bank of Albania has contributed to promoting monetary and financial stability. 4. Fostering internal control and monitoring systems and procedures The last two years have seen important changes in terms of fostering internal control systems, in order to bolster risk prevention. The internal audit at the Bank of Albania is an independent activity from the management, ensured through the Inspector General, appointed by the Parliament. It also contributes to a smooth operation and accountability at the Bank of Albania, assessing both the control over processes and the efficiency in the use of resources. The practices in control systems are approximated with international audit standards, and are adopted to address recommendations by international institutions. One of the recurring recommendations from these institutions pertains to the implementation of the operational risk management at bank level. Started in the previous year, the realisation of this project was finalised in 2016. Now, the Bank of Albania has an Operational Risk Management Policy, which sets out the core principles for the identification, assessment, control, management and follow-up of the operational risk as an integrated process at bank level. We 6/8 BIS central bankers' speeches have also established a dedicated unit for evaluating and making recommendations for addressing vulnerabilities. The internal audit function acts also as a consultant service for the Supervisory Council. The audit engagements focused on: (i) issuing opinions on the sufficiency of internal audits established by the Management for audited functions/processes, including supportive applications for the activities; (ii) issuing opinions on the accuracy and completeness of financial data in periodic reports; and (iii) other audit and non-audit engagements, ad hoc, upon special request by the Administrators or other institutions outside the Bank. With added prudence on designing work processes by Bank units, at the beginning of 2017, a project started on the implementation of the Programme on the Business Continuity Management at the Bank of Albania. The realisation of this project ranks the Bank of Albania among the banks applying best practices on institutional good governance. 5. Medium-term strategy and strengthening of independence, accountability and transparency The medium-term development strategy of the Bank of Albania for 2016–18 was launched in 2016 to activate the entire potential of the Bank of Albania. This document sets out the institutional objectives throughout a three-year period, 2016–2018, and identifies the measures and sources needed to accomplish these objectives. The fulfilment of these objectives depends, first of all, on how understandable we are to the public, how responsible we are in our policies and actions, and how trustworthy we are to the public. Hence, enhancing the Bank of Albania’s independence is always considered related to the strengthening of transparency and accountability. In terms of accountability, the Bank of Albania has regularly fulfilled the accountability obligations to the Parliament, the financial system and the public. Also, information on the activity and results of the Internal Audit Department is attached to the Annual Report 2016. Also, the financial statements and the opinion of the external independent auditor were an integral part of the Annual Report, in compliance with the International Audit Standards. The approval of the financial statements in compliance with the International Financial Reporting Standards (IFRS Standards) was among the most important priorities of the Bank of Albania for 2015. The implementation of this priority over 2016 met the legal requirements and observed the internal and external recommendations. Transparent communication is an important pillar in Bank of Albania’s activity for both fulfilling the responsibility for maximum transparency about decision-making and its effects, and raising public confidence in the central bank. Following are some statistics: Our official website is a place where the public may find complete and updated information on the Bank of Albania, as well as on the economy and finances in Albania. During 2016, the website had about 720 000 visitors, who viewed our page around 2.100.000 times and browsed in total about 4.310.000 items. Also, the Museum of the Bank of Albania was visited by 1900 visitors; while 1180 textbooks “Personal finance in your hands”, were distributed in eight high schools. Since the beginning of 2016, in compliance with Article 7 of the Law No. 119/2014 “On the right of access to information”, the Bank of Albania has compiled and published the Transparency Program on its website. In this regard, we have assigned a coordinator and answered 65 official requests and 120 requests delivered via electronic mail. For nearly a decade now, the Bank of Albania has been committed to expanding and deepening financial literacy of the public, focusing on the younger generation. 7/8 BIS central bankers' speeches Although, the financial education of the public is not a legal obligation of the Bank of Albania, we are confident on the positive return of this investment. Two are the main goals of the programmes, activities and special educational publications prepared by the Bank of Albania: introducing the central bank, its functions and role to the public; and cultivating and strengthening the financial literacy in society. In our view, financial literacy has become a necessity, taking into consideration not only the level of economic, banking and technological development, but also the importance and significance of information in today’s global setting. * * * Honourable Chair, Honourable Members of the Committee, In conclusion, I would like to highlight that, over 2016, the Bank of Albania has showed initiative and devotion in addressing the challenges we have faced. The positive results of our work show that we are on the right direction. Nevertheless, I think that for successful institutions there is always something more to do. They are guided by the medium and long-term objectives; they invest to enhance the professional standards and increase their capacities though the preparation, strengthening of independence, accountability, transparency and good governance. This credo of ours will be a guide for our action plans in the future. Thank you for your attention! 1 This Memorandum was signed by the Bank of Albania, Ministry of Finance, Ministry of Economic Development, Tourism, Trade and Entrepreneurship and the Albanian Association of Banks. 8/8 BIS central bankers' speeches | bank of albania | 2,017 | 5 |
Opening address by Mr Gent Sejko, Governor of the Bank of Albania, at the First Conference of the Museum of the Bank of Albania "Money and Banking in Albania, from Antiquity to Modern Times", Tirana, 14 June 2017. | Gent Sejko: Money and banking in Albania, from antiquity to modern times Opening address by Mr Gent Sejko, Governor of the Bank of Albania, at the First Conference of the Museum of the Bank of Albania “Money and Banking in Albania, from Antiquity to Modern Times”, Tirana, 14 June 2017. * * * Dear Professor Picard, Dear academics, professors and researchers, Dear guests, It is a special pleasure for me to welcome you to the First Conference of the Museum of the Bank of Albania. This is a special event, which brings together academics, researchers, and experts of central bank and currency museums, to establish a new bridge of communication and cooperation that will help us to take further our work at the Museum. In our short experience in museum management, we have learned that it is very essential to cooperate with other institutions responsible for the administration of cultural heritage, as well as with scientists and experts that study and preserve them, and tell their history. Also, with the support from the Ministry of Culture, Centre for Albanian Studies and Institute of Archaeology, we have today the Museum of the Bank of Albania, whose collection displays unique and impressive items. The systematic work of our distinguished archaeologists and of the dedicated central bank employees over the years has helped in materialising the efforts for presenting the history of the Albanian currency, from the axes of the Hoard of Torovica, to the first coins struck in Dyrrhachium, to those in circulation throughout various historic periods, up to modern days. Through over 30 exhibits and 5 educational rooms in the Museum, we show interactively the ancient history of our currency. The permanent exhibition in the lower floor displays collections from monetary systems that have existed in our territories over the past two thousand years. They are part of the numismatic collection of the Bank of Albania and the Albanian Institute of Archaeology. We have selected and studied them meticulously in a close and long process of cooperation with archaeologists, numismatists, historians and ethnologists in Albania. I take this opportunity to thank them for their valuable contribution. Our Museum, however, is not just a money museum. It is also the museum of the central bank, which considers financial education as an essential objective. The public needs to be informed in order to be able to make judicious and sound financial decisions, which, in turn, contribute to financial stability. That is why we have dedicated the upper floor of the Museum to financial information and education. Through a number of activities, educational publications, lectures, films, and applications, irrespective of their age, visitors learn about financial products and system. The history of money originates long ago and its developments are closely related to the people that have produced it. Its role is not limited to the economic functions; it is also a historic evidence of the minting or issuing country. It speaks about periods of economic crisis or downturns, of peace and prosperity, of successes and injustices. In this context, we decided to dedicate the First Conference of the Museum of the Bank of Albania to two main topics, which we think are the gist of its exhibitions and educational activities. 1. Findings, researches and discussions in the area of monetary production and circulation, the history of the economy and banking activity in Albania and Albanian historic territories, which contribute to accurate interpretation and updating of information transmitted to the visitors 1/2 BIS central bankers' speeches through Museum collections. 2. The educational role of central bank museums in getting to know the history of money, and banking activities and enhancing financial literacy through exhibitions, education and innovation. For this purpose, we aim, therefore, to bring together foreign central bank experts to share their perspective on the management of central bank museums, collections and educational activities. This conference certainly underlines the commitment of the Bank of Albania to earnestly engage in both research and educational activities. We are very interested in enhancing cooperation with researchers, academia, peer museums, and specialised institutions in economic, historic and cultural heritage research. Such cooperation is an excellent opportunity to Bank of Albania employees, who may benefit from valuable skills and expertise for our Museum. It would also contribute to new networking and collaboration in research activities. In light of promoting and furthering cooperation, we are committed to turning our Conference of the Museum of the Bank of Albania into an annual event. Also, in 2017, the Museum of the Bank of Albania will organise a cycle of lectures dubbed as “Nights of the Museum”, which will address a variety of topics, such as numismatics, banking history, economic and financial education, philately, art and architecture. These projects aim at developing another aspect of our work at the Museum, which would focus on social developments vis-a-vis museum objects. Dear participants, The first conference of the Museum of the Bank of Albania coincides with the 25th anniversary of the establishment of the modern central bank of the Republic of Albania and a two-tier banking system. In these 25 years, the Bank of Albania has served to the country’s economic and financial development, supporting successfully the development of an efficient and stable financial system. It will continue to remain an institution with ambitious objectives in the field of European integration and approximation with the European Central Bank. Today, it is undertaking a new challenge: opening to the public, not only to communicate clearly its primary objectives, but also to contribute to helping the public learn about the history of money, art and tradition that it represents. We will work hard, so that all the interested persons, whether in Albania or abroad, will be able to learn about the history of banking, money and people that have dedicated their life and work to it. I am certain that very soon the Museum of the Bank of Albania will be a place to visit the exhibition, and exchange opinions and ideas about banking and money Concluding, I would like to thank you for your participation and contribution to the conference and wish success in these two days of the conference. Thank You! 2/2 BIS central bankers' speeches | bank of albania | 2,017 | 6 |
Welcome address by Ms Natasha Ahmetaj, Second Deputy Governor of the Bank of Albania, at the launch of "Interesting facts from the Treasury: Art in Albanian Banknotes", Tirana, 19 May 2017. | Natasha Ahmetaj: Interesting facts from the Treasury - art in Albanian banknotes Welcome address by Ms Natasha Ahmetaj, Second Deputy Governor of the Bank of Albania, at the launch of “Interesting facts from the Treasury: Art in Albanian Banknotes", Tirana, 19 May 2017. * * * Dear friends, dear guests, Today, we are together at the premises of the Bank of Albania, not only in the attribute of this place as the house of money, figuratively, but also in the physical sense of the word, as this room is next to the old treasury room. We have invited you today to enjoy another dimension of the currency, that of an authentic artwork. A work of art always speaks more broadly and deeper than its mere physical dimension. Today, we are in a Museum of works of art. Museums are more than just expositions. While you move from one display to the other, you are not simply walking some centimetres along the street, but you travel through centuries of history. Those few centimetres take you through eras of social civilisation. This is a unique feeling you can only experience in a museum. A zoo or a botanical garden depicts the real world in miniature. But it shows the actual living world. By contrast, a museum brings together different eras, the past and the present. This is especially true in a museum of banknotes and coins. Modestly, our Museum does that as well. It was only founded a year ago and we believe it will continue to develop and be fully fledged as a legacy of our national memory. In mid 1800s, announcing the competition on American banknote, the US Secretary of the Treasury, specified two obligatory requirements to participants about the design: it had to be original, and unpublished previously, and have a national character. Since at the beginning, the banknote is thought as not only a means of exchange, but also as an education tool for the public. As such, it should bear important moments of the history. The banknote performs this function through complicated techniques of subtly fine lines, to prevent reproduction, attributable also to robust security features. Although we frequently have these valuable papers on our hands, seldom do we concentrate for a few minutes and enjoy the art embedded in them. We very rarely focus on examining how the work of a talented painter is intertwined in a sort of a miniature canvas with that of a talented engraver, turning that piece of paper into an elegant expression of creative art. The image is familiar, but it is hard to believe that 14% of interviewers in advanced countries are able to remember recognise the picture designed on each banknote. Even less people may recognise the portrait depicted on 1000 Leke or 2000 Leke Albanian banknotes. Museums and various activities organised in light of promoting national values and raising the public awareness help to better transmit the message embedded in banknotes, and educate the public through the art in banknotes, featuring elements of our national identity. For this particular reason, numismatists take delight in the subtleties of colours and images of the banknotes. In the apparently just pieces of paper, they are able to distinguish and recognise different ages, and the degree of social freedom. 1/2 BIS central bankers' speeches In addition, banknotes may also depict concerns of a society, of course, when the artist was able to properly read this concern. Hence, the green of US dollar was chosen as a symbol to express the need of the stability in the period of civil war. The 2017 series of Norwegian currency reflects the concern on the return to the human basic needs, which are taken away by digitalisation. In reflection to this concern, the portraits of distinguished people of art and science are replaced with the symbols of natural resources, strongly related with the identity of the Norwegian people, such as the Viking ship, fish or the lighthouse. All these facts show that nothing has threatened the educational and national mission of the banknote. Owing to this reason also, it continues to carry it out by resisting even the virtual forms of the currency. In addition, as a Harvard researcher states, the paper may disappear earlier than the banknote. Dear guests, The International Council of Museums was established in 1946. Every year, since 1977, the ICOM organises the International Museum Day, a worldwide event held on and around 18 May. In 1992, ICOM decided to choose a socially relevant theme for International Museum Day, each year. The theme chosen for 2017 is “Museums and contested histories: Saying the unspeakable in museums". Joining this worldwide celebrating day, in our museum, we have formulated it as “Interesting facts from the treasury: Art in Albanian Banknotes". And to say the unspeakable, we have invited today Mr Mark Bundy, a master of designing working for over 40 years at De La Rue, pioneers of banknote printing in the world. De La Rue is frequently heard by everyone visiting our museum, as it relates to the first company printing the Albanian banknote. Mr Bundy will show the unspeakable on the designing, techniques and art of conceiving the Albanian banknote, illustrated by photos and sketches. In the end, we invite you to explore our temporary exhibition on this topic and see the unspeakable through your own lens. 2/2 BIS central bankers' speeches | bank of albania | 2,017 | 6 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Becici Summit of the countries of the region on "Regional financial stability in a new global environment", Becici, Montenegro, 16 June 2017. | Gent Sejko: Monetary policy of the countries of the region between US Federal Reserves and European Central Bank Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Becici Summit of the countries of the region on "Regional financial stability in a new global environment", Becici, Montenegro, 16 June 2017. * * * Dear Mr. Chairman, Dear Colleagues, I would like to start by thanking the organizers for this invitation. As usual, I find it highly useful to share, among colleagues, opinions on common challenges. The title of the panel suggests our monetary policy stances are somehow shaped by the ECB and the Fed monetary policy paths. Though far from being the full picture, this is true, at some extent. The monetary policies of both these central banks are highly relevant to us. They affect external conditions and they could dictate the directions, the speed and the price of financial flows. Furthermore, for countries with a dollarized or euroized financial system, they might also affect domestic credit, financial conditions, balance sheets, as well as exchange rates. So, this brings us to the following questions. Where does our monetary policy sit at the current situation? What challenges do we face? And, how do we respond to the shifting of these external monetary policies? I am quite confident these issues will be broadly covered during this event. Now let me make a few remarks, regarding the monetary policy of the Bank of Albania vis-à-vis that of the ECB or the Fed. The BoA has pursued an expansionary monetary policy, which has been both supported and facilitated by the monetary policy stance of the ECB. During the past four years, the Bank of Albania has been engaged in an extensive course of monetary accommodation. In the presence of weak cyclical developments and low inflationary pressures, we have decreased our policy rate to a historical minimum of 1.25%. Furthermore: We have increased our liquidity injections in the banking system; We have adopted negative rates for required reserves in euro, in line with the policy of negative deposit interest rates in the euro area; We have been engaged in a clear and transparent forward guidance, announcing our preference for accommodative policy in line with our inflation target; However, unlike the Fed and the ECB, and similarly to other central banks in the region, we have not activated unconventional monetary policy tools. This is because the monetary policy accommodation pursued by the ECB has facilitated the implementation of our monetary policy. On one hand, the lower price of euro helped decrease the costs for foreign currency loans; On the other hand, a low policy rate by the ECB has enabled us to decrease our policy rate without having to worry about any exchange rate depreciation or financial stability problems. 1/4 BIS central bankers' speeches This last one is very important, given that around 40% of foreign currency loans are unhedged. At this point, I would like to take the opportunity and mention that, in order to address the high euro exposure in our financial system, the Bank of Albania, together with other authorities, has drafted a plan to decrease the level of euroization in the country. Anyway, turning back to our topic, our accommodative monetary policy has been essential in supporting growth and inflation The accommodative monetary policy has been successful in easing financial conditions and supporting higher consumption and investments: Lending costs have decreased by approximately 400–500 basis points; Liquidity risk premia in the system have been greatly reduced; Government’ bonds yield curve has flattened somewhat; Credit growth is recovering mostly supported by lending in domestic currency; To wrap this up, from a macroeconomic perspective: The economic activity is strengthening and we are on track to meet our inflation target within the relevant time horizon; Our financial system remains liquid and well capitalized, while the profitability ratios are positive; However, the external background seems about to get more complex. The Fed and the ECB are following slightly different policy paths. For the past few years, the Federal Reserve and the European Central Bank have pursued somewhat diverse monetary policy stances. The Fed appears to be on the tightening side. It raised its policy rate in 2016 and 2017, after two years of gradually reducing its quantitative easing program. At the same time, its forward guidance suggests a tightening path in the near future. In the meantime, the ECB is facing a different set of economic conditions, including slower growth, lower inflation, and higher economic and political uncertainty. As a result, the ECB is still holding to its accommodative monetary policy for longer. The forward guidance suggests that this path will continue at least for the current year. These bring us to the conclusion that there are potential international spillovers from these divergent policies, for small open economies. As a result of financial globalization, monetary policy in major advanced economies has significant spillovers to the global economy. Likewise, changes in market expectations about the future course of their policies have a high impact on financial market volatility. Furthermore, the region’s economies are small and open economies, whose main trading and economic partner is the Euro Area. In addition, the banking systems in our countries are dominated by EU-based banking groups. So, even though the Fed and the ECB’s monetary policy decisions affect their domestic economies and financial systems, they might have a delayed, but probably longer lasting effect on our economies. 2/4 BIS central bankers' speeches Depending on their intensity, both the trading and banking channels might affect our monetary policy stance and our monetary policy decisions. Given our exposure to the dollar and the euro , the ECB monetary policy stance is more relevant to our economy. In other words, it has a stronger and more direct impact on our monetary conditions and our financial systems. Let me take Albania as an example, whose main trading partners are EU countries: Roughly three quarters of our trade is directed to Eurozone countries. Over 60% of FDIs originate from the EU. The euro is the main foreign currency in our financial system – more than 4/5th of foreign currency assets and liabilities are in the common currency. Furthermore, studies indicate an effective basket of currencies in Albania would comprise roughly 75–80% euro, and the rest would be USD or currencies pegged to it. All these indicators mean we are much more exposed to the policy stance across the euro area, while the policy stance of the FED affects us only indirectly. At this point, a presumed tightening of the ECB monetary policy: would increase foreign currency lending costs in our economy, i.e. tightening financial conditions; If not followed by our monetary policy, would cause internal portfolio-shifts and depreciation pressures on the exchange rate; would not result in major capital outflows, as we did not benefit much capital inflows from the extraordinary expansionary policy pursued by the ECB; On the other hand, a tightening of the FED monetary policy would not affect Albania directly, apart from the usual negative implications it might have on oil and commodity prices. However, I have to state out that our monetary policy would benefit from a predictable monetary policy stance of the ECB in the near future. A predictable stance of the monetary policy in the Eurozone enhances the effectiveness of our monetary policy. A wider interest rate differential might lead to appreciation pressures on the exchange rate, and this can, and will be taken in consideration in our policy analysis and actions. To conclude, let me recap my points: Albania remains much more exposed to the ECB rather than the FED policies; Our expansionary monetary policies have been greatly facilitated by the policy stance of the ECB and the FED; The relative stability of Fed and ECB monetary policy has helped us reduce volatility in our domestic markets; However, any tightening by these banks would represent a tightening of our domestic financial conditions; 3/4 BIS central bankers' speeches Our monetary policy would benefit from the FED and the ECB, taking into account they will not present any surprises. 4/4 BIS central bankers' speeches | bank of albania | 2,017 | 6 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the 7th ECB conference on central, eastern and south-eastern Europen (CESEE) countries on "Institutional quality and sustainable economic convergence", Frankfurt am Main, 5 October 2017. | Gent Sejko: Convergence process challenges facing south-east Europe and Albania Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the 7th ECB conference on central, eastern and south-eastern Europen (CESEE) countries on "Institutional quality and sustainable economic convergence", Frankfurt am Main, 5 October 2017. * * * Accompanying slides Honourable Participants, It is a pleasure for me to participate in this Conference, and discuss about the role of our Institutions in the EU economic convergence process, such a relevant topic nowadays. I believe sharing our knowledge and experience in this area is extremely beneficial to all of us. My thoughts will be organized along three main dimensions. To begin with, I will highlight some of the challenges that the SEE convergence process is facing, from Bank of Albania’ point of view. Next, I will briefly describe how Albania is positioned across these dimensions. Lastly, I will try to emphasise how the convergence process itself can be enhanced to anchor our policymaking. 1. SEE convergence process challenges The long-term political future and economic prosperity of the SEE region is firmly linked to EU convergence and integration processes. While individual countries have differences, a common specific they all share is the economic and political benefits from the process. The convergence process is difficult and full of challenges, most importantly, the risk of falling into a ‘middle income trap’, a feature that is especially relevant given the slowdown in the speed of convergence that the region experienced in the aftermath of the crisis. The main reasons that can entrap an economy in a middle-income level are a low level of innovation, poor quality of institutions and unfavourable demographics. From a certain point of view, the ability of any country to move up the development ladder depends on the upgrade of its internal economic system, from an efficiency-driven into an innovation-driven economy. Obviously, upgrading the whole economic systems and adopting best practices is easier said than done. Diminishing marginal returns on labour and capital, as well as a reduced scope for total factor productivity growth, coming mainly from imported technologies, decelerate growth and increase the risks of getting stuck in a ‘middle income trap’. Therefore, progression to the next development stage requires improvement of the human capital stock, facilitation and innovation in production processes, advancement of domestically generated technology and expansion of high value added exports. In a nutshell, the SEE countries need to transform themselves into innovation-driven economies. At this point, the role of institutions broadly determines the rule of law, the investment climate and the protection of intellectual property, the quality of education and infrastructure, as well as access to finance. Upgrading institutions to EU standards is therefore of paramount importance. 2. The convergence process in Albania Throughout the transition period, Albania has experienced a relatively fast catch-up process, starting from a comparatively low income per capita level. This has, nevertheless, stalled after the financial crisis. While Albania, currently a middle income country, has not fallen yet, in my 1/3 BIS central bankers' speeches opinion, in ‘the middle income trap’, the risks of doing so are present. Let me briefly examine why. The institutional setup in Albania has been largely contributory to the convergence process. Macroeconomic policymaking has improved considerably in the past years. The Bank of Albania operates under an inflation targeting regime, modelled closely after the ECB’s framework. The exchange rate is free floating, thereby facilitating the absorption of any adverse shocks. Fiscal policy is on a steady consolidation path to reduce the country’s risk premia and enhance its fiscal space in order to deal with potential future shocks. The authorities have adopted fiscal rules that mandate a steady reduction of public debt. Several policy initiatives have been implemented to strengthen financial stability. A de-euroization strategy has been developed and launched. Legal impediments to collateral execution and NPLs resolution have been overcome. A Bank Resolution Law has been recently passed. In addition, the independence and efficiency of the Financial Supervisory Authority and the Deposit Insurance Agency has been strengthened. Despite this progress, several deep structural imbalances still exist that prevent the transformation of Albania into an innovation-driven economy. According to the WEF Global Competitiveness Indicators, we are still lagging behind in institutional development, business sophistication, innovation, technological readiness, financial market development, rule of law, and quality of the judiciary. In order to tackle those impediments, various structural reforms have been carried out in the public administration, in education, in the tax system and practices, in the pension system and in the energy sector. Last year a major revise of the justice system was approved to address what is considered one of the main bottlenecks of growth and competitiveness. Although the reform is still being implemented and it is early to assess its effects, it underscores the Albanian authorities’ commitment to address structural weaknesses. On the other hand, Albania has benefited from a positive demographic position as a result of its young and vibrant labour force, but has suffered from continuous net migration towards more developed countries. While emigration has provided a steady flow of remittances and has eased labour market pressures, it has also drained the country of its highly skilled labour force. The latter might have long-term repercussions on innovation and can have implications on the so-far convergence progress realised. With that being said, let me now conclude. 3. Towards a steady convergence path SEE countries are at risk of falling into ‘a middle income trap’. As such the economic systems need to be transformed, through carefully-designed and well-targeted policies that promote domestic innovation, modernise institutions, and cushion the effects of adverse demographics. It is clear that the load of reforms remains with the SEE countries authorities’ themselves. A domestic ownership of reforms is of utmost importance for the democratic process and the ultimate success of convergence. However, while these policies need to be carried out regardless of external factors, EU integration has a fundamental importance on economic convergence dynamics. After the economic and financial crisis, appetite for further EU enlargement declined, due to waning popular support and shifting policy priorities towards reform. As the EU’s mood drifted away from enlargement and from further integration, countries relaxed their drive for reform. These developments coincided, or let me rather say, induced a stall in the convergence process in several SEE countries. As a final thought, the EU institutions themselves can facilitate this process further through: 2/3 BIS central bankers' speeches Providing transparent and objective EU integration guidelines; Emphasising the need of institutional convergence throughout this process; Continued monitoring and reporting on the progress of individual countries. On one hand, this will enhance the positive leverage of the EU integration process on the development of our countries and societies. On the other, it will increase the cost of noncompliance and possibly induce positive compliance competition amongst the countries in the region. Thank You! 3/3 BIS central bankers' speeches | bank of albania | 2,017 | 10 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the signing of the Memorandum of Cooperation between the Bank of Albania and the Central Bank of the Republic of Turkey, Tirana, 6 November 2017. | Gent Sejko: Intensifying mutual cooperation between Albania and Turkey Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the signing of the Memorandum of Cooperation between the Bank of Albania and the Central Bank of the Republic of Turkey, Tirana, 6 November 2017. * * * Honourable Governor Çetinkaya, Your Excellency Ambassador Bayraktar, Dear members of the delegation from the Central Bank of the Republic of Turkey, Dear guests, Ladies and Gentlemen, I have the pleasure to have the Governor of the Central Bank of the Republic of Turkey, Mr Murat Çetinkaya, as our guest on a one-day visit to the Bank of Albania, on the occasion of the signing of a Memorandum of Cooperation. This memorandum is an expression of our common will and desire to continue and intensify the mutual cooperation that has been already in place for years. Opening addresses are supposed to be brief and I would rather not break with such tradition. However, I find it appropriate to share with you some thoughts on: (i) the international context surrounding the signing of this memorandum; (ii) the current level of the bilateral relations between Albania and Turkey; and, (iii) the main aspects of future cooperation. 1. International context Our institutions – the respective central banks – play a significant role in promoting and guaranteeing monetary and financial stability, supporting the sustainable development of our countries and the welfare of our citizens. The central banks draft, implement, monitor and assess their monetary, micro and macro-prudential policies against the backdrop of a highly integrated and interdependent global economy. On the one hand, integration bolsters economic growth, enabling a more efficient distribution of labour and capital, thus facilitating the transfer of knowledge and of technology, and promotes the adoption of best practices in economic and financial management. On the other hand, experience has shown that globalisation may spill over and amplify negative shocks among the countries, hence creating risks to financial stability, which interfere with central bank mandates. The experience of Albania during the transition period and onward perfectly illustrates these aspects. The Albanian economy has benefited from integration with the global economy; but, recently, we have also been under the pressure from consequences that some of our trading partners experienced due to the financial crisis. Therefore, our response functions have become increasingly complex, relating not only to the adjustment of the domestic product, labour and capital markets to external shocks, but also to the performance of international markets. This reality requires us to be heedful of international developments, and seek common solutions for the challenges we are facing. 1/3 BIS central bankers' speeches The cooperation, coordination of policies and strengthening of effective dialogue between central banks is an indispensable requisite for drawing advantages from the opportunities arising from economic, financial and technological integration, and enhancing the immunity against the relevant challenges. 2. Economic and financial integration among our countries Our countries have many things in common – these elements are more than sufficient to build and consolidate bridges of cooperation. Turkey is an important market for Albania and its economy. To illustrate my point: ·Turkey is Albania’s fourth trading partner and its sixth investment partner. In the services sector, Turkey is an important destination for Albanian tourists; on average around 80 thousand Albanians travel to Turkey, whereas Albania has welcomed around 69 thousand Turkish travellers in 2016 and 38 thousand travellers over the first six months of 2017. At present, 429 joint-venture companies operate in Albania and Turkish investors have a great interest in Albania. The stock of foreign direct investments from Turkey amounts to around EUR 481 million, or around 4.3% of the Gross Domestic Product at the end of the first half of the current year. These investments are mainly concentrated in areas such as: energy, metal processing, telecommunications and finance. The presence of the Turkish capital in the banking and financial sector. One of the main banks in our banking system has Turkish capital. Recently, in addition to the classical banking activity, the Turkish capital has expanded to non-bank financial institutions, thus helping deepen and develop alternative financial markets. Both our countries have great economic and financial potential, which should not be limited within their geographic territories. The Bank of Albania is an active supporter of financial and economic integration, considering it as one of the most important pillars to release the potential of the economy and boost its resilience to shocks. 3. On the Memorandum All the above, underlines the great importance of our economic and financial cooperation with Turkey. This cooperation imposes even us – the policy makers – to intensify the exchange of information and opinions, and seek to promote the finding of common solutions to common challenges. In this spirit, the Bank of Albania and the Central Bank of the Republic of Turkey are signing today this Memorandum of Cooperation, which may be well considered as the coronation of the insofar cooperation, as well as of our efforts to continue with drafting the relevant institutional framework for clarifying the operational cooperation protocols, in a series of central bank fields. This memorandum elevates the relations between our two countries to a new dimension. It confirms the will to elevate the level of cooperation and consolidate the ties between the two countries, providing for both institutions the necessary space for the intensification of mutual exchange of information and expertise in various fields of central banking, such as: supervision, financial stability, research, and financial education, and the regular dialogue at technical and political level. It is an important step for obtaining maximum benefits from the positive effects of integration and minimising the negative ones. 2/3 BIS central bankers' speeches Lastly, I would like to underline that the Bank of Albania will make maximum efforts for the cooperation in the framework of this agreement to be concrete and have a direct impact. Concluding, on behalf of the Bank of Albania, allow me to thank once again the Central Bank of the Republic of Turkey for the continuous fruitful cooperation; I would also like to thank, in particular, Governor Çetinkaya, who has honoured us today with his presence at the ceremony of signing the Common Memorandum. Thank You! 3/3 BIS central bankers' speeches | bank of albania | 2,017 | 11 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference 2017 of the Bank of Albania, Tirana, 9 November 2017. | Gent Sejko: Banking developments and financial market infrastructure. The role of structure, size and market infrastructure in risk mitigation and financial intermediation Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference 2017 of the Bank of Albania, Tirana, 9 November 2017. * * * Your Excellency Mr President, Honourable Mr Minister, Dear Prof. Anastasakis, Honourable Governors, Your excellencies Ambassadors, dear guests and participants, I would like to warmly welcome you to the Annual Conference of the Bank of Albania. For almost two decades, the Conference has become a prevalent event in the research and professional activity of the Bank. Our analyses and conclusions, over the years, have endeavoured to respond to many challenges and dilemmas for our national economy and beyond. Thanks to the cooperation with the University of Oxford, more specifically with St. Anthony’s College, this Conference has aimed, and I believe it has succeeded in doing so, at exploring and providing answers for a number of issues, which, given their nature, effect and interlinking, are present across the region of the South East Europe. The theme of this year focuses on similar issues. During the day, national and international experts of the economy and finance as well as academics will analyse the latest trends and developments in the financial sector in the region, focusing on potential implications on the macroeconomic equilibrium and financial stability of each economy. The theme of the Conference is relevant to both the current and the future developments. From the international perspective, it seems that the overall situation is increasingly more supportive. Advanced economies, together with large emerging economies are in a phase of full recovery, underpinned mainly by the boost in aggregate demand. Interestingly, the euro area, which includes most of our trading partners, is experiencing an overall positive momentum concerning economic growth, and forecasts are optimistic. There is a broad consensus that the economies of the South East Europe region, in the first half of 2017, registered a satisfactory performance in terms of recovery; in the meantime, according to key indicators, such performance is expected to strengthen further in the third quarter of this year. Albania is no exception to the regional context. In the previous quarter, the economic and financial situation in Albania was set on a path of constant improvement. Growth and employment indicators followed an upward curve and expectations for 2018 remain positive. Consumption and foreign investments have contributed positively to economic activity and are expected to generate further increase in productivity and competitiveness. At the same time, income from the export of goods, and especially of services contributed to the reduction of the current deficit and the strengthening of the external position of the economy. The effects of the monetary policy have maintained the stimulating trend, aiming at closing the negative gaps of prices and output. Financial stability is also characterised by a positive situation. The notable decline in nonperforming loans in the balance sheet of the banking system is the most prominent achievement 1/4 BIS central bankers' speeches in this aspect. The measures taken in mid-2016 have produced a substantial effect, materialised in the reduction of non-performing loans by around 10 percentage points, below the maximum level registered in 2015. It is always a pleasure to note that credit growth has been positive. In particular, the lek credit has grown rapidly, compared to the foreign currency credit, which makes the banking system and the private sector healthier, and enhances the effectiveness of Bank of Albania’s monetary policy. Positive developments in the banking sector and the economy have supported the further improvement of capitalisation, liquidity and profitability indicators. Two months from the end of the year, in our assessment, the banking industry in Albania enjoys full financial soundness, against the backdrop of an optimal liquidity and capitalisation situation, a key prerequisite for financially supporting the economic developments of the country. We have also paid particular attention to legal, institutional, regulatory and supervisory developments, notably the drafting and implementation of the resolution law. Dear participants, This year marked 25 years from the establishment of a two-tier system in Albania, which stipulates the banking system as the provider of financial and banking services in the economy, and the central bank as the administrator of the monetary policy and regulator and supervisor of the banking system. This first step was followed by other steps related to other segments of the financial market, such as the securities and capital markets, including the establishment of the relevant supervisory and regulatory institutions. Initiatives in these aspects have promoted a constant expansion of the financial market, in terms of both diverse institutions and number of financial products and trading volumes. Yet, despite these developments, the financial system remains dominated by the banking system and relevant developments in it. The last financial stability report of the Bank of Albania states that banks account for around 90% of total financial system assets, equivalent to 92% of the GDP, whereas the rest of the financial sector shares only 10% of the financial system total assets. Assessments and studies of the Bank of Albania, as well as comparative studies by third parties, particularly by the International Monetary Fund, show that the financial distribution and expansion in the Albanian financial market is close to the equilibrium, dictated by the Albanian economy and consumers. Moreover, financial intermediation indicators, as a percentage of the Gross Domestic Product, are at similar levels to those in other countries of the region. The dominance of the banking segment has naturally led to a higher level of concentration of financial products and services in its favour. More than 80% of resident investments in the financial system are in the form of deposits and current accounts in banks. Only little more than 12% are in the form of government securities, whereas the rest, around 6.5%, are invested in investment or private pension funds, accounting for only 0.1% of total financial system assets. Statistics show that only a small number of companies operate in other segments of the financial sector, and their activity in terms of the Domestic Product or of the financial market remains insignificant. Regarding the above, we may logically conclude that the financial market architecture may not be considered complete yet. Financial instruments with long-term maturities are rare, whereas the short-term ones outside the banking system are apathetic and fragmented, in terms of both products and markets. An outcome of such a financial architecture is a kind of added pressure on the banking system, depriving the economy of other financing alternatives, beyond what the banks offer. This vacuum may not be filled with strained efforts by the banking system. It has been broadly accepted that each segment of the financial market plays a complementary rather than substituting role. I could mention a number of examples to illustrate my point, but for the moment I would rather not, as in the next panels these issues will be discussed in greater detail by other 2/4 BIS central bankers' speeches colleagues and academics during the day. Overall, the above elaboration regards investment-related financial institutions and financial instruments. However, it must be noted that similar problems characterise the other extreme of the financial market, the corporate – or enterprises sector – as we call it in Albania. Bank of Albania surveys show that micro units face shortage of financial resources and have limited access to credit. Thus, more than 1/3 of respondent enterprises consider the low level of access to finance and the cost related to it as the main cause for not expanding the activity. These micro units, which are basically family-run businesses, have a greater need to cooperate with non-bank financial institutions, due to difficulties they have in fulfilling the requirements for collateral or detailed financial documentation, criteria that banks require. This is another argument that leads to the logical conclusion that, in addition to own capital and bank credit, these enterprises would benefit greatly from other segments of the financial market. The low level of financial inclusion of the population is another element that prevents the deepening and expansion of the financial market in Albania. Latest data from the World Development Indicators show that only 38% of adults have an account with a financial institution, while only 6% and 22% of adults have a credit card and a debit card, respectively. Financial inclusion may not be increased only through the banking system. The financial system, especially the capital market and the corporate securities market should play a significant role in increasing financial inclusion. I take this opportunity to emphasise that, in addition to the need for expanding and deepening the financial market, it is necessary to increasingly pay attention to the management of risk that accompanies any financial investment. We are witnesses of a rapid technological evolution, which has practically eliminated physical boundaries, has eased access to electronic investment platforms, and has rendered very difficult the supervision and regulation of many innovative financial instruments that are traded in these platforms. The phenomenon of informality coupled with the speed of innovation in the field of financial instruments are a real risk for every investor that is naively driven by profit and does not stop to analyse the magnitude and nature of risk to which he is exposed. Anyhow, inclusion should take place carefully, relying on specialised financial intermediaries and auxiliaries, whose activity is regulated and supervised by a legitimate authority in Albania or abroad. Dear participants, The depth and expansion of the financial markets determines the set of financial instruments eligible for trading, in a broad spectrum from the maturity perspective. These instruments are nothing more than consecutive steps in the monetary policy decisions pass-through mechanism. The whole process of instrument trading serves to determine the value of assets, the price of risk and savings, and, eventually, the propensity toward consumption, savings or investments. In this sense, the existence, completeness, and effectiveness of the financial market play a significant role in the monetary policy pass-through. This is the reason why the central bank places its focus on these markets and on their proper functioning. Based on these specific reasons, the Bank of Albania has initiated, time ago, a series of actions for creating a more dynamic financial market. The macro-prudential measures taken with regard to liquidity and capitalisation; limitations placed on positions with non-resident banks, provisions and collateral; and the package of measures for reducing non-performing loans are steps to remedy problems related to the shallowness and narrowness of the market, the low financial inclusion, and the inadequate financial education. Studies and analyses of the Bank of Albania support the logical conclusion that the development of the financial market is an important factor for boosting economic activity and enhancing welfare in general. At the Bank of Albania, we believe that the current structure of the banking market promotes competition in relation to banking products and services. However, the further 3/4 BIS central bankers' speeches expansion and deepening of the market is a present challenge for all the relevant actors involved. The banking industry, the Bank of Albania, other segments of the financial market as both as actors and as regulators, the government, the academia and experts of the field, should be all involved in this effort. Our ambitions should aim at having a dynamic and liquid financial market, with upward trading volumes, and a widening spectrum of instruments, including a prolongation of maturity horizons and prudent risk management. This framework should be accompanied by added transparency in all the phases of trading, with financial education assuming a special place. Only in this way would we be able to deepen and expand, in real terms, the financial market, and through it a higher efficiency in implementing economic and financial policies, in mobilising and using national savings, in financial inclusion, in economic activity growth, and in enhancing the welfare of the population in the long run. In the hope that the proceedings of this conference will be characterised by a fruitful exchange of ideas and views by the participants in this room, Thank you for your attention! 4/4 BIS central bankers' speeches | bank of albania | 2,017 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the 2nd Conference of the Albanian Association of Banks, Tirana, 14 November 2017. | Gent Sejko: Overview of economic and financial developments in Albania Address by Mr Gent Sejko, Governor of the Bank of Albania, at the 2nd Conference of the Albanian Association of Banks, Tirana, 14 November 2017. * * * Your Excellency Prime Minister, Honourable Minister Ahmetaj, Dear Chairman of the Albanian Association of Banks, Ladies and gentlemen, It is a special pleasure for me to participate in the second conference organised by the Albanian Association of Banks (AAB). I take this opportunity to compliment the AAB for the selected theme, as economic growth in Albania is cross-cutting topic of interest to all of us. This conference takes place at an interesting moment from the perspective of the performance of economic activity in Albania. The most recent assessments show that our economy has entered into a long-term recovery trajectory. As mentioned in the last Statement of the Supervisory Council of the Bank of Albania, the Albanian economy grew 4.1% in the second quarter, driven mainly by the recovery of private domestic demand, improvement of the international trade balance, and increase in public spending and high foreign direct investments during this period. The accommodative monetary policy of the Bank of Albania has been one of the key driving factors for the recovery of domestic demand. It has constantly guaranteed a financial environment with low interest rates and ample liquidity. It has also been aided by the consolidatory fiscal policy, which, in addition to reducing risk premia, has increased the space for financing the private sector. Our expectations for the short and medium-term economic developments in Albania remain positive. We aim at having sustainable growth rates in the course of the years. In this context, the banking sector represents a key industry for supporting economic recovery. The instruments it avails have a substantial contribution in this regard, with lending being among the most important ones. Notwithstanding occasional volatilities, the banking industry has played a significant role in supporting economic activity. That was notably the case at the early 2000s, following the privatisation of the then Savings Bank. During that period, the outstanding credit increased at considerable annual growth rates. Anyhow, such high growth rates and the outburst of the global crisis revealed a number of inconveniences, and led to the perpetual increase in the level of non-performing loans. Thus, the ratio of non-performing loans to total loans peaked 25%, extremely deteriorating the system's lending capacities. The reasons that led up to this point have been discussed extensively in the past and I would rather not focus on them, again. What I would like to emphasise is the fact that the current situation is very different from what it used to be a few years ago. The ratio of non-performing loans is constantly reducing, standing 10 percentage points lower than its peak in 2014. Thanks to joint efforts, the balance sheets of the banking system are healthier, the liquidity situation is optimal, and its prices have fallen to historical low levels. 1/3 BIS central bankers' speeches As a result, I think that the banking industry should adopt a more active approach in deepening financial intermediation, which ultimately means strengthening the credit activity. According to the last Financial Stability Report, in 2017 H1, the banking system was financially healthier. This fact leads us to believe that its actors, who unquestionably contribute to the supply side of credit to the economy, should tend to be more active. On the other hand, regarding credit demand, assessments are also positive. More specifically, survey results on the financial and borrowing situation of enterprises in 2017 H1, show that the financial situation has improved and the optimism characterises both the short and the medium term. In recent years, the Bank of Albania, in cooperation with the Parliament and the Government has undertaken a series of actions, including legal amendments, to address concerns that had been previously raised by the industry. Aware of their usefulness, we undertook these changes and I believe we have achieved concrete results. Your balance sheets are cleaned and the financial situation appears healthier. For these reasons, we, the central bank, would invite you to utilise, within reasonable levels of prudence, every possibility and space for identifying business plans and projects that deserve to be supported. It is time now for lending to assume its place in supporting the economy, and this requires professionalism, energy, integrity, and commitment. The banking industry has a series of instruments at its disposal. In addition to the need for reviving credit, as one of the most important instruments, I would like to focus now on some other indicators, such as the level of the financial system development and financial inclusion and education. These are some very important additional elements that contribute to economic activity. Underdeveloped financial systems are exposed to systemic risks and create distress and challenges for the effectiveness of the monetary policy and financial stability in Albania. Fortunately, we live in an age when financial innovation has introduced many new business models, both in processes and in products. We should also embrace them in Albania. The great technological revolution has eliminated physical barriers, making it easier for the people to access the financial market, regardless of the geographical location, age, qualification, cultural formation, or tradition. In addition to easier access, the costs and speed of obtaining services have improved notably. Our banking system should not only make use of all these elements, but it should also develop them further. Financial inclusion and education are two challenges that I think should be an integral part of our agenda in the years ahead. World Development Indicators show financial inclusion of the population continues to be low. In 2014, only 38% of the population had an account with licenced institutions of the financial system, while 22% of adults had a debit card and only 6% of them had a credit card. This shows a large gap between us and OECD countries, where 92% of the population has a financial account, whereas 80% of adults own a debit card and 40% a credit card. The role of banks in concerning financial education is very important and I would say unique. The deepening and expansion of your clients’ financial literacy has a high social impact and, at the same time, banks will reap benefits, because, in turn, the clients are consumers of banking products and services. Ladies and gentlemen, Lastly, I would like to focus on the contribution by the banking sector to the fight against 2/3 BIS central bankers' speeches informality, a very harmful and, unfortunately, still wide-spread phenomenon in the Albanian economy, to the extent that it may be considered a serious risk to the economic and financial stability of the country. Even in this aspect, the role of the banking system is very important. Using information certified by authorities, concerning the balance sheet of the companies, as well as other economic actors, has become a necessity. Above all, they are prudential measures, which enhance the level of security and stability, especially in lending. The reform against informality amongst the priorities for the Albanian authorities, and the banking sector - with its network, expertise and know-how, which many of you bring along from the home country of the respective banking group - should offer its assistance for the common goal. Based on the above, I invite you to focus the debate and analysis in this one-day conference on these lines, hoping that this meeting will create a convergence of ideas and conclusions in relation to the further recovery of the economic activity. The support of the Bank of Albania will be unconditional in this regard. As in the past, we will be constantly in search to adopt strategies and rules that aim at having a financially sound banking sector capable of supporting economic development in Albania. I am fully confident that the future cooperation among all the stakeholders: the banking industry, the government and the Banking will be strengthened, for the economic and financial prosperity of the country. I thank you for your attention and I wish the conference all success! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 1 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level meeting on the remittances from the Albanian diaspora, Tirana, 11 December 2017. | Gent Sejko: Remittances from Albanians abroad positively influences the Albanian economy Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level meeting on the remittances from the Albanian diaspora, Tirana, 11 December 2017. * * * Dear Minister Majko, Dear guests, Welcome to the premises of the Bank of Albania! I would like first to thank the Minister of State for the Diaspora, Mr Pandeli Majko, for his initiative for higher attention to drawing in and effectively using the remittances sent by Albanians abroad. Today’s meeting is the first in a series of common steps to be taken by Albanian institutions, in an effort to give its due place to the financial contribution by Albanian emigrants to the welfare of their families at home. This contribution is also vital for the sustainable and long-term development of the Albanian economy. The Bank of Albania has always considered the remittances as a very important contributing factor for the economy of Albania and beyond. In this light, the Bank of Albania measures and analyses the available statistics, and conducts non-quantitative assessments related to the geographical distribution of the sources of remittances, at the national and international level. The assessment of factors contributing to the level of remittances and the cyclical volatility of their flows over the years remains at the focus of our work. For Albania, remittances represent a steady and considerable source of inflows, which surpass foreign direct investments, being thus a substantial source of financing economic growth in Albania. In this regard, the Bank of Albania considers remittances as an important source of income in the economy and a contributor to the Balance of Payments. From a narrower perspective, remittances are estimated to have a significant impact on Albanian households, for reducing the poverty and improving the quality of life. Even in the case of Albania, the studies performed by the Bank of Albania and the World Bank show that the income from remittances are allocated mainly for consumption, medication, and education, as well as for savings and investments, the latter mainly for residential properties. In addition to the above, the Bank of Albania treats remittances also from the perspective of their inflow channels in the Albanian economy. Recent studies show that the formal transfer channels dominate, mainly through money transfer financial institutions, and less through banks. In the meantime, remittances in cash remain at high levels, which is worth for an in-depth analysis. The World Bank survey conducted in 2016 concluded that the reasons for the limited use of the banking channels are the high costs on money transfers and the perceived cumbersome and complex procedures. To illustrate my point, according to this survey, the costs of remittances toward Albania are estimated at 9.4 per cent of the amount sent, compared to the 7.2 per cent average in the region. We are all aware that the more financial channels are used, the more finances penetrate in the economy. Moreover, the increase in the use of financial channels contributes to enhancing financial inclusion, increasing the opportunities for savings and productive investments. Taking into account the benefits from the formal penetration of remittances in the economy and 1/2 BIS central bankers' speeches the insofar contribution to the banking and financial sector, the Bank of Albania suggests added attention with regard to reducing transfer costs and improving or designing afresh products and services /targeted to this segment of the population. From its side, the Bank of Albania is engaged to further modernise the payment system infrastructure and align the legislation to the EU directives for an open, barrier-less, and competitive market. In the last two years, the Bank of Albania has been engaging in concrete projects with the World Bank, related to remittances and financial inclusion. The first project consists in an assessment of the compliance with the “General Principles for international remittance services” designed by the World Bank and the Bank for International Settlement and a concrete action plan, with many stakeholders involved, to comply with those fields that need further improvement. Another noteworthy project is the Greenback of the World Bank dedicated to remittances, implemented in several countries across the world. This project comes now to Albania as a receiver of remittance and aims at enhancing the efficiencies in the market for remittances and raising the awareness and financial education, and has Bank of Albania’s endorsement until its completion. The other project consists in assessing the compliance with the criteria set out in the framework of the “Payment aspects of financial inclusion”. By complying with the criteria from the involved stakeholders, it aims to increase the number of households and enterprises (mainly the small ones) that have a bank account or a payments account to conduct various transactions. In addition to the above, for a broader review of the remittances across all its dimensions, the Bank of Albania commits today in the framework of this meeting to produce a dedicated publication, which will be presented every June, a period which coincides with the International Day of Family Remittances, 16 June. Last but not least, considering the coordination among state authorities as very important, as well as the constant communication with the private sector, we are signing today the Memorandum of Understanding. It is aimed at raising the awareness, facilitating dialogue and fostering effective cooperation between the parties on issues related to remittances from the Albanian diaspora, contributing to economic development. The joint engagement we are initiating today is the first necessary step of a development platform for the empowerment and effective use of remittances. In conclusion, I would like to underline once again that it is time that we show more care, appreciation and gratitude to tens of thousands of Albanians abroad, who, through sacrifice, continue to contribute to the welfare of our nation, sending a part of their savings to their families back home. We invite the banking industry and other actors in the financial system to contribute to this initiative, with concrete vision and products, taking into account that you can play a special role in effectively mobilising remittances. Reasserting our institutional support and commitment for this initiative, I am confident that this will be an on-going dialogue to facilitate every undertaking in the aspect of remittances. Thank you for your attention! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 1 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the 11th South-Eastern European Economic Research Workshop, organised by the Bank of Albania, Tirana, 4 December 2017. | Gent Sejko: Economic research - discussions and developments Address by Mr Gent Sejko, Governor of the Bank of Albania, to the 11th South-Eastern European Economic Research Workshop, organised by the Bank of Albania, Tirana, 4 December 2017. * * * Distinguished guests, Dear participants, It is a great pleasure to be here with you today. On behalf of the Bank of Albania, I would like to welcome you to the 11th South-East European Economic Research Workshop and thank you for your continuous devotion and precious contribution. The workshop has been evolving throughout the years, providing a useful platform for researchers, academics and central bankers from the Region and beyond, to: present innovative research findings, foster exchange of views, discuss about key developments in money markets, monetary policy implementation and central bank operational frameworks, and develop long-term collaborative relationships. From a strategically point of view, the main goal of economic research is to provide a strong conceptual and empirical basis for policy-making. High-quality research leads to higher credibility of the central bank and improves the quality of its policies. We strongly believe that a qualitative research increases the potential contribution of the central bank on the financial markets, the economy and the society. Like in other European central banks, economic research at the Bank of Albania is an important function in its overall activity, which has proved to be successful in supporting the policy formulation and implementation processes. New methodologies provided by Research, based on empirical models, have been adopted as standard tools of policy analysis and forecasts by other Departments (e.g. monetary policy, financial stability, banking supervision, etc.). This means that the mission, scope and contribution of research, assume a very important place in Bank of Albania’s development strategy. Its goals consist in: increasing our knowledge and understanding about domestic, regional and global economy, including the functioning of the financial system; developing high-quality models, tools and analysis to support better the monetary policy and financial stability; participating in research international networks (Region and Euro system), to facilitate the exchange of opinions and views with other central banks; and delivering reliable advice to policymakers and sharing findings and conclusions with market participants, foreign investors and to the public. Furthermore, during this year, research at the Bank of Albania extended its activity to include historical research. The outcome was the Conference on “Money and banking in Albania, from antiquity to nowadays”, which brought together many scholars, numismatists, archaeologists, and researchers of monetary and economic history. 1/2 BIS central bankers' speeches Turning to the very reason why we are all here today... Recently, research has focused on various topics related to: financial market infrastructure and potential implications for financial stability and banking supervision; implementation of the new IFRS standards; rapid development of the financial market and its instruments, and institutional developments in domestic and international markets. All of them are currently hot topics of economic research and I am happy to note that they occupy a significant part of this workshop’s agenda. Additionally, I am very happy to see that traditional issues of monetary policy and developments in the external sector of the economy will also be discussed during the two days of the workshop. In my opinion, such a broad coverage makes the agenda quite interesting. We are confident that research papers that will be presented during the workshop days will provide some guidance on how to approach several issues arising from the recent economic developments, regionally and beyond. Many of them are similar across countries; therefore, collective cooperation would be quite useful. Without further ado, I would like to invite you to actively participate in and conduct a very lively and fruitful debate. I truly believe that constructive discussions and comments, which will certainly take place during the workshop, will contribute to enhancing further cooperation among researchers, and between the institutions. For all these reasons, I thank you once again for your invaluable contribution to this annual meeting of researchers and wish you a successful and fruitful workshop! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 1 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the Minister of Finance and Economy, Tirana, 7 December 2017. | Gent Sejko: Increasing the formalization of the Albanian economy Address by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the Minister of Finance and Economy, Tirana, 7 December 2017. * * * Dear Minister Ahmetaj, Dear media representatives, It is with great pleasure that I present this concrete initiative of the Bank of Albania (BoA) in the framework of our efforts to promote the formalization of the economy. It is encouraging to see that a series of initiatives by other Albanian authorities are taken for the same purpose, to enhance the law enforcement and the use of financial channels. Experience has shown that complementary efforts of regulatory institutions lower the policies’ implementation costs and increase their likelihood for success. Informal activity imposes open and hidden costs for the Albanian economy and the society. It damages the country’s public finances, increases the tax burden and distorts its effect on the economic agents, hampers competition and increases the costs of fair business activity, reduces business financing resources and curbs their normal development, and creates social problems that arise from lack or insufficient coverage of social and health insurance. From the BoA’s point of view, as the monetary authority and as the supervisor and regulator of the banking sector, informal activity reduces the effectiveness of our stabilization policies and creates the premises for instability of one or more segments of the financial system. Focusing on the latter issue, I would like to remind you that safeguarding and strengthening financial stability has been and remains a major objective of BoA’s work. As we have stated in our previous communications, the deterioration of the loan portfolios’ quality has been one of the biggest challenges we have been facing in recent years. This deterioration reflected the effect of many factors, but the high level of informality in the economy, undoubtedly, provided its contribution to this performance. More concretely, the lack of financial transparency, lack or problems with property titles and those encountered during the execution of collateral contributed to the increase of non-performing loans and were a barrier to our legal and regulatory measures, for their reduction. In addition to the negative impact of informality on the loan performance and quality, it has also negatively affected the borrowers. Taking risks beyond the repayment capacities, not identified as a result of the lack of clarity regarding the financial statements, has also caused credit default, thus making/driving borrowers face with unpredictable situations. For these reasons, the Bank of Albania has commended and has continuously supported the initiatives for increasing the formalization of the economy. We have taken several measures to address informality, which have given their effects over the years. Enhancing transparency and lowering the costs of bank transactions, without affecting the operational independence of banks and their decision-making, has brought households and enterprises closer to the financial institutions. The national plan for the reduction of non-performing loans established a regulatory criterion, as an important task for/to the Bank of Albania. Starting from 2018, lending activity should take into account only tax declarations. This is one of the key elements for addressing informality, also for the significant share of the banking activity in the domestic economy. The Bank of Albania has previously dealt with this phenomenon from a regulatory point of view, but only with large 1/2 BIS central bankers' speeches borrowers. The coordination of efforts with government bodies and appropriate actions taken in this regard have created the necessary space for taking this regulatory measure further to include a broader base of borrowers. The Bank of Albania is confident that this measure will bring long-term benefits for all parties involved in the process. - For the banking industry: crediting based on tax declarations facilitates significantly the lending process by putting banks on a common denominator in reading financial data. This eases the lending activity, providing banks with more clarity in the process of financial analysis and selection of borrowers, as well as exchanging information for common borrowers. - For Albanian enterprises and households: this process promotes transparency, which will be translated into reduction of credit risk and, most importantly, lowering of financing cost. Also, by providing a level playing field, this process fosters competition and efficiency, which, ultimately, contributes to the overall economic development of the country. - For the economy: this process increases the country’s economic and financial stability and creates premises for a simpler tax system and a fairer distribution of the tax burden. Thank You! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 1 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level meeting on the remittances from the Albanian diaspora, Tirana, 11 December 2017. | Gent Sejko: Effectively using remittances sent by Albanians abroad Address by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level meeting on the remittances from the Albanian diaspora, Tirana, 11 December 2017. * * * Dear Minister Majko, Dear guests, Welcome to the premises of the Bank of Albania! I would like first to thank the Minister of State for the Diaspora, Mr Pandeli Majko, for his initiative for higher attention to drawing in and effectively using the remittances sent by Albanians abroad. Today’s meeting is the first in a series of common steps to be taken by Albanian institutions, in an effort to give its due place to the financial contribution by Albanian emigrants to the welfare of their families at home. This contribution is also vital for the sustainable and long-term development of the Albanian economy. The Bank of Albania has always considered the remittances as a very important contributing factor for the economy of Albania and beyond. In this light, the Bank of Albania measures and analyses the available statistics, and conducts non-quantitative assessments related to the geographical distribution of the sources of remittances, at the national and international level. The assessment of factors contributing to the level of remittances and the cyclical volatility of their flows over the years remains at the focus of our work. For Albania, remittances represent a steady and considerable source of inflows, which surpass foreign direct investments, being thus a substantial source of financing economic growth in Albania. In this regard, the Bank of Albania considers remittances as an important source of income in the economy and a contributor to the Balance of Payments. From a narrower perspective, remittances are estimated to have a significant impact on Albanian households, for reducing the poverty and improving the quality of life. Even in the case of Albania, the studies performed by the Bank of Albania and the World Bank show that the income from remittances are allocated mainly for consumption, medication, and education, as well as for savings and investments, the latter mainly for residential properties. In addition to the above, the Bank of Albania treats remittances also from the perspective of their inflow channels in the Albanian economy. Recent studies show that the formal transfer channels dominate, mainly through money transfer financial institutions, and less through banks. In the meantime, remittances in cash remain at high levels, which is worth for an in-depth analysis. The World Bank survey conducted in 2016 concluded that the reasons for the limited use of the banking channels are the high costs on money transfers and the perceived cumbersome and complex procedures. To illustrate my point, according to this survey, the costs of remittances toward Albania are estimated at 9.4 per cent of the amount sent, compared to the 7.2 per cent average in the region. We are all aware that the more financial channels are used, the more finances penetrate in the economy. Moreover, the increase in the use of financial channels contributes to enhancing financial inclusion, increasing the opportunities for savings and productive investments. Taking into account the benefits from the formal penetration of remittances in the economy and the insofar contribution to the banking and financial sector, the Bank of Albania suggests added 1/2 BIS central bankers' speeches attention with regard to reducing transfer costs and improving or designing afresh products and services /targeted to this segment of the population. From its side, the Bank of Albania is engaged to further modernise the payment system infrastructure and align the legislation to the EU directives for an open, barrier-less, and competitive market. In the last two years, the Bank of Albania has been engaging in concrete projects with the World Bank, related to remittances and financial inclusion. The first project consists in an assessment of the compliance with the “General Principles for international remittance services” designed by the World Bank and the Bank for International Settlement and a concrete action plan, with many stakeholders involved, to comply with those fields that need further improvement. Another noteworthy project is the Greenback of the World Bank dedicated to remittances, implemented in several countries across the world. This project comes now to Albania as a receiver of remittance and aims at enhancing the efficiencies in the market for remittances and raising the awareness and financial education, and has Bank of Albania’s endorsement until its completion. The other project consists in assessing the compliance with the criteria set out in the framework of the “Payment aspects of financial inclusion”. By complying with the criteria from the involved stakeholders, it aims to increase the number of households and enterprises (mainly the small ones) that have a bank account or a payments account to conduct various transactions. In addition to the above, for a broader review of the remittances across all its dimensions, the Bank of Albania commits today in the framework of this meeting to produce a dedicated publication, which will be presented every June, a period which coincides with the International Day of Family Remittances, 16 June. Last but not least, considering the coordination among state authorities as very important, as well as the constant communication with the private sector, we are signing today the Memorandum of Understanding. It is aimed at raising the awareness, facilitating dialogue and fostering effective cooperation between the parties on issues related to remittances from the Albanian diaspora, contributing to economic development. The joint engagement we are initiating today is the first necessary step of a development platform for the empowerment and effective use of remittances. In conclusion, I would like to underline once again that it is time that we show more care, appreciation and gratitude to tens of thousands of Albanians abroad, who, through sacrifice, continue to contribute to the welfare of our nation, sending a part of their savings to their families back home. We invite the banking industry and other actors in the financial system to contribute to this initiative, with concrete vision and products, taking into account that you can play a special role in effectively mobilising remittances. Reasserting our institutional support and commitment for this initiative, I am confident that this will be an on-going dialogue to facilitate every undertaking in the aspect of remittances. Thank you for your attention! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 1 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting organised by the Albanian Association of Banks, Tirana, 21 December 2017. | Gent Sejko: Economic and financial developments in Albania during 2017 and objectives for 2018 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting organised by the Albanian Association of Banks, Tirana, 21 December 2017. * * * Honourable AAB Chairman, Dear banking system executives, Dear friends and colleagues, As always, it a pleasure for me to be together with banking system executives in Albania, in this annual end-of-year event organized under the auspices of the Albanian Association of Banks. In my address, I would like to briefly focus on highlights that have characterised the economic and financial developments in Albania over 2017, as well as on some of our objectives for 2018. Albanian economy The Albanian economy seems to be experiencing an overall positive moment of recovery, from both the global and the regional perspective. Economic activity continued to grow reflecting the favourable financial environment, improvement of confidence, impulses generated by employment gains and the high levels of foreign direct investments, as well as the positive momentum in the economies of our trading partners. In terms of aggregate demand, growth was driven by the expansion of private consumption and investments, and the improvement of the balance of trade with abroad, especially in the third quarter. In response to the improvement by around 10.5% of the trade deficit in goods and services, the current account deficit fell to 4.6% of the GDP in the third quarter, one of the lowest levels in the last decade. On the other hand, the fiscal stimulus is estimated to have trended downward in the third and fourth quarters, albeit budget revenues and expenditure have continued to record high growth rates. The constant expansion of the aggregate demand has led to an increasingly higher utilisation of production capacities. The unemployment rate fell to 13.6% in the third quarter, down by 1.1 percentage points from the same quarter in the previous year. However, the gradual convergence of the economy toward its equilibrium is yet to be accompanied by upward inflationary pressures, sufficient enough for the return of inflation to target. Our accommodative monetary policy stance has reduced the costs of financing for the private sector, has boosted crediting in the domestic currency and has contributed to the improvement of the borrowers’ financial situation. In the last months, financial markets have performed relatively calm, amid low interest rates, controlled risk premia and the exchange rate set on a stabilisation trend. Banking system Year 2017 was positive in terms of the expansion and soundness of banking activity in Albania. A quick glance at the performance in the 10-month period corroborates this conclusion. Banking sector’s assets expanded further during the period, at 4%, in annual terms. The financial situation of the sector and activity capitalisation improved. Due to the considerable fall of loan provisioning, the financial result improved notably compared to the previous year. Also, the RoA and RoE indicators doubled at 1.6% and 16.3%, respectively, from 0.74% and 7.8%, in the previous year. 1/3 BIS central bankers' speeches The liquidity situation appears stable, and its indicators continue to be at good levels. In annual terms, the deposits base expanded by 2.7%, reflecting a shift in the maturity structure. Against the backdrop of low interest rates, time deposits fell at 2.1%. By currency, both lek and foreign currency deposits increased by 1.4% and 3.9%, respectively. Outstanding credit expanded from a year earlier by 0.8%. Long-term credit dominated, whereas short and medium-term maturities shrunk. Credit to households expanded by 4.6%, whereas credit to enterprises contracted by 1.7%, from a year earlier. One of the highlights of this year is the reduction of the non-performing loans ratio at 14.4%, compared with 18.23% at the end of the previous year. Now, after a relatively successfully period, the coordinated plan that we undertook together to reduce the stock of non-performing loans seems to have yielded the expected results. Therefore, in addition to the loss loans write off from the balance sheet, great results have been also achieved regarding the repayment and restructuring of non-performing loans. A number of regulations and other bylaws have been approved by the Supervisory Council of the Bank of Albania, throughout 2017. They aim at improving the banking activity in terms of efficiency, risk management, transparency and depositors’ protection. A special moment was the establishment of the Resolution Authority in Albania and of the Resolution Fund, which will receive regular annual contributions by the baking sector. Dear banking system executives, As I mentioned above, this is a good moment, while the future still bears some questions. The economy is not exempt from this overall consideration. I take the opportunity to bring to your attention the fact that the institution each of you represents has a certain role to play in the everyday economic and financial life of the country. Now that we know the already-announced objectives of the Government of Albania for 2018, it is understandable that 2018 is a rather challenging year to further boost economic recovery and strengthen the financial stability of Albania. From this perspective, I would like to affirm that, like in 2017, in 2018 the Bank of Albania will continue to focus on: guaranteeing a stable economic environment, keeping inflation rates in check, and having liquid markets with low volatility. The monetary policy will aim at an adequate supply, in terms of both quantity and price. The final monetary policy objective will be unchangeable, while the accommodative stance implemented in the past years will be present during 2018. boosting credit recovery in Albania. We believe that the further boosting of the economy provides a friendly environment for lending to the economy. In addition, we will continue to insist in the implementation of the joint programme for the reduction of non-performing loans. In this light, we expect the banking system to be proactive in lending to the economy. strengthening banking supervision and guaranteeing financial system stability, one of the fundamental objectives of the Bank of Albania activity. As in the past, we will be constantly in search of the best international rules and practices that aim at having a financially sound banking sector, capable of supporting economic development in Albania. De-euroization of the Albanian economy. The measures that we have jointly designed will enter into force in the first half of 2018. Therefore, we should also try together to maximise the expected results, translating them in practice in greater confidence and higher use of the national currency in the economy. 2/3 BIS central bankers' speeches continuous communication with the sector, regarding Bank of Albania’s decision making. The dialogue with the banking industry is considered as a crucial factor in helping to identify the problems, guaranteeing the implementation of the legal framework, and overcoming the challenges. increasing financial inclusion and deepening financial education. Alongside with the regulatory and supervisory role, financial education is and will continue to be another important aspect of our everyday work. We consider it as one of the main pillars of the economic and social development of Albania. Concluding, I would like to reassure you that, the Bank of Albania will continue to be a serious and devoted partner. I wish you a successful and prosperous year for you and your families. Thank you! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 1 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Tirana Economic Forum "Future Balkans: Towards a global inclusion" Leadership, Institutions and Policies Convergence 2017-2020, Tirana, 24 January 2018. | Gent Sejko: Future Balkans - towards a global inclusion Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Tirana Economic Forum "Future Balkans: Towards a global inclusion" Leadership, Institutions and Policies Convergence 2017-2020, Tirana, 24 January 2018. * * * Your Excellency Mr President, Your Excellency Deputy Prime Minister of Albania, Your Excellency Deputy Prime Minister of Kosovo, Honourable Minister of Finance and Economy, My fellow Colleagues and Honourable Participants, It is a pleasure for me to participate at this Conference, convened to discuss on the importance of regional integration, which should be promoted by a forward-looking leadership and supported by the policies convergence. I believe that the dialogue that focuses on sharing our vision for the future, the convergence of perspectives about the challenges ahead of us, and identifying the objectives and drafting agendas for joint action, will be a fruitful dialogue to all of us. Policy convergence, both within and between countries, promotes efficiency and minimizes negative spill-overs. The role of institutions in the growth and development Institutions are the backbone of any modern society, in as much as they generate and implement laws, regulations and policies of development, thus laying out the rules of the game in a market economy. From a broader perspective, these rules should provide for a stable and transparent environment, thus enabling a predictable and long-term decision-making process. They should promote fair competition and equality of opportunities, and they should engender fairness and social cohesion. It is clear that richer economies and stable societies tend to have stronger and more stable institutions. It is, therefore, my belief that our region should not subscribe to an ‘organic model’ of institutional growth. By ‘organic’, I mean a growth model where institutions catch up to economic development, and tend more to ensure a certain level of prosperity rather than instigate it. To the contrary, I believe institutions and policies should lead the growth and development processes. In this context, our task as policy makers is to define goals, to identify impediments, and to undertake the required countermeasures. This, in essence, is the role of leadership. Let me illustrate my point with just a few examples of the challenges facing us as a region: First, problems with the business environment, including corruption and informality, rank high on the list of growth impediments, both in Albania and in the region. Second, our economic and financial stability should be further enhanced, in order to increase our resilience to shocks and to decrease our financing costs. Third, it is becoming increasingly clear that our financial systems have become over-reliant on banks. Looking ahead, we should rely more on capital markets in order to finance 1/3 BIS central bankers' speeches domestic growth. Fourth, a common complaint frequently heard from potential foreign investors is the limited attractiveness of small and fragmented markets. While partly incorrect, we should do more to increase our trade and infrastructure integration. Fifth, in competing for the same pool of international investors, countries in the region often attempt to raise their individual profile through offering tax break or other subsidies. This race to the bottom does not prove to be productive. Resolving any of these issues requires foresight, strong institutions, determined policy action, and regional coordination. Institutions and integration Our region is actively involved in the EU integration process. This objective is the lighthouse for our institutional reform efforts and has produced notable benefits. The EU integration is aiding authorities in the region to anchor their institutional reforms and policies. On the other hand, the EU institutions provide oversight and lend credibility to the process. Additionally, since individual countries are working towards common objectives, regional policy is better coordinated. However, I also believe countries in the region could do more to share their experiences and learn from each other. Albania offers a positive example in terms of economic and financial stability. Macedonia has done exceptionally well in terms of attracting high-value-added FDIs. Serbia is on the regional vanguard of financial market development. All of us should learn from our individual success stories; all of us should avoid mistakes we have individually made in the past. Our countries share more commonalities than differences: what works for one is more likely than not to work for others, and vice versa. Furthermore, I believe we should look at regional integration as a goal in itself, rather than as an instrument to EU integration. Joint EU integration would supersede certain regional integration frameworks, such as trade and factor mobility, but it would not supplant the need for further policy dialogue and common regional perspectives and solutions. Let me now to briefly describe the role of institutions in structural reforms in Albania. Institutions and structural reforms in Albania It is virtually impossible to do justice to the breadth and depth of reforms in Albania over the limited allotted time. Therefore, I will try to highlight only its main items. In order to improve our business environment, the Albanian authorities have engaged in comprehensive reforms of the property rights, of the tax regime, of the electricity sector, of the general infrastructure, and remain engaged in the fight against informality. The most recent measure in this regard is a banking sector regulation that aims to put an end to the practice of lending through uncertified company balance sheets. Further, to enhance efficiency and tackle corruption and informality, a determined drive to improve the functioning of the public administration, which broadly speaking encompasses also the judicial system reform, has been undertaken. In order to increase economic stability and to improve financial resilience, we have initiated a wide ranging set of reforms. To that end, the Government has improved its public finance management procedures, has adopted a fiscal responsibility framework, and has undertaken measures to reduce debt. The Bank of Albania has strived to model itself after the ECB. Its professionalism has increased while its independence, transparency and credibility have all improved. Through a joint effort of institutional stakeholders, we have 2/3 BIS central bankers' speeches managed to reform the Financial Supervisory Authority and enhance the role of the Deposit Insurance Authority. Together with the Albanian government, we have implemented a comprehensive NPL resolution strategy, which has already brought encouraging results, we have approved a Bank Resolution Law and we have jointly designed a de-euroization strategy, aimed at tackling financial vulnerabilities, improving the transmission mechanism and intensifying the use of the domestic currency. We have also established a new interinstitutional Financial Stability Advisory Group, vested with coordination powers on systemically-important stability–related issues. In order to further develop financial markets, the Albanian authorities have accelerated the development of capital markets, through the establishment of the Albanian Stock Exchange, the licensing and functioning of several investment and asset management funds, the encouragement of the on-going consolidation in the bank and non-bank financial institutions, the tax encouragement of private pension schemes, the on-going efforts to improve the functioning of secondary markets for government papers, etc. However, I am convinced the sharing regional experience would result in an additional impetus to the process. Furthermore, regional solutions can be sought to common problems. This brings me to my last point. Improving regional cooperation Coordination and cooperation cannot run standalone in an ever integrated and intertwined world. The same concept applies to our region, where policy initiatives, aimed at achieving a common objective, should be implemented jointly. Let me highlight a few potential cooperation areas: First, I believe there is scope for greater regional dialogue and greater policy convergence, at all relevant areas of public policy and private sector development. Second, I believe there is more to be done in order to finish the job of regional integration. In particular, standards on products and services should be agreed upon. Third, beyond the convergence of financial development policies, I remain convinced we should explore the idea of joint financial development projects. Although fraught with difficulties, a regional stock exchange is a meaningful potential project. Fourth, I believe the region should strive towards establishing the lowest acceptable common denominator in terms of tax, labour market, financial sector, and environment regulation. ‘Beggar-thy-neighbour’ policies through constantly undercutting each other in any of these areas are only damaging the region in the long term. Fifth, the regional infrastructure remains rather fragmented. This refers not merely to the transport infrastructure, but also the electricity and IT network. Honourable participants, Some of the issues I professed here might seem utopian or unrealistic. However, I remain convinced that through an honest common endeavour, such ideas might, someday, in the nottoo-distant future, become reality. Thank you! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 1 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Money Week 12-18 March 2018, Tirana, 12 March 2018. | Gent Sejko: Bank of Albania’s engagement in financial education Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Money Week 12-18 March 2018, Tirana, 12 March 2018. * * * Dear Mr Pedrazzi, Dear students, teachers and friends of the Global Week, Like in previous years, I have the pleasure to welcome you today to our central building, and thank you for your participation in the Money Week 2018. This is a special year as it marks a decade of Bank of Albania’s engagement in financial education, which meaningfully started with a Memorandum of Cooperation signed with the Ministry of Education. Over these years, financial education and financial inclusion have increasingly held a significant place in our work, in designing and implementing numerous educational projects. They are dedicated to different age groups, and consist of a variety of initiatives ranging from training and brochures to the high school elective module “Personal Finance in Your Hands”, the educational package for the elementary schools and the Albanian Money app. Moreover, the Museum of the Bank of Albania, our utmost effort in this regard, offers/provides a multifunctional space, where visitors may not only learn more about the monetary history in Albania and the central bank, but also deepen their financial literacy and expand their financial awareness. As a result of all these valuable experiences, we have been able to participate with dignity in the Money Week, which, in 2018, is celebrated in more than 135 countries. The week of 12–18 March 2018 is internationally known as the Money Week. Initiated by Child and Youth Finance International, with the support of the Organisation for Economic Co-operation and Development (OECD), and adopted by more than 23.000 organisations across the globe, the Money Week is an annual financial awareness campaign built to inspire children and young people to learn about money matters, livelihoods and entrepreneurship. The celebration of this Week aims at raising the awareness of the younger generation to be responsible future citizens and capable of making well-informed financial decisions Following the tradition from the previous years, the Bank of Albania, in cooperation with the Albanian Association of Banks, with the support of the Ministry of Education, Sports, and Youth, like many other institutions worldwide, will organize various activities to involve children and young people, teaching them how to manage money, to save money, to think financially, to understand the changes in the economic systems where they live, to earn income through entrepreneurship, and set the foundations for their future through financial literacy. In the light of these objectives, during the Week, a number of activities will be organised such as lectures, contests, and visits to commercial banks and the Museum, aimed at including as many students as possible. This year’s motto “Money: You reap what you sow” highlights the importance of money matters as a necessary means to achieve and maintain welfare. The activities that will take place during this Week seek to draw the attention of the children and young people to the significance of personal finance and the impact of well-informed decisions on the personal success of each one of us individually, and of the whole society. 1/2 BIS central bankers' speeches Like in any other educational activity of the Bank of Albania, beyond the message that we want to convey, we consider that the inspiration, originality and pro-active thinking are determinant elements for an effective comprehension of a complex, at the same time practical, topic such as finances. We may proudly say that all the submissions for the contests are characterised by these elements, thus demonstrating that, though challenging, the financial education of children and young people may be and is possible. Moreover, their work and commitment is an incentive to us to introduce more ambitious projects and expand this activity, geographically, each year. The contests for students from nine-year schools and high schools have been welcomed and the number of participants has been higher each year. This year, around 55 nine-year schools, 14 high schools, 8 universities and over 1000 pupils and students in 14 cities were involved. This success is also owed to the teachers and professors, whose passion has contributed to materialising all these efforts. Concluding, I would like to thank you all for the insofar cooperation and avail myself of the opportunity to invite all the participating institutions to continue and intensify the cooperation in the future, in the commitment to contribute to the future generations and the Albanian society. 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 3 |
Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the EBRD Transition Report 2017-18, Tirana, 11 April 2018. | Gent Sejko: Launch of the EBRD Transition Report 2017-18 Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the EBRD Transition Report 2017-18, Tirana, 11 April 2018. * * * Dear Mr Colangeli, Dear Mr Sanfey, Dear participants, It is a special pleasure for us to host again the presentation of the Transition Report 2017–18 by the European Bank for Reconstruction and Development. The Transition Report 2017–18 addresses some very important issues for transition economies, such as convergence of firm dynamics and productivity, the importance of road infrastructure to economic growth, and the new opportunities from the green economy. It is a pleasure to note that the Report presents a positive assessment of the developments in the region. After some years of anaemic growth, the economic activity in the region shows recovery and the prospects remain positive, notwithstanding the geopolitical concerns and the internal and external challenges we face. Some regional countries grew faster than other countries around the world, of similar development level and market size. The capital inflows have been relatively considerable, driving to the narrowing of the interest rates spread in the region compared with those in large economies. More importantly, it seems that inflation is gradually returning to target levels and the accelerated economic growth in the Western Balkans is supported by bank lending and some major infrastructure projects. Nevertheless, the Report notes that productivity growth slowed down; hence, the firm dynamics is identified as one of the main issues that should concern our region. The main reasons of these developments seem to derive from some factors: First, the low capacity of markets and firms to regenerate, decelerates the replacement of non-productive firms with new innovative ones, and hinders the efficient allocation of resources. Second, small firms do not succeed in increasing their output or the number of employees. Studies show that their productivity is rather lower compared with larger firms. Smaller firms make up the majority of producing entities – around 80% in EBRD region, and 95% in Albania. For this reason, more should be done for the integration of smaller firms into global production networks, finding human capital, access in the financial system or capital markets. The Bank of Albania deems that the development of the financial system is indispensable for the economic development of the country. In this regard, through our policies, we are trying to encourage a more efficient allocation of bank lending, in order for it to be less fragmented or concentrated in certain sectors of the economy. Also, we are closely monitoring the financial and borrowing situation of micro-economic firms, including those in the agricultural sector. These firms have a considerable share in the gross value added and in the number of employed persons in Albania. Our recent surveys show that the primary concerns of smaller firms are: unfair competition; difficulties in finding markets to sell the products; and, to a lesser extent, limited access in financing or the cost of providing banking products and services. 1/3 BIS central bankers' speeches We are aware that the growth of productivity, in particular for smaller firms, is very important for the economic convergence of Albania. The fulfilment of needs for investing capital is a main challenge for small producers, as they have less or no borrowing history in the financial system. For this reason, the analysis with micro data are already subject of discussion in the activities and conferences organised by the Bank of Albania, to understand the needs of small firms and how we can help to improve the infrastructure, aiming to increase their financial inclusion in the future. Productivity is important as it determines the convergence speed towards the advanced economies. So far, the productivity convergence of our countries with advanced countries is guided mostly by a re-allocation of resources from state-owned firms to private firms. Nevertheless, this process has not succeeded to move further forward to the development of innovative products. Unless these trends change, the Albanian and regional firms will likely lose competitiveness against their EU partners. Overall, it means that the economic convergence and the equality of income with EU countries will be considerably delayed. In a more specific aspect, the European integration processes will slowdown, as far as our firms will not be able to withstand the competitiveness pressures. For this reason, I think that the regional and Albanian authorities should continue with the implementation of structural reforms, which aim to: Increase the formalisation level of the economy, as a tool for raising competitiveness, for promoting consolidation, for improving the governance of firms, and for lowering their financing costs; Promote the development of firms in fields where the region and Albania provide competitive advantages, such as tourism or the agro-industry, and in those fields that have high value added, such as the information technology or the financial services. Development capital markets, as a tool to support new and innovative firms and as a partner to share the financial risk of entrepreneurs in the stage of the expansion and development. Dear participants, Let me emphasise that, notwithstanding the focus on the future challenges, the report shows optimism for the region. It notes that, unlike the other emerging economies, the presentation of productive industries will contribute to the increase of employment. Also, the regional integration in industry has the capacity to generate growth of productivity, to better compete with the imports and contribute to the growth of regional exports. The institutional adoption and convergence is considerably important for the integration of Albanian firms in the global output chain, and for strengthening their sophistication and specialisation in the global market. Another potential for the transition to an innovation-based economy is “The green economy”, where the convergence capacity of the existing producing processes in other processes releasing less carbon may be considered as an opportunity for the further development of our region. Regarding the future, the report assesses positively the reforms undertaken by the Albanian authorities. The macroeconomic environment is assessed as stable and prospects show the positive growth pace will be maintained. Trade, construction, transport and industry, as well as the narrowing of the deficit in the external sector of economy contributed most to the economic growth in 2017. At the same time, the financial system activity continued to reflect considerable improvement and showed good resilience to operational risks. The indicators of financial result, capitalisation and liquidity evidence the considerable improvement of credit quality and show the importance to continue the implementation of the measures undertaken by the Bank of Albania. 2/3 BIS central bankers' speeches Also, the Report evidences that the projects and investments in infrastructure have contributed to economic integration of Albania with regional countries, providing a positive effect on higher productivity and more opportunities. We assess that TAP investment will provide positive effects on the energy infrastructure and will contribute to higher productivity through lower costs and covering the needs for energy capacities, thus reducing one of the structural weaknesses of the Albanian economy (the reliable supply with energy). Concluding, I would like to highlight the suggestions found in the report that it is now the time for the financial sector to focus on firms, as the basis for employment, innovation, productivity and economic growth. Thus, the development policies should focus on the firms and their future, as a source of convergence growth. The economic development policies and priorities, at micro and macro level, should focus on: the improvement of the institutional and financial infrastructure; the development of the capital market; the investments in infrastructure; and, the regional integration. * * * Dear participants, The EBRD Transition Report 2017–18 is an important document to all of us. Irrespective of our status as decision-makers, policy-makers, researchers, academics or journalists, the Report provides ample information to further corroborate our analyses and conclusions. I invite you to further read the Report and materialise its conclusions rationally and responsibly in your analyses for the present and the outlook of our economy, and beyond. Thank You! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 5 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2017 to the Parliamentary Committee on Economy and Finance, Tirana, 10 April 2018. | Gent Sejko: Albania's economic and financial developments in 2017 Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2017 to the Parliamentary Committee on Economy and Finance, Tirana, 10 April 2018. * * * Honourable Chair, Honourable Members of the Committee, Thank you for your invitation! I have the pleasure of presenting today the work and the achievements of the Bank of Albania over 2017. I would like to start my presentation emphasising that 2017 was marked by progress in the Albanian economy and the financial system. According to Instat data: the Albanian economy grew by 3.8% in annual terms and created around 79 thousand jobs in the private nonagricultural sector, the unemployment rate and the current account deficit decreased, whereas inflation has been trending up. In parallel to developments in the real sector, interest rates in the financial markets remained low and soundness indicators of the banking system have been improving. In particular, the ratio of non-performing loans fell to 13.2% at the end of the year, down by around 5 percentage points from a year earlier. All these indicators show the cyclical position has improved and provide encouraging signals regarding the outlook on economic growth. The Bank of Albania provided its contribution to the improvement of the economic and financial landscape. This contribution was materialised through: Implementing an accommodative monetary policy stance, which supported economic growth, increase in employment and wages, and rise in inflation; Prudential supervision and proactive approach to banking regulation, contributing to the improvement of banking sector indicators; Enhancing the banking system security, by establishing specialised structures to administer the necessary interventions and restructuring in banks facing solvency difficulties; Promoting the development and efficient functioning of the payment system; Promoting financial education; Further fostering the institutional capacities of the central bank, through constant investment in enhancing professional skills, independence, accountability and transparency, as well as through cooperation and exchanging information and opinions with Albanian and international partners. Our activity in 2017 was guided by the Medium-term Development Strategy 2016–2018. In addition, the Bank of Albania has paid particular attention to the implementation of the recommendations left by this Committee in the Resolution “On the assessment of the activity of the Bank of Albania for 2016”. Let me first present an overview of the activity of the Supervisory Council, the highest decisionmaking body of the Bank of Albania. 1. Activity of the Supervisory Council and strengthening institutional governance The Supervisory Council has conducted its activity in line with the provisions of the organic law and the procedures established in the internal regulation on its organisation and functioning. 1/9 BIS central bankers' speeches In 2017, the Supervisory Council held 15 meetings and took 82 decisions. In addition, it approved 29 regulations and 1 guideline for general application. The highest body responsible for the Bank of Albania, the Supervisory Council has paid attention not only to complying with the legal obligations of the Bank, but also to strengthening the institutional governance, as an essential precondition for enhancing its credibility. In 2017, the Medium-term Development Strategy of the Bank of Albania, together with the medium-term budget, was updated. The Medium-term Development Strategy of the Bank of Albania sets out the main objectives for the 2018–2020 period. It establishes the priorities in the main functions of the Bank of Albania and development of auxiliary services. Thus, the Bank of Albania has adopted the model of a number of banks of the European System of Central Banks, which have a twofold strategic planning system: (i) a major planning process, once in 3-5 years; and (ii) a yearly update. The span of the application ensures adequate planning support for the guiding medium-term budget of the Bank of Albania for 2019 and 2020. For the first time, this year the capital expenditures and the projects included in the budget were preliminary approved by the Capital Expenditure Committee, a body established as a control measure over major expenditure and investments. With a view to strengthening the internal audit process, the Audit Committee was established in 2015 and is composed of three members of the Supervisory Council. In 2017, this Committee exercised its duties with a view to support the strengthening of internal and external control lines. It met regularly, without the presence of the administrators, with the Inspector General. These meetings enabled the members of the Committee to learn about the internal control systems and risk management procedures. Upon the proposal of the Inspector General, and following consultations at the Audit Committee, the Supervisory Council approved, for the first time, the level of tolerance to the operational risk at the Bank of Albania. The activity of the Supervisory Council has been faithfully published in our periodic press releases. 2. Monetary Policy of the Bank of Albania The monetary policy decision making is based on a comprehensive, consistent and transparent set of macroeconomic analyses and forecasts. They are supported by the whole range of information available at the time of decision making, and the expertise and judgement of the Bank’s experts on the trends of economic development and the monetary policy pass-through mechanism. I will elaborate on the underlying reasons of our decision making to maintain the accommodative monetary policy stance in 2017 and the assessment of its effects on the economy in the following. 2.1 Economic developments and monetary policy in 2017 The Albanian economy performed positively throughout 2017. The volume of economic activity trended upward, spare capacities in the labour market reduced, while the main indicators of economic and financial stability improved. Following are presented a few figures to illustrate it. According to Instat statistics, the volume of economic activity grew 3.8% in 2017, registering a positive dynamics compared to 2.2% and 3.4% growth in 2015 and 2016. The economic activity expanded on a broad base. From the aggregate demand, it was driven by the growth in consumption, investments and exports. The services, industry and construction sectors mainly benefited from this expansion of aggregate demand. A notable development in 2017 was the positive performance in tourism, which provided a positive impetus to economic growth. Together with the high levels of foreign direct investments, it contributed also to the 2/9 BIS central bankers' speeches increase in foreign currency inflows in the Albanian economy. Employment increased by 3.3% in 2017, driven largely by the increase in the services sector. In parallel to the increase in employment, the unemployment rate fell, from 14.2% at the end of 2016, to 13.4% at the end of 2017. The decrease in the current account deficit averaged 6.9% of the GDP in 2017, against the 7.6% registered in the previous year. Its improvement reflected the increase in tourism and other services of the business. Fiscal indicators marked consolidation, reflecting a low level of budget deficit and the maintained control over the public debt. From the financial aspect, the Albanian banking system maintained good indicators of liquidity, profitability and capitalisation. The financial situation of enterprises has been improving, as illustrated by their high liquidity levels and the progressive decline in the nonperforming loans ratio. Lastly, inflation has been upward, averaging 2.0% from 1.3% in the previous year. The upward inflation reflected the improvement of economic activity, but its undershooting continues to reflect the operation of the economy below the potential, the low level of inflation in trading partner countries, as well as the strong exchange rate. I would like to focus on the last item – the exchange rate. The appreciation of the Albanian lek over the last two years has been at the focus of the Bank of Albania, as a result of a comprehensive impact of this factor on the overall economic and financial indicators, including inflation. Our analyses show that the appreciation trend of the exchange rate reflects the improvement of fundamental factors, such as narrowing of the trade deficit and of the current account deficit, high levels of foreign currency inflows in the form of foreign direct investments, and the improved confidence in the national currency in the domestic financial market. For as long as such appreciation reflects the effect of stable economic and financial factors, it does not lead to harmful consequences for the Albanian economy. However, its effects appear in the form of reduced inflationary pressures in the domestic market. The appreciation of the Albanian lek is estimated to have reduced the inflation rate for 2017 by 0.2-0.3 percentage point. In the context of the not-yet-complete utilisation of production capacities and of low inflationary pressures, the Bank of Albania maintained the direction and intensity of the monetary stimulus unchanged over 2017. The policy rate maintained the low historical level at 1.25%, creating thus the conditions for the reduction of the costs of financing for the real sector. Liquidity injection in the interbank market increased in terms of average volume and duration, enabling thus a normal functioning of the financial markets. The accommodative monetary policy was successful in boosting domestic demand, which was the main driver of economic growth. The effects of the monetary policy on the economy were present in several aspects: First, lower costs for financing consumption and investments. The cumulative reduction of the policy rate by 5.0 percentage points since the beginning of 2009, has been accompanied by the cumulative drop in interest rates on loans, 12-month Treasury bills, and deposits in lek, by 6.9, 4.5 and 6.6 percentage points, respectively. Low interest rates have increased demand for new loans, and decreased the cost of servicing the existing loans. In response to them: The volume of lek credit to the private sector increased by 7.2% in 2017, being the main contributor to total credit growth. The growth rate of the latter was only 3.3%, in response to the still sluggish credit demand and still conservative lending policies applied by banks. The cost of servicing the existing loans was reduced. This financial saving creates scope for increasing consumption and investments, through the use of own funds. 3/9 BIS central bankers' speeches Second, reduction of uncertainties among economic agents. The forward guidance on the monetary policy stance has guaranteed the private sector that the monetary stimulus will remain present in the quarters ahead, promoting their orientation toward consumption and investments. Third, mitigation of appreciation pressures of the exchange rate, contributing to the improvement of the balance of trade exchanges and further growth of economic activity. Fourth, strengthening of financial stability. The financial environment with low interest has improved the financial balances of borrowers, through bolstering the aggregate demand, easing the cost of debt servicing, as well as encouraging the restructuring of businesses and of existing loans. Our assessments on the monetary policy impact show that its contribution to economic growth for 2015, 2016 and 2017 is around 0.2, 0.4 and 0.7 percentage point, respectively. In addition to the impact on growth rates, the positive contribution of the monetary policy has a cumulative impact on the level of economic activity. For 2017, the effect of the accommodative monetary policy on the level of economic activity in Albania is estimated at around 1.3 percentage points. Growth in aggregate demand has led to higher employment and improved capacity utilization rates, boosting medium-term inflationary pressures; however, inflation remains below our target. The persistence of low inflation has been at the focus of our analyses. The consensus of these analyses is that the monetary policy has been and remains effective for boosting aggregate demand and guaranteeing price stability in the medium and long term. Against this backdrop, the Bank of Albania remains confident that the return of the economy to its potential and the fuller utilisation of production capacities will be accompanied by faster increase in wages and productions costs. Inflation is, therefore, expected to return to the target within 2019. This forecast is conditional to maintaining an accommodative monetary policy stance in the quarters ahead, and takes into account the continuation of the fiscal consolidation process. The continuation of fiscal consolidation has enabled a better transmission of the monetary stimulus to the economy and has helped reducing fiscal weaknesses and increasing the resilience of the public sector against future challenges. The coordination of the monetary policy with the fiscal policy is vital for strengthening the macroeconomic stability and ensuring sustainable growth. We deem that the current macroeconomic policy mix is adequate. On one hand, it maintains a stimulating resultant trend of main economic policies and, on the other hand, it addresses the weaknesses deriving from the relatively high level of public debt. *** Honourable Committee members, In response to your recommendation for on-going improvement of the monetary policy transmission mechanism, let me share with your some obstacles we have identified as well as our matrix with actions for addressing them. 2.2. Monetary policy and its transmission mechanism In our judgment, the pass-through of the monetary policy effect to financial markets and the economy, in other words the transmission mechanism, continues to suffer from three structural obstacles. The first obstacle is the relatively high level of the euroization in the Albanian financial 4/9 BIS central bankers' speeches markets and economy. The high euroization renders the monetary policy pass-through more difficult, as it reduces its scope and exposes the private agents and the financial system to exchange rate volatility. Aware of this fact, the Bank of Albania, the Ministry of Finance and Economy and the Albanian Financial Supervision Authority signed a Memorandum of Cooperation on increasing the use of the national currency (ALL) in the Albanian financial system and economy. In this (published) document, in the framework of the de-euroization objective, all the signatory institutions commit to identifying and undertaking actions within their area of competence. In this framework, the Bank of Albania identified a package of measures that envisage the implementation of differentiated rates for keeping the required reserve for banks’ liabilities in foreign currency and in the national currency. This measure is aimed at encouraging financial intermediation in lek through a relative reduction of its cost. Furthermore, banks will be required to comply with higher liquidity requirements for liabilities held in foreign currency. To raise the awareness of borrowers in foreign currency about the potential risks of this form of borrowing, banks will be required to explain by concrete examples foreign currency credit risks and provide borrowers with an alternative and comparable credit in lek. The proposals for these measures are discussed with the banking industry and the necessary amendments to the regulatory acts have been prepared. The second obstacle is the still-low appetite of banks to expand lending. This behaviour continues to reflect the effect of two factors: (i) deleveraging policies for reducing exposure in the countries of the region, including Albania, implemented by parent banks from the euro area; and, (ii) perception of credit risk at home. While banks’ balance sheets have improved and the credit risk has diminished, the policies for reducing their exposure in countries outside the EU remain conservative. Such policies reflect also EBA’s new supervisory rules on reducing the exposure of European-based banking groups in South East Europe. In the context of addressing this issue, the Bank of Albania has signed a memorandum of cooperation with the European Banking Authority College in 2015, on exchanging information and harmonising supervisory policies. Regarding non-performing loans, the Bank of Albania continues to be committed to implementing the measures set out in the national plan for reducing them. The reduction of the credit risk, in parallel with the improvement of the banks’ balance sheets and economic growth, should be accompanied by more realistic lending policies by the banking system. This is a recurring appeal I have made in my public appearances. The implementation of such policies would create the conditions for fulfilling the needs of the economy for financing, which are expected to be upward in the future. The third obstacle is the development level of financial markets and the narrow range of financial instruments. In 2017, the Bank of Albania, in cooperation with the Ministry of Finance and Economy and the World Bank explored options for developing the secondary market of Government securities and improving the functioning of the primary market. This project will help in the Government securities trading, increasing the investors’ base, and forming a yield curve that is a representative one for the economy. Such a curve enables a better management of liquidity for all the financial agents, as well as a better monetary policy transmission to financial markets. I would like, however, to underline that the development of markets is a long process, which requires cooperation by all economic and financial agents in the economy. *** Turning to the contribution of the Bank of Albania in the overall improvement of the financial and economic context, I would like to present now our work with regard to safeguarding and promoting financial stability. The main aspects of our work consisted in strengthening the stability 5/9 BIS central bankers' speeches of the banking system, enhancing its resilience to shocks and adoption of international standards. 3. Financial stability and banking system performance In 2017, the activity of the banking system was stable and supported the safeguarding of the financial stability. As at the end of 2017, the share of its assets stood at 92.5% of the Gross Domestic Product (GDP). The main financial indicators of the banking sector activity improved, and the net financial result of the banking sector grew considerably in 2017. The return on assets (RoA) of the system increased at 1.54%, in December 2017, from 0.7% a year earlier, whereas the return on equity (RoE) increased at 15.7%, from 7.2%. The capital adequacy ratio was 16.6% at the end of 2017, up by around 0.2 percentage point from a year earlier. The monitored indicators show a mitigation of risks to financial stability. In particular, credit risk fell considerably during 2017, as shown by the fall in non-performing loans. The liquidity risk continues to be low, while the banking system’s exposure to market risks remains significant. Notwithstanding the positive developments, the Bank of Albania has continued to work for improving its supervisory capacities and further strengthening the regulatory framework. The macro-prudential policy strategy was compiled and approved in 2017. The implementation of the macro-prudential policy was coordinated with a prudential and pro-active supervision. The supervisory practice improved regarding the methodology for banks control, the approximation of standards with Basel principles and the efforts to adopt the best international practices. Let me now focus on the preparation of the regulatory framework on the Internal Capital Adequacy Assessment Process. This framework was prepared in the light of Basel principles and EU directives. The Internal Capital Adequacy Assessment Process is particularly important, as its complements the supervisory perspective with the self-assessment dimension of banks. Significant changes have been made regarding the prevention process of money laundering, through the revision of the relevant regulatory framework. The revision of the supervisory methodology on the qualitative assessment of the corporate governance in banks, of the functioning and independence of their committees, of the internal audit structure in assessing the risks and their functioning continued during 2017. In this project, we partnered with the European Bank for Reconstruction and Development. Notwithstanding the progress made in reducing the non-performing loans, attention has been paid to the achievement of banks’ annual objectives regarding the situation of non-performing loans and the compilation of the Recovery and Resolution Plans for larger borrowers. Banks report regularly to the Bank of Albania on the level of their relationships with every borrower, as well as the expectations and plans on future developments, in compliance with our requirements. With assistance from the World Bank and the International Monetary Fund, a regulatory framework, aiming to encourage the collaboration and coordination of banks for addressing common borrowers, is being compiled. Special attention is being paid to the consolidating processes with the expected merger of two banks in Albania and the strategic plans on the re-positioning in the market depending on the dominant short and long-term factors. In parallel with the work to improve the regulatory framework and the adoption of the best international standards, high priority has been given to on-site examinations. During 2017, fourteen full-scope and partial examinations were performed in banks, non-bank financial institutions, and savings and loan associations. The examinations showed that the performance of the banking sector improved in terms of: the quality of internal policies and their 6/9 BIS central bankers' speeches implementation; the establishment of adequate risk management processes; and, the implementation of the supervisory regulatory framework. Moreover, the non-bank financial institutions are assessed to have still space to ensure proper effectiveness, independence and authority. Some of the savings and loan associations were examined for the first time after the conclusion of the consolidation process and the separation from the respective unions. The Law ‘'On the recovery and resolution of banks in the Republic of Albania” entered into force in 2017. This Law designates the Bank of Albania as the Resolution Authority for banks and branches of foreign banks that conduct their activity in Albania. This Law is another step in adopting the European standards in the regulatory framework of the Bank of Albania. In its role as the Resolution Authority, the Bank of Albania increases the security of the banking system. In compliance with the legal requirements, the Resolution Fund was established to provide for the implementation of resolution tools. The Bank of Albania compiled the methodology for the calculation of contributions that each bank should pay and the procedure of the payment. The calculation methodology and fund management was the topic of informative meetings organised with banks and the Albanian Association of Banks. We deem that the implemented policies and the undertaken measures have served to promoting monetary and financial stability, by contributing to safeguarding the economic and financial balances, necessary for sustainable economic growth. *** Following, I will briefly summarise the work of the Bank of Albania regarding the promotion and development of the payment system. 4. Functioning of safe and efficient payment systems In the framework of strengthening the payment systems and payment instruments oversight, the Bank of Albania has worked to align the regulatory base to the international standards that guarantee the security and promote the efficiency of payment systems. A huge amount of work has been done to compile the draft-law on Payment Services, which approximates the EU’s Payment Services Directive. The implementation of this directive is expected to considerably contribute to improving the security and efficiency of payment services through promoting competitiveness, strengthening transparency and clearly defining the rights and obligations of these services’ providers and consumers. Also, it addresses the risks arising from technological novelties (Fin-Tech) in payment services. Currently, the Bank of Albania is in the consulting and finalising process of the draft-law. The approval of this draft-law is an important step towards the implementation of the European Commission recommendations for the free movement of capital and for the adherence to the Single Euro Payment Area (SEPA). The Bank of Albania also has the role of payment systems’ reformer. In this framework, the Bank of Albania continued to work on the consolidation of inter-institutional collaboration, through the National Payment System Committee (NPSC), which it chairs. The Committee has initiated several projects, most importantly the projects on the compilation and implementation of the draft-strategy for the reformation of the small value payments market, the increase of financial inclusion and the assessment of remittances market. The successful accomplishment of the main legal obligations is supported by a range of other functions of the Bank of Albania. I will now briefly mention some of the improvements in these activities. 5. Other activities of the Bank of Albania 7/9 BIS central bankers' speeches In the field of statistics, the Bank of Albania has intensified its work to align the methodology on statistics with the international standards and their harmonization with the acquis communitare. In concrete terms, the methodologies on the preparation of financial soundness, interest rates, financial accounts and international reserve indicators are revised. The Statistics Code of Practice at the Bank of Albania was adopted for the first time. This code ensures integrity, quality, access and confidentiality in using and reporting the statistics, according to the international standards. Also, the Bank of Albania, for the first time, published the policy and calendar of statistics review, which ensures full transparency related with the review of released statistics. Since June, Albania implements the IMF‘s Enhanced General Data Dissemination e-GDDS). Some of the statistics are compiled by the Bank of Albania. Regarding the international reserve management, regulatory amendments have been made to clarify the function of international reserve management and the responsibilities of decisionmaking structures, as well as to broaden the range of investment instruments in compliance with the adopted policies. As at end-2017, the international reserve was around EUR 3 billion, sufficient to cover 6.7 months of imports of goods and services, and 178% of the short-term external debt. The yield on its investment was slightly negative, due to the low interest rates of euro in international markets. The economic and financial analyses and the decisions of the Bank of Albania are based on a broad research work within the institution. The Bank of Albania deems that the investment in human resources and in research techniques is always rewarding, taking into account the rapid structural changes in the economy and in the financial markets. The monetary policy transmission, the safeguarding of financial stability, the banking supervision and the coordination among these objectives were the main focus of working papers during 2017. The results are shared with national and international experts in scientific panels and are published in working papers. Also, the international experts have continued to assist to improve the macro-economic and statistical models, which support Bank of Albania projections. Public communication is an important pillar in Bank of Albania’s activity for enhancing the transparency and public confidence in the institution. The classic channels of communication are supplemented with digital platforms, such as Twitter (information), YouTube (video) and Flicker (photos). The Bank of Albania has continued the practice of organising scientific conferences and national and international forums to share opinions with national and international partners and groups of interest. The Bank of Albania is committed in expanding financial literacy, for an informed public understands better and responds more adequately to the decisions of the central bank. Also, a financially literate public manages better its personal finances. This commitment is further concretised with the establishment of the Museum of the Bank of Albania. During 2017, a range of informing and educational activities were organised at the Museum of the Bank of Albania with the participation of academics from various fields to share their knowledge with the public at large. The Bank of Albania has strengthened the cooperation with the national and international institutions, through information sharing, and consultation and joint projects. During 2017, a number of memoranda of cooperation were signed with national and international partners. Good governance in terms of the performance of the work processes, the efficiency in using the resources and risk management, is an element of the Bank of Albania’s accountability. In this light, I would like to mention the main improvements that have taken place in terms of internal audit systems. The internal audit at the Bank of Albania is an independent activity from the management, ensured through the Inspector General, appointed by the Parliament. 8/9 BIS central bankers' speeches 6. Internal audit The Operational Risk Management function was consolidated over 2017. The purpose of the Operational Risk Management is to manage properly the uncertainties, and to inform the decision-makers on the risks that may hamper the accomplishment of the Bank’s objectives, or to have adverse financial and/or reputational effects. The maturity level of operational risk management activity assessed by the international experts, increased at ‘managed’, thus crossing the ‘basic’ level. This maturity level shows that the operational risk management policy is guided by a risk matrix and a definite governing structure. The application on the automated management of audits and operational risk management process was implemented over 2017. During 2018, the major part of internal audit activity is expected to be realised and documented in the new system. The risk assessment automation for audit purposes provides the planning of audits fully based on risks, in line with the international practice. *** Honourable Chairman, Honourable Members of the Committee, At the end of my presentation, I want to assure you that the Bank of Albania will continue to be committed to following its legal objectives, and to implementing the institutional tasks and commitments. I am confident that the Albanian economy and financial system will continue to see in the Bank of Albania a reliable, professional and transparent partner. Thank you for your attention! 9/9 BIS central bankers' speeches | bank of albania | 2,018 | 5 |
Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2017 to the Parliamentary Committee on Economy and Finance, Tirana, 17 May 2018. | Gent Sejko: Albania's economic and financial developments in 2017 Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2017 to the Parliamentary Committee on Economy and Finance, Tirana, 17 May 2018. * * * Honourable Speaker, Honourable Members of Parliament The Bank of Albania views the accountability process as an essential element in its activity. This process complements our institutional independence, enhances transparency and reliability of the Bank of Albania and improves the effectiveness of our policies. Therefore, I have the pleasure of presenting today the work and the achievements of the Bank of Albania in 2017. I would like to start my reporting with three key messages that reflect the conclusions of our analysis and have been the common thread in our public communications over the past year. First, the economy and financial system in Albania marked progress during 2017. The positive development trend is illustrated by the acceleration of economic growth pace, upswing in employment and decline in unemployment, and the improvement of financial balance sheets of the public and private sectors. This progress has brought our economy closer to its potential and has strengthened short and medium-term factors that support economic growth. Second, the activity of the Bank of Albania in the past year has been in line with our legal obligations and the Recommendations of the Parliament. Our policy and instruments have had a positive, across-the-board contribution to our activities: Promoting economic growth, through an accommodative monetary policy stance; Strengthening financial stability, through a prudent and proactive supervisory and regulatory policy; Fostering development and enhancing financial system efficiency, through continued financial education, and cooperation and joint initiatives with other foreign and domestic agencies and partners. Third, I would like to draw the attention on the fact that, albeit positive development outlook, the Albanian economy continues to face medium and long-term development challenges. Identification and mitigation of economic and financial vulnerabilities, prevention of potential risks, and continuation of structural reforms to accelerate the growth pace, are among the main challenges we face. Our duty, as policy makers, is to draft and implement action plans consistently and persistently, in order to duly address all the problems we face. Let me now explain these issues in greater detail the issues, starting with a general overview of key economic and financial developments in the past year. 1. Albanian economy and financial system in 2017 Year 2017 marked progress for the Albanian economy and financial system. According to INSTAT data, the volume of economic activity grew 3.8% in 2017, registering a positive dynamics compared to 2.2% and 3.4% growth rates recorded in 2015 and 2016. 1/6 BIS central bankers' speeches The economic activity expanded on a broad base and was underpinned, from the perspective of aggregate demand, by the growth in consumption, investments and exports. Economic growth benefitted from the improvement in the external environment, and was supported by the domestic favourable financing conditions and economic agents’ confidence. From the sectoral perspective, the expansion of aggregate demand contributed to the growth of activity mainly in the services sector and in certain branches of the industry sector. A notable development in 2017 was the positive performance in tourism, which provided a positive impulse to economic growth. Owing to economic growth, 79 thousand new jobs were created in the private non-agricultural sector. Total employment increased by 3.3% in 2017, driven largely by the increase in the services sector. In parallel to the increase in employment, the unemployment rate fell, from 14.2% at the end of 2016, to 13.4% at the end of 2017. Inflation has trended upward in 2017, averaging 2.0% from 1.3% in the previous year. The uptick in inflation reflected the improvement of economic activity and strengthening of domestic inflationary pressures. Yet, this indicator continues to undershoot our target, reflecting the presence of spare capacities in the economy, the low inflation rates in our trading partners and the appreciated exchange rate. The expansion of economic activity is accompanied by the improvement of some of the main economic and financial balances for Albania. Thus: The current account deficit decreased at 6.9% of the GDP in 2017, from 7.6% recorded in the previous year. Its improvement reflected the growth in tourism and other services of the business. Fiscal indicators registered consolidation, reflected in a low level of the budget deficit and in maintaining control over public debt. Lastly, the financial situation of enterprises has been improving, as illustrated by their high liquidity levels and the progressive decline in the non-performing loans ratio. Interest rates in the financial markets remained low and soundness indicators of the banking system have been improving. The Albanian banking system maintained good levels of liquidity, and improved the profitability and capitalisation indicators. The Capital Adequacy Ratio recorded 16.6% at the end of 2017, upward by around 0.2 percentage point from a year earlier. As at end of 2017, the share of banking sector assets stood at 92.5% of the GDP. The activity of the banking sector was stable, reducing the risks to financial stability. In particular, the credit risk marked significant reduction in this year. The ratio of non-performing loans fell to 13.2% at the end of the year, down by around 5 percentage points from a year earlier. The liquidity risk in banking activity continues to be low, while the banking system exposure to market risks remains present and subject to monitoring. The improvement of the cyclical position of Albania and the encouraging signals on the economic growth outlook have also reflected the results of the work of the Bank of Albania. Let me explain in greater detail. 2. Bank of Albania activity highlights in 2017 The activity of the Bank of Albania has been and remains oriented toward fulfilling our mission and legal obligations. Regarding the operational aspect, our activity in 2017 was guided by the Medium-term Development Strategy 2016–2018. The two main aspects in our activity were monetary policy and banking sector supervision and regulation. 2/6 BIS central bankers' speeches The monetary policy of the Bank of Albania continued to maintain the accommodative stance during 2017, in the presence of still incomplete utilisation of production capacities and weak inflationary pressures. The monetary stimulus was transmitted through maintaining the policy rate at the lowest historical level, at 1.25%, increasing the volume and average duration of the liquidity injected in the interbank market and the forward guidance tool. The positive effects of the monetary policy were present in several aspects. First, in lower costs of financing consumption and investments. The volume of lek credit to the private sector increased by 7.2% in 2017, providing the main contribution to total credit growth. Second, in reducing uncertainties of economic agents, encouraging them toward consumption and investments. Third, in mitigating appreciation pressures of the exchange rate, contributing to the improvement of the balance of trade exchanges and further growth of economic activity. Fourth, in strengthening of financial stability. The financial environment with low interest rates has improved the financial balances of borrowers, through boosting aggregate demand, easing the service cost of debt, as well as encouraging the restructuring of existing loans. Our assessments on the monetary policy impact show that its contribution to economic growth for 2015, 2016 and 2017 is around 0.2, 0.4 and 0.7 percentage points, respectively. Also, the Bank of Albania has continued the efforts to improve the monetary policy transmission mechanism. Throughout 2017, we have worked on three main aspects: First, promoting the use of the national currency. The high euroization renders the monetary policy pass-through more difficult, as it exposes the private agents and the financial system to exchange rate volatility. Aware of this fact, the Bank of Albania, the Ministry of Finance and Economy and the Albanian Financial Supervision Authority signed a Memorandum of Cooperation “On increasing the use of the national currency (ALL) in the Albanian financial system and economy”. In this memorandum, the signatory institutions commit to identifying and undertaking actions within their area of competence. In this framework, the Bank of Albania identified a package of measures, following the consultations with the banking industry, and which shall enter into force over the second half of 2018. Second, enhancing the appetite of banks to expand lending. Banks’ appetite for lending continues to remain relatively low, by reflecting the effect of two factors: (i) deleveraging policies for reducing exposure in the countries of the region, including Albania, implemented by parent banks from the euro area; and, (ii) perception of credit risk at home. The Bank of Albania, to address this issue, has continued the collaboration with the European Banking Authority Supervisory College, to exchange information and harmonise the supervisory policies. Also, our institution continues to implement the measures set out in the national plan for reducing the non-performing loans and improving the lending environment. Third, fostering the development of financial markets and expanding the range of financial instruments. In 2017, the Bank of Albania, the Ministry of Finance and Economy and the World Bank explored options for developing the secondary market of Government securities and improving the functioning of the primary market. This project will help to: increase the Government securities trading; enhance the investors’ base, and better manage the liquidity. 3/6 BIS central bankers' speeches Regarding the financial stability, the Bank of Albania has continued to implement a prudential and pro-active regulatory and supervisory policy. In 2017, fourteen full-scope and partial examinations were performed in banks, non-bank financial institutions, and savings and loan associations. The examinations showed that the performance of the banking sector improved in terms of: the quality of internal policies and their implementation; the establishment of adequate risk management processes; and, the implementation of the supervisory regulatory framework. Moreover, the non-bank financial institutions are assessed to have still space to ensure proper effectiveness, independence and authority. The supervisory practice improved, regarding the methodology for banks control, the approximation of standards with Basel principles and the efforts to adopt the best international practices. Particular attention was given to the consolidating processes and strategic plans of the banking system. Also, the Bank of Albania, in 2017: compiled and approved the Macro-prudential Policy Strategy, which orients the use of regulatory instruments for enhancing the financial stability of Albania; prepared the regulatory framework on the Internal Capital Adequacy Assessment , compiled in the light of Basel principles and EU directives. The Internal Capital Adequacy Assessment Process complements the supervisory perspective with the self-assessment dimension of banks; made significant changes regarding the prevention process of money laundering, through the revision of the relevant regulatory framework; continued the work for the revision of the supervisory methodology on the assessment of the corporate governance in banks; of the functioning and independence of their committees; of the internal audit structure in assessing the risks and their functioning. In this project, we partnered with the European Bank for Reconstruction and Development. Notwithstanding the progress made in reducing the non-performing loans, attention has been paid to the achievement of banks’ annual objectives regarding non-performing loans and the compilation of the Recovery and Resolution Plans for larger borrowers. Banks report regularly to the Bank of Albania on the level of their relations with every borrower, as well as the expectations and plans on future developments, in compliance with our requirements. With assistance from the World Bank and the International Monetary Fund, a regulatory framework, aiming to foster banks collaboration and coordination for addressing common borrowers, is being compiled. The Law ‘'On the recovery and resolution of banks in the Republic of Albania” entered into force in 2017. This Law designates the Bank of Albania as the Resolution Authority for banks and branches of foreign banks that conduct their activity in Albania. This Law is another step toward adopting the European standards in the regulatory framework of the Bank of Albania. In its role as the Resolution Authority, the Bank of Albania increases the security of the banking system. In parallel with the above-mentioned aspects of its work, the Bank of Albania has paid attention and has worked to: strengthen the development of the payment system; improve the procedures and modalities for foreign reserve management; improve communication with public; deepen the research work; expand and improve statistics; increase financial literacy and financial inclusion; collaborate with domestic and international institutions. I would like to highlight that Bank of Albania has been attentive not only to realising the legal objectives, but also to strengthen its institutional governance. In this context, the Medium-term Development Strategy of the Bank of Albania, together with the medium-term budget, was updated in 2017. For the first time, the capital expenditures and the projects included in the 4/6 BIS central bankers' speeches budget were preliminary approved by the Capital Expenditure Committee. Also, the Audit Committee continued the work throughout 2017. This committee conducts a monitoring function independently from the Bank of Albania management. In 2017, the Supervisory Council approved, for the first time, the level of tolerance to the operational risk at the Bank of Albania. It will help the efficient risk management, through the early identification and management of operational risk, in line with the established procedures. We deem that the implemented policies and the undertaken measures have served to promoting monetary and financial stability, by contributing to safeguarding the economic and financial balances, necessary for a sustainable economic growth. Honourable Speaker, Honourable Members of Parliament, As I stated at the beginning of my speech, the development perspective of Albania remains positive. Nevertheless, we have and will continue to face challenges, which should be addressed with courage, vision and determination. At the end of my presentation, allow me to present the vision of the Bank of Albania on the future of the economy and financial system, as well as on adequate development policies. 3. Development perspectives and challenges Supported by the favourable financing conditions, the further recovery of global economy and the strengthening of confidence in economy, the cyclical improvement of the Albanian economy is expected to continue in the medium-term horizon in the next two-three years. The growth of aggregate demand will encourage the further increase of employment and a faster rise in wages. The fuller utilisation of production capacities will enable the return of inflation to target within the medium-term horizon and will help improving the overall economic and financial equilibriums. The realisation of this scenario is conditioned by the lack of internal or external shocks on the Albanian economy or financial system. Also, it requires continuing the accommodative monetary policy stance and maintaining the consolidating fiscal policy trend. These policies’ coordination is vital for strengthening the macroeconomic stability of Albania. On the one hand, it maintains a stimulating resultant trend of main economic policies and, on the other hand, it addresses the various vulnerabilities. Looking beyond the medium-term horizon, the Bank of Albania assesses that more needs to be done for strengthening the economic growth pace and increasing the Albanian economy’s resilience against shocks. Though the accommodative monetary policy provides a support in this regard, it cannot substitute the structural reforms needed for improving the whole functioning of the Albanian economy. We deem these structural reforms should address some key issues: Further improvement of business climate, through: continuation of measures to reduce informality and promote fair competition; a thorough improvement and harmonisation of the legal framework and law enforcement; and cutting on bureaucracy and improving public administration efficiency. The improvement of the business climate is vital for attracting foreign investments and promoting domestic ones. Expansion of markets for Albanian products, through: promotion of Albanian products trademarks; promotion of regional integration; and acceleration of European integration process. Increase of Albanian economy efficiency, through: further investments in infrastructure, education and health; encouraging the increase of participation in labour force; and 5/6 BIS central bankers' speeches improvement of business management standards. Increased efficiency in the economy implies higher growth rates and higher welfare standards for the Albanian society. Increase flexibility and resilience of the Albanian economy, through: encouraging the restructuring process of enterprises; further improving the supervisory architecture and financial system regulation; and increasing prudence for public and private debt indicators. A more resilient and flexible economy weathers shocks easier and is re-oriented faster to development opportunities. Further expansion and diversification of financial markets, by working in parallel with the increase of savings in the Albanian economy, for a studied development of other segments of the financial market and for the prudent introduction of new products and financial instruments. The development and diversification of financial markets improves access to finance, by increasing the base of potential entrepreneurs and by providing a better management of personal finances. Also, it improves the financing structure of the Albanian economy and paves the way to the development of the country, in non-distant future, when, potentially, the role of banks and banking industry will be more reduced. The Bank of Albania deems that the European integration process should be the guiding anchor to all development policies of the country. The pursuit of this objective requires collaboration and energies by all the relevant actors in this process, implying their willingness to afford the costs of the necessary policies and reforms for the integration of the country. *** Honourable Speaker, Honourable Members of Parliament, Concluding, I would like to assure you that the Bank of Albania remains committed to complying with its legal objectives, and to fulfilling our institutional tasks and engagements. Thank you for your attention! 6/6 BIS central bankers' speeches | bank of albania | 2,018 | 6 |
Opening address by Ms Elisabeta Gjoni, First Deputy Governor of the Bank of Albania, at the Conference on the "Modernisation of retail payment systems in Albania", Tirana, 21 June 2018. | Elisabeta Gjoni: Modernisation of retail payment systems in Albania Opening address by Ms Elisabeta Gjoni, First Deputy Governor of the Bank of Albania, at the Conference on the "Modernisation of retail payment systems in Albania", Tirana, 21 June 2018. * * * Good morning! It is my great pleasure to welcome you to the Conference on the “Modernisation of retail payment systems in Albania”. The Bank of Albania is honoured to have today representatives from the European Central Bank, the World Bank, and central banks of Italy, Kosovo, and Serbia. Also, I would like to welcome the operators and providers of well-known payment services in international markets, representatives of the domestic banking and payments industry, public authorities and, the Governor of the Bank of Albania and the Deputy Prime Minister of Albania, Mrs Senida Mesi. This conference takes place only one day after the meeting of the National Payment System Committee (NPSC). The members of this Committee undertook important commitments related to the development of payment systems and financial inclusion. The approval of the National Retail Payments Strategy (2018–2023) is the main product of this meeting. The retail payments system is a vital component of: financial markets; the overall economy; and every citizen as the end user. In this framework, the Bank of Albania prioritises the modernisation of retail payments system. Banks have provided a significant contribution for the development of payments, so far. They have invested in: many new technological platforms; modern payment instruments; cards by the renowned international brands. In recent years, non-bank financial institutions are also playing an important role in this regard, by implementing innovative solutions. Public authorities have initiated and developed electronic platforms for the public payment services, such as taxes. The progress is notable – if compared with 10–20 years ago. But, our benchmarks are visionary: alignment with the standards of the countries we aspire to integrate with and the development of a society with a broad base of financial inclusion, where the use of electronic payment instruments are part of everyday life. The Bank of Albania, based on this vision, has placed at its focus the modernisation of retail payments system to bring about a tangible change. In collaboration with all market stakeholders, and with the valuable expertise of the World Bank, funded by SECO, the Bank of Albania finalised a set of analyses and studies on the situation of payments in Albania. I would like to mention here three main reports, published on our website: 1. The so-called PAFI project report on the market analysis on financial inclusion, which is implemented, in many other countries, and aims at reforming the retail payment systems and promoting financial inclusion; 2. Review of the Market for Remittances in Albania, a component of retail payment systems; 3. The study on measuring the costs of payment instruments. This study identified the costs for each element, finding that cash is the most costly means to the Albanian economy. In addition, it sets out scenarios for the replacement with various innovative instruments, which reduce these costs. The findings from the market, needs assessment and scope for intervention were materialised 1/2 BIS central bankers' speeches in a National Strategy on the Modernisation of Retail Payment 2018–2023) The Strategy aims for improvements in the retail payment market to provide Albanian citizens with more options to choose from for their daily transactions, more easily and more cost-effective, by supporting the objective for a broader-based financial inclusion. The strategy lays down concrete and measurable objectives, such as the doubling of the population having a bank account (from 38% in 2018 to 70% in 2022), the increase in the number of electronic payments per capita, from 4.3% in 2016, to 10 in 2022 (increase by 130%). The Strategy aims also legal and regulatory improvements, which lay the foundations for innovative initiatives, and a level playing field. In this regard, the Bank of Albania finalised the drafting of the law “On Payment Services in the Republic of Albania”. The approval and implementation of this law will provide a crucial contribution to establishing services at low cost and easily accessible by the public, and promoting competition and innovation also based on a prudential consumer protection regime. This will be the theme of the first session of the Conference. Also, the Strategy aims at infrastructural improvements. In this regard, a set of measures are envisaged to promote interaction among various actors from the infrastructural point of view, aiming at reducing costs, in particular, for end users. The establishment of a national platform for processing card payments - would to provide a direct impact on reducing high costs and improving the current card processing practices, due to the extended cycles and involvement of more actors in the process. Such a platform would also support innovative services, such as mobile payments and e-wallet. The Bank of Albania is analysing the possibility to develop instant payment in our market as well. The implementation of such a project is deemed to have a direct impact on financial inclusion and on providing services at low cost. I invite you to actively participate in discussions, in order to benefit as much as possible by the experience of other countries, and to analyse the possibilities presented by service providers that are invited to discuss on these topic in the afternoon session. Furthermore, regarding financial inclusion, the strategy pays special attention to the establishment of the concept of “basic” bank accounts with low costs, for the financial inclusion of all levels of population, irrespective of their economic situation. Last but not least, innovation in public services. The initiatives that digitalise and automate public services need coordination and access to various data electronic platforms, such as data of: citizens; addresses; and payments for these services. Any development should be accompanied with financial education of the population, as a precondition for success. The discussions in this Conference bring to the fore the views and experience of various actors from different countries (regulators, developers, service providers, authorities and experts) and I think this will shed light on the key topics of modernising the retail payment systems in Albania. Thank you! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 7 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Conference on the "Modernisation of retail payment systems in Albania", Tirana, 21 June 2018. | Gent Sejko: Modernisation of retail payment systems in Albania Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Conference on the "Modernisation of retail payment systems in Albania", Tirana, 21 June 2018. * * * Dear Deputy Prime Minister Dear media representatives, Dear participants and colleagues, Welcome to this conference, whose topic, I would say, is a challenge and promotes the modernisation of the retail payments in Albania. The Bank of Albania has constantly noted in its communications that the safe and efficient development of payment systems is a key objective not only to support monetary policy implementation and safeguard financial stability, but also to serve as an important tool for formalised and sustainable economic development. In addition to the focus on payment systems – as a fundamental pillar for the functioning of financial markets and the economy in general – the Bank of Albania is paying increasingly more attention to their development from the perspective of financial inclusion. The main goal in this regard is the broad use of payment instruments in the everyday life of citizens. This new way of development aims to identify and satisfy the needs of the smallest component of the economy – households and enterprises. Taking into account the conditions of the Albanian market, with a low level of financial inclusion and education, and the relatively high costs for the provided services, our goal is to urge the banking system to offer citizens easily-accessible and cost-effective services, supporting thus the objective for broader financial inclusion. Therefore, it is both necessary and challenging to intervene in this aspect, especially as we are experiencing rapid and comprehensive developments in technology. Most of the aspects in our everyday life are becoming subject to digitalisation and automated processes and the modernisation of payment systems, in turn, is becoming increasingly important. The research and analyses carried out by the Bank of Albania with the assistance of the World Bank clearly show that the promotion of digitalisation and innovation in the payment market contributes considerably to the reduction of costs of these instruments, providing services that are easily accessible and affordable by everyone. In Albania this development is considerably lagging behind other countries, with which we aim to approximate in the framework of European Union integration process; hence, its promotion becomes even more important both in the framework of this integration, and in the broader context of international markets. The modernisation of these systems through digitalisation will be achieved through a wellregulated development and clearly-set goals in the medium-term strategy, which will be presented later today during the Conference. The transposition of European Union Directive (PSD), which is considered as one of the most avant-garde pieces of legislation in this field, is a concrete initiative in this regard. The Bank of Albania, in collaboration with the experts of the World Bank and Bank of Italy, has prepared a draft-law, which will be subject to public discussions very soon. To support these initiatives, the Bank of Albania is analysing the possibility of innovative 1/2 BIS central bankers' speeches developments in the systems we operate, such as: instant payment, which, based also on international experience, would reform the payment markets from the digitalisation point of view. ****** Dear participants, Given its very nature, this new dimension of payment systems development requires certainly broader cooperation by all the stakeholders. In this regard, the inter-institutional cooperation has resulted as very effective through the organisation and functioning of the National Payment Systems Committee. The Committee is a collegial advisory body, chaired by the Bank of Albania, and is making important steps forward toward reformation and modernisation of retail payment systems. Its vision for the future is “creating a contemporary and all-inclusive retail payments market, supported by safe and efficient infrastructure, and a broad range of instruments and services that satisfy the needs of the users”. The realisation of this vision requires legal, regulatory and infrastructural developments. It must be noted that the above-cited initiatives, formalised in the relevant national strategy, have been substantially supported by renowned international institutions such as the World Bank, the European Central Bank, and central banks from EU countries. Hence, let me now extend my sincere appreciation to these institutions for their support, and to their distinguished representatives who will share with you today their experience in the development of retail payment systems market. From the perspective of communication and cooperation, the regional cooperation and sharing of experiences is deemed as very important and fruitful. As a result of market development and cultural characteristics and financial education level in the countries of our region, experience sharing assumes particular importance, as it may contribute significantly to achieving the goals more effectively. Last but not least, another development is the joint initiative of the Bank of Albania, Ministry of Finance and Economy, and Minister of State for Diaspora for a higher attention related to attracting and effectively using remittances, as a component of retail payments. At the international level, remittances make a significant contribution to the economy and welfare of the people, and are considered as accelerators to financial inclusion. The Bank of Albania, therefore, in addition to the aimed developments in the national strategy for reforming the retail payment systems, is engaged in preparing an annual publication on remittances. This publication aims to enhance the knowledge and information about remittances in the Albanian market, and to convey messages in the context of needs for intervention and the potential of remittances for various actors in the economy. For all the issues addressed above, especially related with the commitment of various stakeholders in the modernisation of payment systems in Albania, I invite you to actively participate and contribute to this conference. Concluding, I would like to wish you fruitful conference proceedings and thank you for your participation and attention. 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 7 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the Joint Bank of Albania-European Central Bank Regional Statistical Seminar, Tirana, 13 June 2018. | Gent Sejko: Main challenges facing statistics Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the Joint Bank of Albania-European Central Bank Regional Statistical Seminar, Tirana, 13 June 2018. * * * Dear participants! It is a pleasure for me to be here today and open the regional seminar on central bank statistics. On behalf of the Bank of Albania, I would like to thank the European Central Bank for coorganising this seminar in Tirana. Also, I would like to welcome all representatives of central banks from the region and beyond, and all the participants in this seminar. The series of regional statistical seminars, organised by the ECB, provides an important forum for exchanging views on statistical requirements, formulating policies and discussing most recent developments on central bank statistics-related issues. We are all aware that having reliable, adequate, and timely data is a key element for decision making. Ten years on, after the latest financial crisis, the fundamentals of the global economy, the architecture of the global financial system and the decision-making process are set on a constant restructuring process. The statistical function faces similar challenges. While the economies, markets and institutions develop, pressures mount on statistics to “follow the trend and pace” of such development. The emergence of the so-called “information gap” is inevitable in a fast-changing world, but our duty as statistical agencies is to increase speed up efforts to close this gap as soon as possible. *** In the following, I would like to focus on the main challenges facing statistics, especially those that are pivotal for the successful realisation of the central bank functions. Overall, the crisis revealed the need for richer and more effective statistics, to serve both the monetary policy and the macro-prudential policy. Like never before, it is necessary for us to be informed and analyse economic data on several dimensions and at a granular extent. The financial sector’s growth and complexity highlight the importance of safeguarding financial system stability, as an essential element of central bank functions. The objective of financial stability has existed since the very establishment of the central bank institution. But, in the last decade, there is a clear focus on identifying potential threats to financial system stability, and constant attention on minimising them. Likewise, achieving and maintaining price stability through monetary policy has changed. Economic and financial analyses realised in central banks are becoming increasingly dependent on complex models, which enable a simultaneous analysis of the real economy, financial markets and interaction with foreign trading and financial partners. Therefore, the quality and reliability of the statistical information becomes particularly important. In response, in recent years, the Bank of Albania has worked across several dimensions to enrich and enhance the statistical information. Since June 2017, Albania has been implementing the IMF’s Enhanced General Data Dissemination e-GDDS) and is committed to fulfilling a series of strict requirements for the 1/2 BIS central bankers' speeches production, dissemination and documentation of statistical data. Moreover, in the framework of the European integration process, the Bank of Albania has intensified its work on methodological aligning of statistics with the international standards and their harmonization by acquis communitare. Thus, the Bank of Albania has adopted the regulation on the reporting of interest rate statistics, approved for the first time the “Code of Practice on Statistics at the Bank of Albania”, and has started its work for the alignment of monetary and financial statistics reporting. Modern statistics may not be perceived without the strong support of the information technology, regarding collection, compilation and dissemination of statistics. In this regard, in 2017, the Bank of Albania finalised the inclusion of all reporting entities to the Bank of Albania in the Electronic Regulatory Reporting System. We have also initiated a project on “Automated compilation and dissemination of external sector statistics”. This project is an important cornerstone to build a solid architecture for the further development of other statistical blocks. *** Dear participants! Economic data are becoming increasingly subject to research and analysis by policymakers and financial market participants. The mechanisms established by the European Commission are adding pressures on statistics to provide high-quality data. On the other hand, inter-institutional coordination is the key to success for producing multidimensional statistical data. In this context, I would like to underline the importance of cooperation between the Bank of Albania and INSTAT, which has been very fruitful until now and I am confident it will continue to be successful in the future. Concluding, I would like to extend my most sincere appreciation to the lecturers and contributors to the seminar, who will share their experiences with us. I hope that everyone will be able to benefit from the constructive discussions and contributions during this two-day seminar. 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 7 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the regional summit on "Region's Financial and Monetary Stability, Ten Years since the Crisis Outbreak", Governor's Panel "Monetary policy and the stability of the banking systems in the countries of the region - a decade after the Lehman Brothers' bankruptcy", Bečići, Montenegro, 18 June 2018. | Gent Sejko: Region's financial and monetary stability, ten years since the crisis outbreak Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the regional summit on "Region's Financial and Monetary Stability, Ten Years since the Crisis Outbreak", Governor's Panel "Monetary policy and the stability of the banking systems in the countries of the region – a decade after the Lehman Brothers' bankruptcy", Bečići, Montenegro, 18 June 2018. * * * Dear Guests, Fellow Colleagues, It is a pleasure to be amongst you today and to be able to share opinions on some of the most pressing challenges we are facing at the moment. I would like to focus my remarks on the topic of exchange rates. In particular, I would like to focus on how the monetary policy reaction should be based in the exchange rate movements. I take my premise from the rapid appreciation episode we experienced recently in Albania, which forced us to launch an FX purchase program as a last line of defence towards ensuring medium term price stability. To cover this topic, first I intend to briefly discuss on various monetary policy regimes. I will then discuss on the implications of exchange rate movements for inflation targeting central banks. To conclude, I will give you a short overview of recent exchange rate developments in Albania and our reaction towards them. 1. The choice and implications of exchange rate regimes A useful starting point on this topic would be to discuss the different options we have. We are fully aware that small open and financially integrated economies have to choose between running an independent monetary policy aiming to preserve macroeconomic stability, usually defined in terms of an inflation target, and fixing the exchange rate. Both these options have their benefits and drawbacks. The first option – i.e. that of running an independent monetary policy – means central banks can adjust domestic interest rates and domestic liquidity conditions, in order to preserve macroeconomic stability and to accommodate potential shocks to their economies. Furthermore, exchange rate movements and corrections act as a shock absorber to various external shocks. But on the other hand, central banks give up from the option of pursuing exchange rate stability, both as a nominal anchor and as an instrument of promoting international trade. The choice of the second option – i.e. that of fixing your exchange rate – revolves around two main assumptions. The first is that exchange rate stability promotes external trade. The second is that importing credibility from the anchor foreign central bank, such as the ECB, helps promote overall domestic monetary stability. But on the other hand, this choice means central banks give up from the option of running an independent monetary policy, or at least they accept to lose a large piece of this independence. Consequently, they have to rely more on macro-prudential tools or fiscal policies, in order to accommodate domestic shocks or to mitigate the impact of external ones. Our region offers a large variety of monetary regime choices. I will not attempt to do any analysis here but I will limit my remarks to saying that the inflation targeting and the flexible exchange rate regime we have chosen in Albania has served us perfectly well. 1/3 BIS central bankers' speeches Our monetary framework has strengthened our successful transition and has increased the resilience of our economy. Over the past two decades Albania has enjoyed: (i) rapid economic growth, – with GDP growth averaging at 5 percent; (ii) price stability, – with inflation rates averaging at 2.4 percent; and, (iii) a rapid monetization, – with financial assets increasing from 52 to 92 percent of GDP. Furthermore, the flexible exchange rate has proved to be a reliable shock absorber. The Albanian lek depreciated by around 11% in the aftermath of the 2008 crisis. This depreciation occurred in the face of reduced external demand, decreased capital inflows, and higher risk premia in the domestic financial market. This helped us regain some external competitiveness, but it also allowed us to pursue an expansionary monetary policy and to avoid recession. 2. Exchange rate movements under an inflation targeting regime An exclusive commitment to price stability does not necessarily mean that central banks can afford to ignore exchange rate movements. In small open economies, such as ours, exchange rates have both, a direct effect on prices through the imported goods, and an indirect one through their impact on cost competitiveness, external balances and aggregate demand. Therefore, our macroeconomic forecasting and monetary policy analysis models prescribe an important role to the exchange rate. Furthermore, in financially euroized economies, such as ours, exchange rate movements tend to have financial stability implications. Rapid depreciation increase NPLs, while prolonged periods of appreciation tend to impose financial risks and encourage further euroization. In designing the appropriate monetary policy response, we have to distinguish between trend movements driven by fundamentals, and short term volatility driven by sporadic factors or market imperfections. Inflation targeting central banks should strive to avoid leaning against trend movements in the exchange rate. As long as these movements are in line with fundamentals, these trends represent structural adjustments that do not move the economy away from equilibrium. On the other hand, short term exchange rate volatility is normal in a fully flexible exchange rate regime. The reaction of central banks should depend on their impact on inflation, which in itself depends on the intensity and duration of such volatility. The stronger the duration and the higher the intensity of the shocks, the bigger would be the expected impact on inflation, the greater the risk of rapid shifts in inflation expectations, and the higher the need for a systematic reaction of monetary policy. 3. Exchange rate movements and the Bank of Albania reaction to them The above mentioned facts have guided our reaction to the recent appreciation of the exchange rate in Albania. The trend appreciation started around the second half of 2015, but it gathered considerable pace in 2018. Lek appreciated on average by 2.3 percent against the euro in 2016 and 2017, while it appreciated by around 7 percent during the first half of 2018. Our analyses indicate clearly differing explanations for the pre and post 2018 appreciation. The 2016–2017 lek appreciation has been largely in line with improving fundamentals in the economy. Some of these structural improvements include: Declining current account deficits, on account of improved exports; Increased capital inflows, on account of high FDIs; Reduced financial market risk premia and increased confidence in our financial institutions. 2/3 BIS central bankers' speeches On the contrary, the rapid appreciation we experienced in 2018 has been largely a FX market driven phenomenon. News of a sudden and sustained influx of foreign currency induced onesided expectations in the FX market. These expectations were reflected in an accelerated supply of foreign currency and delayed demand for it, generating a vicious cycle of continued appreciation. The Bank of Albania did not react upon the real appreciation trend of the past two years. While minor miss-alignments were still present, we assessed the trend was largely driven by improving fundaments. Thus, it allowed us to focus our monetary policy on achieving our 3 percent inflation target. We also did not react upon the recent financial market driven appreciation, in full consistence with our monetary policy and exchange rate regimes. We expected for the market to self-regulate and contain these shocks. However, this did not prove to be the case and the exchange rate appreciation accelerated. A re-assessment of its implication on price stability indicated this appreciation was not compatible with our price stability target over the medium term. Under these premises, the Bank of Albania was forced to act. We lowered the policy rate to a new historical minimum of 1 percent. We clearly communicated the Bank of Albania did not assess this appreciation to be in line with fundamentals, anymore. Lastly, we announced the initiation of an FX purchase program in the domestic market. This program was aimed at controlling the pace of appreciation, removing the excessive short term FX supply and reversing expectations and one-sided bets in the market. In regard to this last one, I would like to emphasize the main features of it: First, it was undertaken as measure of last resort, when the space for further conventional policy rate cuts was limited. Therefore, any additional monetary policy stimulus would need to make use of unconventional instruments. Second, it was clearly communicated to the market to be of both an exceptional and a temporary nature. Therefore, it does not represent a shift from our commitment to a flexible exchange rate regime, and should not be represented as such. As a result, these measures proved to be efficient and now the exchange rate movements are going back to normality. Thank You! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 8 |
Opening address by Mr Gent Sejko, Governor of the Bank of Albania, at the presentation by Mr Patrizio Pagano, Executive Director for Albania at the World Bank Group, Tirana, 18 September 2019. | Gent Sejko: The productivity slowdown and the secular stagnation hypothesis Opening address by Mr Gent Sejko, Governor of the Bank of Albania, at the presentation by Mr Patrizio Pagano, Executive Director for Albania at the World Bank Group, Tirana, 18 September 2019. * * * Dear friends, colleagues and media representatives, Thank you for your participation! I have the honour to launch today a presentation on “The Productivity Slowdown and the Secular Stagnation Hypothesis”. The productivity and its role on economic growth is an argument, which, in the aftermath of the last global crisis, is at the centre stage in the agenda of researchers and decision-makers of the economy. The recent decades had never seen before such a duration, intensity and complexity of this crisis. The global economy experienced the longest and deepest economic slowdown and recession, since the Great Depression in 1930s. Certainly, it was a real drama for the national economies, as well as enterprises and households. Nevertheless, the crisis served as a catalyser to re-assess the economic ideas and a great laboratory to test them. The book titled “International Macroeconomics in the Wake of the Global Financial Crisis” has been added to the existing vast body of economic literature that studies the challenges to various economies in detail. This book is a collection of research work by experts of the Banque de France, Banca d’Italia and Banco de España on the major topics in the post-crisis period. Through the systematic investigation of: structural problems in the economy, in more concrete terms, the correlation between advancements in technology, productivity, globalisation and potential growth; problems incurred by the global trade and promotion of consumption and investments; problems that the monetary policy has faced and continues to face, due to the heightened uncertainties, fall in the natural interest rate and the chronic low inflation; and the increasing interdependence of global economies, due to the financial integration and the role of financial flows and interest rates in small and developing economies, the authors provide a precious contribution to the professional debate present in this field. We are honoured to have among us today one of the authors of this publication, Mr Patrizio Pagano. He is present today as both the World Bank Group Executive Director for Italy, Albania, Greece, Malta, Portugal, San Marino and Timor-Leste and as an academic with a long-standing history of scientific publications while serving as the Head of Advanced Economies and International Finance Division within the Directorate General for Economics, Statistics and Research of the Bank of Italy. Mr Pagano has cooperated and co-authored several articles with distinguished institutions, such as: Bocconi University and University of California, Berkeley. As I emphasised earlier, Mr Pagano will discuss on the role of productivity on economic growth, in particular, the recent debate triggered by the hypothesis that advanced economies are doomed to experience a long period, why not decades, of slowdown of economic growth and deceleration of welfare improvement. 1/3 BIS central bankers' speeches I would rather not anticipate the findings in the presentation, but I must say that I feel encouraged by the finding that this hypothesis is likely not to be true. Productivity and its role on economic growth has always been a central theme at the focus of the attention at the Bank of Albania. Our studies suggest that, beyond the cyclical fall in the aggregate demand, the economic slowdown in Albania, after the crisis, has had a strong structural element. In other words, the reduction by half of the economic growth pace before and after the crisis, shows both the slowdown in the expansion of demand for goods and services, and the slowdown in the capacity of the economy to provide these products. In particular, our studies have found that the degree of expansion of productivity in the Albanian economy – broadly defined as the capacity of an economy to utilise labour and physical capital to generate output – is reduced in this period from 2% to 1%. For this reason, the growth of productivity has been and should remain a guideline in the agenda of structural reforms in Albania. In this context, the conclusion in today’s presentation that the currently slow growth in productivity, globally, does not necessary represent a new “normal” of the economy, is a further encouragement for the success of reforms in Albania. Let me now explain this argument in greater detail. First, the Albanian economy has been going through a restructuring process of its growth model. Among others, this process envisages a higher reliance of growth on export oriented sectors – such as industry and tourism – and a further orientation of financial resources towards the expansion of investments. The shift in financial, human and management resources between sectors of the economy needs time and is followed by a temporary slowdown of productivity. Nevertheless, rebalancing the sources of growth – from construction and trade towards industry and export-related services – has already started. This shift is noted even in the symmetric rebalancing of banking credit portfolio. Second, the level and speed of productivity expansion is directly connected with the level of education and qualification of the labour force. The educational system reform and the emphasis on vocational training are essential dimensions of the economy’s restructuring, whose benefits will increasingly become clearer in the long run. However, Albania still has a lot of work to do in this regard, in particular with regard to containing the migration of its qualified labour force and the renewal of its labour force skills by the private sector. Third, productivity is closely connected with the improvement of business management skills. The campaign to enhance formal business practices, the gradual increase of competition, and the revision of the law on bankruptcy will provide the necessary stimulus in this regard. In particular, I am confident that the legal improvements regarding the enforcement of bank credit contract will not only help the banks’ soundness, but will also contribute to increasing the discipline and effectiveness in the use of funds by the Albanian enterprises. Finally, I would like to highlight that unlike the advanced economies, which are on the technology frontier, and see their progress related to their ability for innovation, Albania has considerable space for development through the adoption of the existing technologies and practices. In this light, our task remains to choose and implement the tested models of development. Based on the above, I am confident that Albania has all the premises to increase productivity and, in this way, to accelerate the economic growth pace and increase the welfare of the Albanian people. What is needed now is a consensus on the vision for the development of the country and a shared will to implement it. Dear participants, I am fully convinced that this presentation will further enrich our debate on these issues. 2/3 BIS central bankers' speeches Thank You! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 9 |
Opening remarks by Ms Elisabeta Gjoni, First Deputy Governor of the Bank of Albania, at the Second Conference of the Museum of the Bank of Albania, Tirana, 20 September 2018. | Elisabeta Gjoni: Role of money in wartime Opening remarks by Ms Elisabeta Gjoni, First Deputy Governor of the Bank of Albania, at the Second Conference of the Museum of the Bank of Albania, Tirana, 20 September 2018. * * * Dear guests, participants, researchers, academics, numismatists, collectors, students, Welcome to the Bank of Albania! It is a special pleasure for me to open the proceedings of the Second Conference of the Museum of the Bank of Albania on “Role of money in wartime”. The rich collection of coins and banknotes and other items exhibited in our Museum becomes more meaningful when supported by the historic background of the period of the country of issue. The organisation of this Conference, an annual one, contributes to the both the historic and educational role of the Museum. This conference is also an excellent opportunity to share experiences with representatives of the main institutions of culture in Albania and museums of central banks and other prominent foreign institutions in this field. I am happy to see in this room both old and new collaborators, whom we wish to be “permanent consultants” of the Bank of Albania. We aim to create and cultivate a solid and productive relationship with the best experts in numismatics, museology, cultural heritage and research. Dear participants, Today’s presentations will address the mutual, complicated and multi-dimensional relation between money and war. Wars have had an impact on the economy and development of human kind from the birth of civilisations to modern times. Meanwhile, in the words of the Socrates, the Greek philosopher, “all wars are fought for money”. We heard some good examples that illustrate this relation in last year’s conference. We heard from Prof. Picard about King Monunius, who is known thanks to the respective coin. He had it minted for the sole purpose of raising a strong army, convinced that his might rested with the army. From Prof. Egro, we learned that Mahmut Pashë Bushatlliu and Ali Pashë Tepelena tried to introduce their coins and banknotes, independently from the Ottoman Empire, not for financial purposes but as a token of rebellion or an attempt to break away from the Empire. Later on, in WW1, we see the banknotes of the Republic of Korça, which are a rare phenomenon not only in terms of numismatics, but also a materialisation of the early issues as a result of the war, after the formation of the Albanian state. During WW2, the Albanian currency underwent radical changes. On its obverse and reverse we no longer see King Zog. Instead, Victor Emanuel III is featured and the most significant change is that the Albanian franc was officially pegged to the fate of the Italian lira. We will have the opportunity to hear, during the day, other interesting and important examples in the monetary and economic history of Albania. Dear Ladies and Gentlemen, This conference does not seek to analyse wars and the various factors triggering them; instead, it aims to show how the radical changes introduced by wars or conflicts on political systems and alliances, or the divisions between states have affected monetary developments. The history shows that conflict or war periods are particularly related to radical changes in monetary systems and policies. Over the centuries, we find various examples of such developments, materialised in changes in the monetary system or introduction of temporary fiscal policies, additional quantity of money 1/2 BIS central bankers' speeches issued before the start and during a war, massive circulation of a monetary type in areas far away from their place of origin, higher number of hoards found in a conflict zone or massive usage of the currency of allied countries. Numerous phenomena testify to the constant presence of a relationship throughout epochs, between military conflicts on the one hand and the role of money in wartime on the other. To better reflect the relationship between conflicts or war and money, we have decided for the conference proceedings to follow a chronological order of presentations, starting from antiquity, to middle ages and the modern history of the XX century. Our guests are distinguished professors, scholars, historians, and representatives from central bank museums who responded to our invitation to research and lecture on this topic. The views and conclusions expressed in the presentations are of the authors and not necessarily of the respective institutions or the Bank of Albania. Wishing success to the conference, I hope that all the participants will benefit from the interesting presentations that will be shared with the audience today. I have now the pleasure to invite our keynote speaker, Prof. Olivier Picard, former Director of the French Archaeological School in Athens, Professor at the Sorbonne University, Member of the “Académie des Inscriptions et Belles – Lettre” (Institute of France), who will hold a presentation on “Minting of coins in Illyria in wartime”. Thank you! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 10 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Second Conference of the Museum of the Bank of Albania, Tirana, 20 September 2018. | Gent Sejko: Welcome address - Second Conference of the Museum of the Bank of Albania Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Second Conference of the Museum of the Bank of Albania, Tirana, 20 September 2018. * * * Distinguished professors, Dear participants, It gives me a great pleasure to welcome you to the Second Conference of the Museum of the Bank of Albania, via this recorded message. I wish I were present to attend in person the proceedings of the Conference, but, regrettably, due to the rather tight agenda I will not be able to. Nevertheless, I will have the possibility to read all the presentations, discussions, and input in the Conference book that will be compiled subsequent to the Conference. As I have already emphasised, the Conference of the Museum of the Bank of Albania is one of the most prominent events, providing us with the opportunity to enrich and further the studies on the exposed collections, and serves as a platform for Albanian experts to discuss and share their research findings. We are pleased to see that the Museum of the Bank of Albania brings for the second time together representatives from renowned research institutions, such as: the Albanian Institute of Archaeology and History, European Universities and central banks to present their studies. As the title suggests, this Conference will address the role of money in wartime. In periods of wars and conflicts – history shows that, albeit relatively small, Albania has experienced many wars and conflicts – people have turned to the currency and precious metals. Hence, about 100 years ago, at the beginning of the World War I, Europe dived into one of the worst financial crises of the past century and many people and businesses rushed to convert their bank accounts and assets into cash and gold coins. Meanwhile, in Albania, these events triggered a chaotic monetary circulation. In the absence of a national currency and due to the political-military and economic developments during the War, diverse foreign currencies circulated across the country, mainly those of European and neighbouring countries, as well as American and Turkish ones. You may see this conglomerate of denominations in the showcases of the Museum dedicated to the period of Independence and the World War I. Also, the showcases on the monetary circulation in Albania during World War II, in addition to the ones of Antiquity and Medieval periods, exhibit denominations that speak of the important and complicated relationships between money and war. I am sure these important moments to the economic and monetary history of Albania, and beyond, will be discussed at length during the Conference. Dear participants, The Conference is not the only activity the Museum has organised about numismatics, economic, monetary and financial history. We have also organised for the general public a cycle of lectures called “Museum nights”, with lectures delivered by experts in the field of numismatics, history and economy. Also, in cooperation with the Institute of Archaeology, a one-week seminar was organised on Ancient coins, attended by the students of history, archaeology and cultural heritage. This year commemorates the pan-national Year of Skanderbeg, our National Hero. The Museum 1/2 BIS central bankers' speeches has organised temporary exhibitions, displayed both inside and outside the Museum, on the figure of Skanderbeg, featured in the Albanian currency. Financial education has been given an important focus in the work of the Museum. Throughout the year, many students and young people have been involved in educational activities and projects, actively participating during the Money Week events, attending the lectures held at the Museum, and using our educational publications and products. The Museum will continue to work in these two aspects by supporting: i) the scientific, economic, and monetary history of the country; and ii) the financial education of the new generations, with the support and cooperation with the most distinguished actors in these fields. As an institution that keeps and promotes an important part of the cultural heritage of the country, such as the currency, we are privileged and obliged to collaborate in order for the Museum of the Bank of Albania not to be just an exposition of the rare collections, but a place where the public may find adequate and specialised literature and expertise to learn about the economic and monetary history, and become more financially educated. Concluding, I would like to thank all the researchers, the speakers, the audience and our collaborators, who responded positively to our call for participation. With these words, I wish you all fruitful deliberations, I wish the conference all success and I wish all the guests an enjoyable stay in Tirana. Thank you! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 10 |
Commencement address by Mr Gent Sejko, Governor of the Bank of Albania, at the graduation ceremony of the students of economics, University of Tirana, Tirana, 7 October 2018. | Gent Sejko: Commencement address for economics graduates at University of Tirana Commencement address by Mr Gent Sejko, Governor of the Bank of Albania, at the graduation ceremony of the students of economics, University of Tirana, Tirana, 7 October 2018. * * * Honourable Prof. Kule, Distinguished members of the faculty, Dear family and friends, Most importantly dear students, It is a privilege for me to be present today in this youthful and meaningful graduation ceremony. Today, you, your families and your professors at the Faculty of Economics have earned the right to proud for this milestone achievement. I take this opportunity to extend my most sincere congratulations to all of you for the successful completion of your university studies. This moment marks an important transition in your life. You leave the university auditoriums to enter another reality, far different from the one you have experienced till now. From tomorrow, you will face a new dimension of the human reality, a rather dynamic and complex one. As you embark on a new journey, remember that life has many stations. Every time you reach one of them, the next one might be even more challenging. It is part of the journey. Remember, building a successful career takes time, hard work and perseverance. My advice is to make the first steps with the energy and enthusiasm that characterise your age. Be courageously free of any complexity and non-based hesitation! Pass through your positive energy whenever you are: in family, work, friends and daily relations with your colleagues. Show consistent and cultured behaviour, as well as respect for the law, codes and traditions! Embrace innovation and fight to make a reality any dream that inspires human love, prosperity, integrity and understanding. Be loyal and collaborative, and never ever give up on learning and education, for whatsoever reason. Nowadays, the society is facing many social, cultural, scientific, technological, demographic and geographical changes. The ability to adapt continuously and anticipate these developments is not simply a challenge of today. It shows the need to be constantly in touch with knowledge, new scientific novelties, innovation, and various theoretical trends and their application. Therefore, I strongly encourage you to never break up with knowledge and education. Be assured that, wherever you may be, in Albania or abroad, education will always pay you back the energy and time you have spent. Personally, I consider it as an important pillar, which helps over time to shape a reputable, respected and broadly accepted figure by the public opinion. Dear students, Today is the day to celebrate for this achievement. Today is the day to feel proud. Your dream to successfully complete your studies has come true. Now, many opportunities and alternatives await you. Be courageous and wise to make your choice. Wherever you are, whether in the public or the private sector, in Albania or abroad, I urge you to show integrity, optimism and determination. I have only one piece of advice to everyone: Never give up! Live your life with courage and self-confidence! Time rewards those who dream big and dare to see beyond tomorrow. This is the right way to build a better society, capable to 1/2 BIS central bankers' speeches generate prosperity for the future generations. Renounce the ambitions for a fast track to an undeserved career. It is a path that leads to a dead end. Life is a journey of many unknown things and I assure you that in the long run, those that stand out for their professional ability, devotion and respect of human values, shine bright on the life’s journey. Concluding, I wish you once again every success and all the best in future endeavours. Congratulations! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 11 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference of the Bank of Albania, Tirana, 1 November 2018. | Gent Sejko: Welcome address - Annual Conference of the Bank of Albania Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference of the Bank of Albania, Tirana, 1 November 2018. * * * Your Excellency Prime Minister, Your Excellency Minister of Finance, Dear Professor Berglof, Dear Governors and Deputy Governors, Your Excellencies, Ambassadors, dear professors and representatives of the banking system, Dear ladies and gentlemen, It is always a pleasure for me, as the Governor of the Bank of Albania, to have the opportunity to open the proceedings of our annual conference. This year we are organising it in cooperation with the London School of Economics and Political Science (LSE), one of the foremost academic institutions in the field of research on economic and political sciences. The LSE’s interest and the professional investment testifies that the cycle of our conferences has matured. I am sure that this year’s conference will uphold and even forge ahead the frontiers of our standards. Engaging in open discussions and sharing our experiences will eventually help us to identify the optimum way for addressing the challenges that lie ahead. *** This year’s theme is especially important not only to central banks but also to all the decisionmakers for the economy. While focusing on the direct implications for the monetary policy, it touches on issues that address strong and dynamic changes that economic structures, financial markets, doctrines of economic management, and societies and human communities are experiencing at the local and global level. Recent reports by prestigious international financial institutions point out that the prospects of economic development remain positive. Likewise, Albania is set on a steady positive trajectory of economic growth. Our prudent economic policies, the constant improvement of balance sheets in the real and financial sectors, and the ongoing restructuring of the economy and of the growth model have created adequate premises for an increasingly fuller utilisation of production capacities and the convergence of inflation toward the target. Let me explain this in greater detail. According to official statistics, economic growth in Albania accelerated to 4.4% in 2018 H1, showing a broad base in terms of aggregate demand components, and a diverse composition in terms of sectors contributing to growth. In particular, Albanian exports showed growth, while the level of foreign direct investments remained high, contributing to the narrowing of the current account deficit and the stability of the external position. The dynamism of the exporting sector and the high level of foreign investments are encouraging for a steady economic growth, and testify to the increasing competitiveness and attractiveness of the Albanian economy. The effects of economic growth have begun to be present in almost all economic and financial 1/5 BIS central bankers' speeches indicators. Participation in the labour force and employment has increased, the unemployment rate decreased to 12.4% in 2018 Q2, and wages have started to trend upward. Also, the growth in aggregate demand has contributed to the improvement of balance sheets of Albanian enterprises and has enabled a clearly downward trend in non-performing loans (NPL). The NPL ratio dropped to 12.9% in 2018 Q3, almost halved from its peak recorded in the wake of the crisis. Reflecting its performance and the recovery of economic activity, against the backdrop of low interest rates triggered by our accommodative monetary policy stance, the Albanian banking sector remains liquid, profitable, and well capitalised. This sector appears resilient to potential shocks and has adequate capital and liquidity to cover the needs of the economy for financing. The currently positive momentum of the Albanian economy has created adequate premises for the growth trend to continue in the period ahead. The expansion of aggregate demand, the favourable financial environment, the improvement of balance sheets, and the restoration of confidence in the economy form a virtuous circle, which will support growth in the medium-term horizon. Furthermore, the long series of structural reforms – whether already undertaken or being currently implemented – should pave the way for faster, sustainable and comprehensive economic growth. *** Dear ladies and gentlemen, The topic of today’s conference is related with the challenges that policy makers face in terms of growth as well as of economic and financial stability. From a general perspective, these challenges pertain to: Implications arising from the monetary policy normalisation in major central banks on developing countries, especially those that have adopted the short-term debt as their growth model; Populist phenomena, which fuel a protectionist rhetoric, are detrimental to global trade, and refrain the free movement of production factors; and Risks that remain present in the global financial system. From a more specific perspective, today’s economic, monetary and financial reality appears especially challenging for the monetary policy. This reality is labelled as the new “normal” of the monetary policy. Let me identify a few of these challenges. The natural interest rates appear downward, potentially as a result of a combination of several factors: slowdown of productivity and of the pace of innovation; unfavourable demographic trends in advanced economies; and the recycling of savings from developing economies toward advanced economies. The rate fall leads to the reduction of space for conventional stimulating monetary policies in the future. The correlation between aggregate demand and the inflation rate has weakened in the short and medium term, as a result of developments in the labour market and increasing integration of the global economy. This phenomenon renders the monetary policy action more costly. The financial innovation and the increasing awareness of the correlation between economic and monetary stability, on the one hand, and the financial system, on the other, have reduced the space for conventional monetary policy instruments. 2/5 BIS central bankers' speeches Despite the complexity, recommendations for dealing with these challenges have been put forward. They range from the modification of the monetary policy mandate to enriching the array of instruments it employs, and its better combination with the macro-prudential policy. I am certain that the issues set out above will be addressed at length during the day. From my perspective, the consensus on the shape of the new ‘normal’ of the monetary policy should maintain three key elements: First, avoiding multiple, ambiguous and non-transparent objectives related to the monetary policy. This principle would sustain the credibility of the monetary policy, as a prerequisite for increasing the effectiveness and decreasing the side effects from its intervention. Second, acknowledging the limits of the monetary policy, both in the short and medium term, and in the long term. In the short and medium term, the monetary policy often encounters limited effectiveness, especially in the case of financial crises, or negative side effects in the form of heightened risk in the financial system. This limitation stresses the need for supplementing and coordinating it with other economic management policies. In parallel, the monetary policy alone does not have adequate instruments for generating a sustainable acceleration of the growth pace in the long term. This limitation underlines the argument that the monetary policy is not and may not be a substitute for structural reforms. Third, in designing the range of instruments at the disposal of the monetary policy, care should be taken to avoid the risk in the central banks’ balance sheet, which would negatively affect their independence. *** The experience of the Bank of Albania in withstanding the crisis and fostering growth in the wake of the crisis illustrates some of the key topics I mentioned above. In response to the aggregate demand slowdown and the subsequent negative implications on employment, soundness of financial balance sheets and inflation, the Bank of Albania undertook a progressive easing of the monetary policy stance, by lowering the policy rate and injecting liquidity vis-a-vis an expanded collateral base. The monetary expansion policy was supported by a clear focus on price stability and was favoured by the operation of a free exchange rate regime. The latter has served and will serve to absorb short-term shocks to the Albanian economy and financial system. I want to emphasise a very important principle to uphold, that is maintaining a free exchange rate regime and activating market interventions only in situations when the primary objectives are affected. The sustaining reason is that movements in specific moments toward a new and more stable equilibrium enable our monetary policy to focus on its primary objective – price stability – and contribute to a more productive orientation of human and financial resources in the economy. The monetary stimulus transmitted through conventional instruments proved successful in containing negative effects from the crisis. It contributed to a calm operation of financial markets, eased the cost of debt servicing, and helped start a restructuring process of the economy. Yet, some features of the development of the Albanian financial markets limited the effectiveness of the monetary policy action. The low level of development of the financial markets, the phenomenon of the increase in non-performing loans and the high level of foreign currency 3/5 BIS central bankers' speeches borrowing decelerated the full transmission of the monetary stimulus to the economy. In response, the Bank of Albania adopted an integrated approach to boost the effectiveness of the monetary stimulus, which implied the adoption of new instruments as well as the initiation of a series of structural reforms aimed at improving the monetary policy transmission mechanism. With regard to instruments, the Bank of Albania began to employ the forward guidance tool, and applied countercyclical macro-prudential measures to support the growth of lending to the economy. With regard to the transmission mechanism, the Bank of Albania undertook in cooperation with the Government of Albania a series of structural reforms in the financial system. These reforms were aimed at further developing the financial market, improving the legal and regulatory environment with regard to contract compliance, collateral execution and lowering the credit risk, as well as reducing the phenomenon of foreign currency borrowing. This integrated approach has yielded the first results, creating a financial environment that is more responsive to our policies, being an additional guarantee for convergence with our price stability objective and maintaining the sustainability of economic growth. This investment, however, should be further supplemented by creating and maintaining the necessary fiscal space for withstanding shocks, and should be accompanied by structural reforms across the board to boost the resilience and flexibility of our economy. *** Dear ladies and gentlemen, Looking ahead, I would like to underline that one of the valuable lessons we have learned from the crisis is that safeguarding financial stability and maintaining a functioning monetary policy pass through are among the most important investments that a central bank can make for the future of the country. Nonetheless, the challenges that lie ahead of the global economies will be increasingly complex, implying the need for informed and courageous decision-making in line with the developments of the time. What in today’s terminology is known as the “New Normal” is characterised by many unknowns, while all policymakers require finding appropriate and necessary options to facilitate the decisionmaking of a central bank not only from the perspective of the good management of the monetary policy, but also from the perspective of the financial stability, protection of the consumers and of the economy against economic and financial shocks. Hence, we have brought together with the LSE the best experts from the academia, central banking, international institutions and the financial market to discuss the potential effects of these developments, to generate ideas as to which might be the adequate and optimum policies for addressing these challenges. The need to coordinate domestic policies, and fostering the cooperation and interaction between the markets and the Authorities is evident. Our experience in this regard is positive. The lessons learned from the crisis, and the scanning of the development level of the financial sector, have enabled us – under a successful cooperation with the Government of Albania – to pave the way for a full restructuring of the architecture for the regulation and monitoring of the financial sector, create functional mechanisms for exchanging information and coordination among regulatory agencies, and pave the way for concrete reforms for the development of the financial system, especially in the field of capital markets and payment systems. 4/5 BIS central bankers' speeches This need for cooperation and coordination crosses the national borders. A comprehensive approach, at global and regional level, would contribute to preventing unwanted consequences, not only for small and developing economies – which are often consumers of financial regulation policies at the global level – but also for the large economies, which originate them. I believe that the conclusions of the conference panels will be very useful for all of us and will thoroughly portray and present the risks and benefits from the issues mentioned above, with particular focus on their treatment from the perspective of decisionmakers. Thanking you once again for your participation, I wish the conference a complete success and hope all of you will enjoy your stay in Tirana! 5/5 BIS central bankers' speeches | bank of albania | 2,018 | 11 |
Opening remarks by Ms Natasha Ahmetaj, Second Deputy Governor of the Bank of Albania, at the Regional Conference on Recovery and Resolution Planning, Tirana, 15 November 2018. | Natasha Ahmetaj: Recovery and resolution planning for the banking sector Opening remarks by Ms Natasha Ahmetaj, Second Deputy Governor of the Bank of Albania, at the Regional Conference on Recovery and Resolution Planning, Tirana, 15 November 2018. * * * Dear ladies and gentlemen, Welcome to this regional conference organized by the Bank of Albania in cooperation with FinSAC, a valued partner in our path towards development. The financial crisis of 2008 remains the starting point of a number of discussions, as many of our present efforts originate from this period. The 2008 crisis was a tough test for the capability of a state to manage national and cross-border crises. This test became even more relevant for its global capability, if we take into account that the crisis originated in advanced economies, but spilled over into emerging markets and developing economies. In order to safeguard core financial services for their citizens and firms, governments were forced to use public funds, by injecting money and issuing guarantees for distressed financial institutions at unprecedented levels. From October 2008 to October 2011, the European Commission approved EUR 4.5 billion from public funds to support financial institutions. Naturally, this support helped to curb, at least in the short-term, a massive bankruptcy of banks and the collapse of the real economy. On the other hand, it burdened taxpayers with deteriorated public finances. This forced situation strengthened the need to reflect on the protection of the taxpayers and public finances in times of crisis, without sacrificing the prevalence of public interest. Such reflection served to promote discussion on the adequacy of financial markets’ regulation to withstand crises. Two important shortfalls in the regulatory framework were identified. First, the banking legislation established clear rules for the orderly entry of new participants in the market but did not define the mandatory requirements for an orderly exit for the troubled market participants. Now in the post-crisis period, almost everyone agrees that, in the absence of a resolution regime, in order for a smooth and orderly exit of problematic banks, governments were forced to use public funds. Second, as a result of the high level of financial integration internal shocks in a given country were transmitted across borders to other countries, transforming them into a global issue. The post-crisis analysis motivated the European Union to assess issues related to banks’ recovery and resolution, and consider strengthening the existing cross-border cooperation, to reflect better the actual integration of financial markets. Today, the banking union in Europe has introduced harmonized rules about resolution throughout the European Union, and a unified application for the euro area. More specifically, the legislation of the European Union has activated the European Bank Recovery and Resolution Directive (BRRD) for all member countries and has established the Single Resolution Mechanism (SRM) in the euro area, as well. The BRRD creates such instruments for a preventive recovery and early intervention in a bank, designed to avoid the failure of a bank, as well as facilitate an orderly resolution when banks are failing, to protect the public interest. The new Law replaces the standard insolvency proceedings of a bank with the resolution undertaken by the relevant authority. Banks’ failures and financial crises may be common events. They are very costly, as well, which, in some cases, can be as high as 40–60% of the Gross Domestic Product. This includes losses in deposits, weakening of access to finance and loss of public confidence in the financial system, which, in turn, reduces its capacity to support economic growth and decrease poverty. Also, standard insolvency 1/5 BIS central bankers' speeches proceedings for failing banks proved inadequate in times of crisis because they did not address systemic risk nor ensured the continuity of critical functions; moreover, they did not protect depositors. These procedures require time, long negotiations as well as complex arrangements with creditors, which may damage and further diminish the asset value of the distressed bank, hence causing severe consequences for the real economy. For this purpose, the new Recovery and Resolution Law provides the Supervisory and Resolution Authorities with the legal capacity and the necessary instruments for restructuring bank operations, in the event its possible failure jeopardizes financial stability or undermines other objectives of the regulator. The aim is clear: on the one hand, we have the public interest on financial stability, while, on the other hand, remain the shareholders of the bank, who have voluntarily undertaken the risk by investing in the bank. If the shareholders rely on the possibility of an implied state guarantee for banks, this constitutes a moral hazard on their part, therefore increasing their risk appetite. The implementation of the Resolution Law formally eliminates the basis for the expectation for any such guarantee. Among the costs caused by the failure of a bank, contagion is probably the highest, since it turns the problem of a single bank into a problem for the entire banking sector. It may happen for two reasons: due to the spillover effect of a bank’s exposure towards another, as well as due to public panic, that causes eventual massive bank runs. This channel is particularly pronounced for developing economies, where contagion is faster due to their weak financial literacy, the historical lack of bank failures, and the presence of weaker institutions. In this context, the resolution regime serves as a tool for restoring market discipline and avoiding the risk of contagion. In essence, resolution is an integral part of banking supervision applied to the final stage of a bank’s life, should measures taken during the standard or intensive supervision stages fail to improve the situation of a distressed bank. The drafting of the resolution regime was accompanied by the strengthening of the supervision regulatory requirements, which aim to increase the resilience of the bank and strengthen the financial market structure to avoid the moral hazard. In the wake of the crisis, experts have reached the conclusion that there is no bank model that would perform well or poorly in times of crisis. Different models of failing banks showed that the issue stemmed from undertaking high risk, financing with short-term instruments and insufficient protection offered by capital, even where minimum requirements were met. This conclusion has been reflected in higher supervisory requirements for quantity and quality of capital and liquidity, limits on the leverage ratio and maturity mismatch between assets and liabilities. The banking sector needs to comply with these requirements within a defined medium-term framework. Regulatory measures are also accompanied by the consensus on the need for structural reforms in the financial system, namely, separation of risk-bearing financial speculation activities from deposit collection activities, and issues related with too big to fail banks, by discouraging their excessive growth. The biggest lesson of the financial crisis was that micro-prudential supervision of banks was not sufficient to safeguard financial stability because the system as a whole behaves differently from individual parts. In an effort to make themselves safer, financial institutions may undertake such behaviours that collectively damage financial stability. The banking activity takes place through its own cycles, known as financial cycles, which may deteriorate the business cycle of the real economy. Banks are exposed to collective macroeconomic shocks, which weaken them, at the same time, thus affecting financial stability. The understanding of this lesson dictated the need for macro-prudential supervision in addition to the micro-prudential one. Among the most effective instruments of macro-prudential supervision are the requirements for capital buffers to counter the creation of systemic imbalances, as well as capital buffers for systemic banks, which being large enough, may cause social costs beyond their individual dimension. Through this new capital composition, the macro-prudential instruments manage the systemic risk before it materializes, decreasing the probability of occurrence and, after its materialization, minimizing losses that are absorbed by the higher level 2/5 BIS central bankers' speeches of capital. But still a lot of work remains to be done. It has long been recognized that a deeper financial integration also brings a better functioning of the European Union. Yet, financial integration showed to be shallow and reversible and, after the financial crisis, fragmentation increased against centralization and integration. The measures undertaken to reduce liquidity within each country improved the national financial stability, but neglected the effect on other countries. The banking union addressed these inadequacies by concentrating the national financial policies at the central level and aiming to fulfil two objectives: to ensure banks’ soundness and promote a deeper integration of the banking sector. The Single Supervisory Mechanism plays an important role in these objectives. A stronger and more uniform supervision enhances banks’ stability and provides them with a more coherent framework of policies on cross-border banking, producing benefits compared with the fragmented system of national supervision. As Mario Draghi says: “Let’s keep in mind that fragmentation starts with the decision by banks not to operate in regions where the risk-return of lending is judged to be insufficient to remunerate their invested capital”. Supervisors’ advice for banks in the post-crisis period remain the same: banks should adapt the business model to be more effective and profitable, improve risk management and manage the cleaning of the balance sheet from legacy assets. Despite the progress made, these tasks are yet to be completed and now is the most appropriate time to finalize them. The regulatory framework is clearer and more complete (the implementation of Basel III is starting), supervision is clearer in terms of methodologies and policies, and the application of FinTech allows banks for new ways to do business efficiently. Lastly, and more importantly, the overall macroeconomic framework is stabilised and the positive economic growth is stable. The framework presented above is a good guideline to address the remaining post-crisis challenges. Is the adoption of international standards on financial stability safeguarding necessary? The answer is yes, because the globalization and interconnection of the banking sector needs the standardization of prudential regulation. However, while adopting international standards, it is important to keep in mind two issues: First, these standards have to adapt to the development level of the country and calibrated according to domestic conditions. Second, international standards pose a minimum of requirements, leaving it at the discretion of individual countries to undertake more stringent requirements. The model of global integration is the economic model that has been adopted by most of the transition countries, such as Albania. Under this guidance, the Albanian banking market has demonstrated clear willingness and objectives for a swift harmonization with the legal framework of the European Union’s banking system, as well as with its significant changes since 2008. Although there are no cases of bank failures in the history of the Albanian banking sector, we have identified in our banking legislation the same loopholes found in other European economies. The development of hypothetical scenarios for coping with a potential exposure of the Albanian economy to the Greek sovereign debt crisis evidenced that the Bank of Albania – as the supervisory authority of the banking sector – did not have all the necessary legal instruments to manage insolvency situations in systemically-important banks. This need for a new legal framework is addressed in both national and cross-border aspects, by the Bank Recovery and Resolution Directive. In fact, the initial efforts to prepare and present the first recovery plan to the Bank of Albania started in 2012. The relevant Regulation was approved by the Supervisory Council of the Bank of Albania in 2014. But, of course, these efforts were made within the supervisory legal authority and, as such, they were not sufficient. For this reason, during 2015, with the support of World Bank’s FinSAC project, the Bank of Albania started the difficult but necessary work of harmonizing the European Directive into a new Albanian law. The Law ‘'On the recovery and resolution of banks in the Republic of Albania'’ entered into force 3/5 BIS central bankers' speeches in July 2017, vesting the Bank of Albania with a new attribute, i.e. the Resolution Authority. This attribute completes the financial security mechanism of the banking sector, with the Bank of Albania responsible for regulating and supervising the banking sector, drafting macro-prudential policies, performing the function of the lender of last resort as well as the implementation of banks’ resolution. Together with the deposit insurance scheme provided by the Deposit Insurance Agency since 2002, the financial safety net framework in Albania is complete. For the purposes of this Law, the Resolution Fund was created with contributions from the banking sector. This Fund aims to reach ALL 6.3 billion within 2027. The implementation of the Albanian recovery and resolution Law consists in three important steps: The first step is the drafting of recovery plans by each bank operating in Albania, with reliable and concrete scenarios, as well as defining the indicators that signal the deterioration of the financial situation of a bank before it becomes irreversible. When drafting recovery plans, the bank should create credible options to withstand stress scenarios, constructing mechanisms that are part of the daily management of the banking business and that do not remain just part of a hypothetical plan. Although drafting recovery plans is the task of individual banks, the Bank of Albania, in its capacity as the Supervisory Authority, plays an essential role in assessing the quality and reliability of these plans. During 2018, banks have prepared recovery plans based on a new bylaw adopted by the Bank of Albania that sets out their detailed content. The opening panel of this Conference will present concretely our assessment of these plans. In brief, we may say that our challenges remain the same as those faced by other supervisory authorities, whether in European or regional countries. In sound financial situations, such recovery planning allows the Bank of Albania to deeply understand the structure and activity of the bank, thus supporting our supervisory process to identify areas for improvement, as well as bank’s self-diagnosis in these areas. In stressed financial situations, the recovery plan is the main document the bank has to correct its difficulties and, as such, it must be efficient, applicable and comprehensive. The second step of the new crisis management framework is related with the early intervention in the bank. This step is activated if, after the implementation of the recovery plans, the bank’s actions fail to improve the situation. The Bank of Albania, in the capacity of the Supervisory Authority, undertakes several concrete early intervention measures in the bank, before the bank shows signs of insolvency. Currently, we are in the process of drafting bylaws for the early intervention implementation in accordance with the new legal requirements. The third step is the resolution of banks, applied by the Bank of Albania in view of the new mandate. Similar to recovery plans, the resolution plans drafted by the Bank of Albania aim to identify the legal and structural obstacles and difficulties with financial resources that banks face, toward resolvability. In this regard, the resolution plans are one of the key instruments to facilitate the Bank of Albania’s resolution implementation. This year in April, the Bank of Albania approved a bylaw that defines the content of resolution plans. Then banks were required to report a broad set of data for drafting these plans, based on the model of the European Banking Authority and we are currently in the process of drafting them. The drafting of the banks resolution plans is complicated, which includes complex and cross-border issues that must be implemented and coordinated within a short period of time. Hence, the resolution planning is an on-going process and a long-term mission to remove obstacles against the possibility for resolution action in banks. This planning does not mean drafting an annual plan that is stored somewhere in some shelf and it is dusted off only when its implementation is necessary; instead, it is the beginning of a long process of restructuring all aspects of the banking business that may hinder this process. Our point of view is that this process belongs equally to the Bank of Albania as the Resolution Authority and to the banks, 4/5 BIS central bankers' speeches which must include its results into their daily business. During the first cycle of this work in 2018, we have highlighted a number of issues that require particular attention in planning, as well as in their following up by the banks: The Bank of Albania must have access to qualitative data produced by banks, in order to select the appropriate resolution strategy. The exact identification of the bank’s operational system interconnected with the critical functions is important. The proper understanding of contractual agreements and their respective treatment is imperative, and, in particular The provision of resolution funding sources constitutes a challenge. Complying with the Minimum Requirement for Own funds and Eligible Liabilities (MREL), which underpins the application of the new essential resolution instrument, the bail-in instrument, remain the key challenge for the medium-term period. Complying with MREL is a challenge for countries like Albania, due to the capacity of the domestic market to absorb (acquire and maintain) the subordinate debt that may serve to fulfil the Minimum Requirement as well as due to the capacity of the banks to restructure funding resources, which currently consist largely of deposits. Consequently, to fulfil this obligation an interim period should be designed, without prejudice, in any case, to the main objective of resolution implementation. Finally, resolution is quite a challenging process for emerging and advanced economies. The banking sector in the Balkans is dominated by foreign-owned banks. In Albania, subsidiaries of foreign banks account for around 78% of banking sector assets, while those from European countries account for 48%. The Bank of Albania is the Resolution Authority for seven subsidiaries of EU based banking groups, of which four are classified as systemically important under the mandate of the Single Resolution Board (SRB). Due to this, the signing of cooperation agreements between the resolution authorities of the banking group and the local authorities where the subsidiary operates is very important for coordinating actions, exchanging data for planning and implementing the resolution, and coordinating crisis management. I have the pleasure to share with you the news that the Bank of Albania has signed an important cooperation agreement with the Single Resolution Board, i.e., the Resolution Authority of the Banking Union, on 3 October 2018. Dear ladies and gentlemen, This Conference is the culmination of our work over the past 18 months for developing a complete framework for bank recovery and resolution. For this reason, the presence of colleagues from supervisory and resolution authorities from various entities assumes special importance. We have representatives from the European Union at the central level, from individual countries of the European Union and representatives from countries of the region, national and foreign bankers as well as the representatives of the media. This presence means sharing experiences and opportunity to evaluate what has been done. I am confident that today, among other things, we will also build new bridges to coordinate our efforts for a sustainable financial system, within and beyond geographical boundaries. 5/5 BIS central bankers' speeches | bank of albania | 2,018 | 11 |
Presentation by Mr Gent Sejko, Governor of the Bank of Albania, of Bank of Albania's opinion on the Draft Budget 2019 to the Parliamentary Committee on Economy and Finance, Tirana, 19 November 2018. | Gent Sejko: Analysis of Albania's draft budget 2019 and public finances; recommendations Presentation by Mr Gent Sejko, Governor of the Bank of Albania, of Bank of Albania’s opinion on the Draft Budget 2019 to the Parliamentary Committee on Economy and Finance, Tirana, 19 November 2018. * * * Honourable Chair, Honourable Members of the Committee, First of all, thank you for the invitation and the opportunity to present the opinion of the Bank of Albania on the Draft Budget 2019. I would like to emphasise that the drafting and approval of this Draft are among the most important moments in the economic life of the country. Therefore, we have always welcomed the constructive and professional discussion on the objectives, policies, instruments and projections, which, overall combined, determine a Draft Budget. In compliance with the institutional mandate of the Bank of Albania, our opinion will focus on the correlation between the performance of the economy and the fiscal policy, as elaborated in the Draft. Next, I will present our judgement on the impact of the borrowing strategy and public debt management on the Albanian financial market. Then I will provide an overall analysis of Albania’s public finances stability indicators. Lastly, I will present some suggestions of the Bank of Albania for the period ahead. Honourable Members of the Committee, Detailing the governing policies in financial terms, the state budget should not be based simply and solely on the economic and financial reality of a country, but be viewed as an instrument for improving it. Let me start the presentation of Bank of Albania’s assessment on the domestic economic and financial developments and the relevant policies to support them. 1. Fiscal policy and Draft Budget 2019 As we have also emphasized in our public communications, the Bank of Albania judges that the Albanian economy is set on a positive development trend. The growth pace accelerated in the first three quarters of the current year. In part, the pace accelerated also as a result of the favourable hydric situation. In addition, employment increased and the unemployment rate fell, whereas the financial balance sheets of households, enterprises and the banking sector continue to improve. Likewise, the main indicators of the macroeconomic balances have improved: Average inflation approached closer to the target in 2018, despite the negative impact from the rapid appreciation of the exchange rate; Current account deficit has trended downward, mainly as a result of growth in Albanian exports; Non-performing loans ratio dropped to 12.9%, reflecting the improvement of balance sheets in the real sector, as well as the measures taken to address it; and, Fiscal reporting shows that the budget deficit remains at historically low levels, and the public debt has been decreasing. 1/5 BIS central bankers' speeches All these indicators suggest that the cyclical position of the Albanian economy is improving. In other words, the economy is moving gradually towards equilibrium. The Bank of Albania deems that the outlook on economic growth remain positive. The sources of economic growth appear solid and diversified, in terms of both aggregate demand and production sectors. In parallel, the external environment remains overall favourable, although uncertainties and risks surrounding it remain present and are not entirely negligible. Yet, the positive development trend would not have been possible without a proper mix of economic policies, i.e., the combination of the accommodative monetary policy with the consolidating fiscal policy. One the one hand, the monetary stimulus has enabled the lowering of interest rates; the boosting of crediting; and the easing of debt servicing costs. In turn, it triggered the expansion of aggregate demand and underpinned economic growth and employment increase. On the other hand, due to the fiscal consolidation has enabled the lowering of risk premia and of borrowing costs for both the private and public sectors, and has expanded the space for withstanding potential shocks in the future. In our opinion, fiscal consolidation should remain the main anchor in formulating the fiscal policy and the main guideline for implementing the Budget in the future. The Bank of Albania finds that the presented Draft Budget accomplishes this mission. In concrete terms, the Budget envisages: Reducing further the budget deficit, to 1.9% of the GDP against 2% expected for 2018; Maintaining the primary balance surplus, projected to stay at 0.5% of the GDP in 2019, as well; Reducing the public debt, to 65.5% of the GDP against 69.1% expected for 2018; Moreover, the Bank of Albania deems that the Draft Budget 2019 is based on acceptable economic and fiscal projections. In particular, the projected level of revenues is on the up side our projections, driven also by the projections for an improvement in the revenue collection process, but the differences in projections appear minor and have immaterial effects on the Budget. Based on the above, we deem that the Draft Budget 2019 maintains the fiscal consolidation trend, remaining harmonised with the direction and intensity of the monetary stimulus and contributing to the reduction of the risk premia and the costs of financing in the economy. Beyond the stabilising effect of the fiscal policy, and analysing the Draft Budget, along with the accompanying fiscal package, from the long-term perspective of the country’s development, the Bank of Albania finds the following: 1. The Draft Budget 2019, envisages public investments at 5.1% of the GDP. From the longterm development perspective, as well as taking into account the great need for developing and improving the country’s infrastructure, the Bank of Albania considers maintaining the high level of public investments as an important element of any Draft Budget. 2. The fiscal package accompanying the Draft Budget does not envisage radical changes in the tax system. Generally, the stability of the tax system is a welcomed development by both domestic and foreign investors. In particular, the Bank of Albania finds that the proposed reduction of the tax on dividend, from 15% to 8%, creates premises for Albanian businesses to have lower costs of financing with capital sources. The lower costs serve potentially to boost domestic and foreign investments, and contribute to improving the structure and enhancing the stability of the balance sheet of enterprises, increasing, therefore, the share of financing with capital sources and decreasing the share of financing with borrowed funds. 3. The Draft Budget 2019 aims at continuing the fight against informality. The Bank of Albania 2/5 BIS central bankers' speeches has supported and supports any initiative that promotes fair competition in the economy. Such initiatives not only render balance sheets in the public sector healthier, but also introduce the right stimuli to enhance efficiency in the private sector and ensure a better allocation of resources in the economy. I will now focus on developments in financial markets and their interaction with the level and strategy of public debt financing. 2. Financial markets, budget deficit and public debt The Draft Budget 2019 envisages the budget deficit level to be ALL 32.9 billion, or 1.9% of the GDP. This level is envisaged to be financed ALL 25.7 billion (or 1.5% of the GDP) by funds ensured during 2018 and ALL 22.9 billion (or 1.3% of the GDP) by domestic financing. Conversely, the level of foreign debt is envisaged to be lowered ALL 15.7 billion (or 0.9% of the GDP). In view of the two-fold objectives that the borrowing and debt administration strategy should have – to reduce the cost of financing and minimising the liquidity risk and debt volatility – the Bank of Albania deems that this financing plan is reasonable. In line with our accommodative monetary policy, as well as supporting the fiscal consolidation process, the Albanian financial market appears calm, with low interest rates and good liquidity indicators. In particular, the banking sector appears liquid, well capitalised, with improving profitability indicators. The borrowing strategy should continue to be oriented toward extending the average term of the debt, which reduces the risk of refinancing, and reducing the share of variable cost instruments, which decreases the volatility and increases the ability to project public debt servicing flows. In parallel, in the medium and long term, the public debt management should focus more on: Diversifying the investors’ base, increasing the attention toward expanding the domestic market by means of improving the functioning of the securities secondary market; Limiting the foreign currency borrowing, which – under a free exchange rate regime, applied in the case of Albania – is a premise for high fluctuations both in the debt level, and in the debt servicing costs. Empowering structures and improving strategies on debt management, implying a more integrated analysis of costs and benefits for various management strategies. The need to improve debt management structures and strategies becomes even more pressing if we take into account two important trends: First, the trend of an increase in the share of debt financed at market terms against the share of debt at concessionary terms, exposes increasingly the debt level and its structure, as well as the health/soundness of the Albanian public finances, vis-à-vis the attention of international financial markets. Second, the debt financing over the recent years has benefited from a very favourable backdrop, in terms of low interest rates, both in the domestic and in the international financial markets. The continuous improvement of both the European and Albanian economies implies that these interest rates will be upward, in line also with the communications of the respective central banks. Honourable MPs, the following sections presents a summary of Bank of Albania’s opinion on the long-term sustainability of public finances. 3. Long-term sustainability of public finances 3/5 BIS central bankers' speeches The organic budget law sets out specific clauses, aimed at disciplining the fiscal policy with regard to efficiency in the use of funds and safeguarding and enhancing the long-term health of public finances. The Bank of Albania finds that these clauses have been complied with. The projections for the gross domestic product are, in nominal terms, within the latest available projections of the IMF. Also, the trajectory of the public debt is downward, public investments are higher than the value of the budget deficit and the draft envisages contingencies for withstanding adverse volatilities in the exchange rate and interest rates. Also, a table of medium-term projections for public finances is attached to the Draft Budget. The table suggests fiscal consolidation will continue in the medium term horizon. From this perspective, the Bank of Albania finds that the deficit of social security schemes, health insurance schemes and other social securities is at around 4.6% of the GDP or 2.6 times higher than the overall budget deficit. Analysed in greater detail, the deficit of the social security scheme, also known as the pension scheme, is expected to be at around 1.5% of the GDP, within the projections made in the reform of this system, and set on a downward trend. On the other hand, the deficit of the other schemes is more stable. Beyond the counter-cyclicality of various elements in these schemes, the Bank of Albania judges that spaces should be considered for further reducing their structural deficit. The Draft Budget 2019 introduces a novelty in terms of explicitly assessing the potential risks to the realisation of the budget. The Bank of Albania welcomes this novelty and encourages that it become an integral part of annual and medium-term budget plans. With regard to these risk scenarios, the Bank of Albania has the following comments: First, the assessment of the impact from potential negative shocks, on the economy and public finance, should be accompanied by the identification of measures that need to be taken in order to cut expenditures and comply with the budget deficit value. Second, the assessment of the risk arising from public-private partnership programmes, the so-called PPPs, suggests that deviations from the requirements of the law for annual PPP payments to the level of 5% of tax revenues of the previous year will be covered through the increase in revenues. The Bank of Albania judges that, beyond this regulatory mechanism for the purpose of complying with the legal ceiling, the potential increase in the budget deficit should be avoided by reducing budget expenditures. Moreover, this reduction should target – to the maximum possible extent – budget sectors that generate such deviations. The sanctioning of this principle serves to maintain budget balances, maintain balances in the inter-sectorial allocation of funds and discipline the contracting of such programmes. The Bank of Albania also suggests the need for implementing best standards in the aspect of accounting for their effect on debt indicators. In the following section, I will present some additional suggestions by the Bank of Albania. 4. Some suggestions on enhancing the effectiveness and stability of public finance: On the pace of fiscal consolidation in the medium term Improvement of the cyclical position of the country, that is the fuller utilisation of production capacities of the economy, eases the burden of fiscal consolidation. The Bank of Albania suggests that, in accordance with the degree and pace of economic improvement, the possibility of accelerating the pace of fiscal consolidation in the medium term be taken into account. Such acceleration would contribute to accommodating the expected rise in the costs of debt servicing in the medium term, and increase the space for withstanding potential negative shocks in the 4/5 BIS central bankers' speeches medium and long term. On the tax system The Bank of Albania deems that, beyond the stability of the tax regime, another desired feature of the tax policies is the simplification of the system, with regard to reducing tax exemptions. Except for the case of protecting the people in need, a simple tax system eases the burden on tax system administration and tends to improve the efficiency in the allocation of resources in the economy. On the further enrichment of the fiscal rule The inclusion of clauses on fiscal accountability in the Organic Budget Law was a great step forward as concerns legal sanctioning of the fiscal stability. Meanwhile, taking advantage of the time and the accumulated experience, the Bank of Albania would suggest enriching the Law with the following clauses: Identifying a desired speed of fiscal consolidation over a one-budget-year horizon, in order to better guide the process in the medium and long term. Including ceilings on the overall contracted value of the PPPs. The Bank of Albania deems that the inclusion of ceilings on the overall contracted value of PPPs in the Organic Budget Law would supplement the limitation laid down in this law about on the maximum permissible limits for the allocation of funds for PPP services over a one-budget-year horizon. In addition, it would anchor, on a more stable basis, the potential budget obligations arising from PPPs. On the pace of the realisation of budget expenditure throughout the year The realisation of budget expenditures throughout the year continues to show more concentration in the fourth quarter. This phenomenon – repeated and dictated to a larger extent by the uneven realisation of public investments- creates unnecessary fluctuations throughout the year in liquidity indicators and interest rates in the domestic financial market. It also tends to render more difficult the control of expenditures and compliance with budget limitations, and reduce their effectiveness. On the management of Public – Private Partnership programmes Further to previous comments on such programmes, I would like to emphasise once again the need for: constantly improving professional capacities of units responsible for the assessment, contracting and monitoring of these projects, especially with regard to the legal and financial aspects. Also, the contracted PPPs in the field of public investments should be in conformity with the strategic medium and long-term programme of investments, as identified in the development programmes of the country. Thank you for your attention! 5/5 BIS central bankers' speeches | bank of albania | 2,018 | 11 |
Statement by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF Mission Chief for Albania and the Albanian Minister of Finance, Tirana, 20 November 2018. | Gent Sejko: Statement at the joint press conference with the IMF Mission Chief for Albania and the Albanian Minister of Finance, 20 November 2018 Statement by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF Mission Chief for Albania and the Albanian Minister of Finance, Tirana, 20 November 2018. * * * Dear media representatives, In the last two weeks we have been engaged in discussions with the IMF Mission, which visited Albania in the framework of periodic Article IV consultations. Such discussions focus on the current performance of the economy and financial markets in Albania, their outlook, as well as the adequate economic policies and necessary structural reforms that should be implemented and monitored with a view to guaranteeing sustainable development for the country. I must say, with pleasure, that we share similar views on development trends, challenges that lie ahead, and the respective measures for tackling them. Let me now present in brief the opinion of the Bank of Albania on these issues. The positive trend of Albania’s economic development continued throughout the current year. From the perspective of aggregate demand, economic growth was supported mainly by the expansion of consumption, investments and Albanian exports. From the perspective of production sectors, economic growth reflected mainly the expansion of the industry and services sectors, driven to a large extent also by the rise in electricity generation. From the perspective of underpinning policies, economic activity expanded, favoured by the following: The accommodative monetary policy and the favourable financing conditions, in both domestic and foreign markets; The fiscal consolidation, which has reduced the impact of the public sector on the domestic financial markets; and The structural reforms programme, which, irrespective of the short-term costs, have started to yield initial results. Economic growth has contributed to the overall improvement of Albania’s economic and financial balances. In line with our previous statements, the following is notable: Inflation edged up slightly, despite the containing effect of the sharp appreciation of the exchange rate, suggesting that the improvement of the cyclical position of the economy is beginning to be reflected in higher wages and other production costs; Albania’s external position has improved, reflected in the narrowing of the current account deficit; Budget deficit remains low and public debt has trended down; Lastly, Albania’s financial system is stable. The Albanian banking sector shows stable or improving capital, liquidity and profitability indicators. Our analyses and stress tests suggest that the sector is resilient to potential stressful situations, thus guaranteeing its ability to withstand shocks. 1/3 BIS central bankers' speeches Such analyses show that the foundations of the country’s development remain relatively solid. The analysis is reflected also in our projections. In the baseline scenario, these projections suggest that economic growth will continue in the medium-term horizon, production capacities will be utilised in fuller terms, and inflation will converge to the central bank target by 2020. These projections are conditioned by a series of factors. First, they assume that the external economic and financial setting will remain favourable to support Albania’s economic growth. Second, they do not envisage potential shocks, which, if materialised, would cause our economy or inflation to diverge from the expected trajectory. Third, the projection for the return of inflation to target assumes that the exchange rate will be more stable in the periods ahead. Based on the above, we judge that the balance of risks remains skewed to the down side. In accordance with these projections, the Bank of Albania deems that the current policy mix is adequate. The fiscal policy is and should remain committed to lowering the debt level and diminishing fiscal vulnerabilities. On the other hand, the monetary policy should maintain the accommodative stance. The convergence of inflation toward the target implies that the intensity of the monetary stimulus will be diminishing over the medium-term; yet, it does not imply a change in the nature of the monetary policy. Lastly, our philosophy as well as the supervisory and regulatory measures will continue to balance the needs for promoting development vis-à-vis guaranteeing the stability of the banking sector and safeguarding the savings of Albanian citizens. But, our duties as policy makers go further than this. With a view to accelerating the pace of development and enhancing its sustainability, the structural reform agenda needs to continue. Let me now list some priority aspects. First, the sustainable and long-term development of Albania’s economy requires further improvement of our financial system. Further development of the financial system will contribute to increasing savings, facilitate financing of the private and public sectors and improve the structure of financing with capital and of financing with borrowed funds. Among other things, further development of financial systems will become increasingly indispensable in the context of the European financial market, which is showing lower focus and higher risk premia for financing emerging economies than in the past. In this regard, the Bank of Albania and public authorities should continue working to improve the credit environment, among other things, by strengthening contract enforcement, implementing new legal and sublegal procedures related to collateral execution, and completion of the remaining duties under the national programme for the reduction of non-performing loans. The signing of a Memorandum of Cooperation in the field of banking supervision, between the European Central Bank and the Bank of Albania, will facilitate the exchange of information and enhance the security of European banking groups that operate in Albania. Likewise, the completion of the restructuring and consolidation process of the banking sector, which has had and will continue to have our attention, is an additional guarantee in this regard. In parallel, the development of other segments of the capital markets should be further encouraged, yet with prudence, so as to avoid missteps, and in harmony with supervisory and regulatory norms and standards for the banking sector. Second, the structural reform agenda should be accelerated. 2/3 BIS central bankers' speeches The second phase of this reform should aim at improving the education and know-how of the labour force, creating a legal, political, administrative and fiscal environment that attracts foreign developments and encourages domestic ones, and increasing the integration of Albania’s economy with the regional and European development infrastructure. Third, the opening of accession negotiations with the EU should be viewed as a primary instrument for the advancement of Albania’s development. The Bank of Albania judges that the fulfilment of the criteria for opening accession negotiations and the rigorous implementation of reforms that this process imposes should be the focus of the entire political spectrum in Albania. Thank you for your attention! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 11 |
Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 12th SEE Economic Research Workshop, Tirana, 6 December 2018. | Gent Sejko: The need to reinforce understanding of economic developments and their relation to policy Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 12th SEE Economic Research Workshop, Tirana, 6 December 2018. * * * Ladies and Gentlemen! It is a great pleasure for me to welcome all of you today to our 12th research workshop. I would like to express my sincere gratitude to our guests from academia and central banks who for 12 years have made this workshop one of the best and well-recognized economic and financial research events in Albania and in the region. Let me also thank all of our distinguished chairs, speakers and discussants for their engagement here today. The papers that will be presented and discussed during these 2 days will cover a wide range of economic and financial issues that concern central banks. The topics on monetary policy, financial stability, risk and novel methodologies are all very relevant to the daily activity of central banks and as such are very important to us. The Bank of Albania is involved in decision- making on all these issues and we provide our active support to it through our research. Along with the papers that are going to be presented today in the panels, we have also decided to include and present in the poster presentations, tomorrow, some of our ongoing projects. Following this workshop, the results of these research works will feed into the decision making process and help the Bank of Albania to make more informed decisions and improve its models and the efficiency of policy-making. For this reason, I encourage and invite you all to ask questions, to comment and to assess our work with your opinions and academic proficiency, to challenge our findings and methodologies. The nature of our research is undoubtedly influenced by our main mission and prevailing concerns. It is for that reason that the majority of our research focuses on monetary policy, price and financial stability, models related to them and the economic events that affect them the most. Some of the trends that we will discuss today are global and fundamental in nature. They may not have reached our economies, yet, but they will definitely have a significant impact on our real economy and financial system in the future. For example, new technologies, such as crypto currencies, Artificial Intelligence and machine learning, which represent a major challenge, not only for central banks, will have various implications for monetary and financial stability. Research related to these new technologies will be beneficial for both advanced and developing countries. Unexpected, sometimes new, global or regional events can shock a domestic economy such that authorities need to intervene with what they already know and have experienced. It is important to understand the short and long-term implications of the adopted policies in these new environments. The crisis, for example, had a different impact on the Albanian economy, from what we had historically experienced. At the time, the Albanian economy did not seem to be vulnerable to the foreign sector. Subsequent analysis, however, showed that domestic imbalances had built and, indeed, made the economy vulnerable to a foreign credibility shock. It is crucial that research in central banks focus on available information and methodologies, which scrutinize existing paradigms, making this information useful to policymaking, before it becomes or leads to vulnerabilities. In light of the financial and human capital constraints faced by central banks in small, open economies, such as Albania, we believe that it is important for these topics to be discussed, in this workshop, with fellow researchers from academia and other central banks. I would like to encourage our researchers to publish their papers in relevant, peer-reviewed 1/3 BIS central bankers' speeches journals as the most important certification of their work. This will make your research projects more useful and facilitate speedy implementation in mainstream policy making. Despite recent success in publications, one of the things that I hear the most is that there is not much research interest in the scientific study of small, developing or emerging market economies like Albania. From my prospective, I think that there is interest in the scientific study of small, developing or emerging market economies such as Albania, because of the particular and distinguishing characteristics of our economy, which can be different from those represented in mainstream research findings. Distinguishing features such as shallow and narrow financial markets, limited number of financial instruments, particular behavioural traits of economic agents and distinctive economic and financial memories, can reveal non-traditional behaviour and interesting phenomena that do not appear and, are, therefore, not addressed in research findings from developed markets. The identification of these particular characteristics and their implications for research findings might be good enough to spark the interest of economic journals and economic conferences to bring these characteristics to the attention of the research community and enrich mainstream economic theory. Just to illustrate a few interesting cases, I would like to remind you that the development of economic and financial markets in response to Bank of Albania policies has been weak and sometimes puzzling, making it difficult to interpret using mainstream economic models. The desire for unhedged borrowers to borrow in foreign currency, the reduced efficiency of transmission mechanisms in the presence of central bank credibility, the potential role of informal and parallel markets and informal economic activity, are some examples of interesting traits of economic behaviour. Several authors have been intrigued by such developments. Hence, they have conducted extensive research on these phenomenon in similar emerging and developing economies, which have later seen the light of publication. Good examples are found in the research work done by the national bank of Austria (OeNB) on the level of euroization in the region, with interesting results that have helped authorities but have also increased the interest of other institutions and academics in euroization issues. In addition, there are increased concerns about financial and foreign exchange market stability in the event of a sudden reversal of capital inflows to the regional banking system. Recently dramatic changes are occurring in the global economic environment, including continuing monetary policy normalization by the U.S. Federal Reserve. These changes can potentially impact small, open economies and must be understood. Research conducted by the central Bank of Italy (BdI) is another example of research work, focused on the region, providing an interesting regional perspective for euro area policymakers regarding their policy decisions and actions. This research has formally provided researched-based evidence on the implications of their policy making on the large group of countries in the periphery of the euro area. These are just a few examples of interesting, useful and publishable research. This year we have a couple of projects that involve cooperation and joint works between Bank of Albania researchers and those from other central banks or academia. This is another way to increase the potential for publication and I would encourage you to increase the amount and scope of cooperation in research with foreign researchers. To conclude, I would like to reemphasize that we must enhance the overall efficiency of the transmission mechanism, and the resilience of the banking and financial systems so that potential and unexpected shocks do not advance to economic or systemic risk. To this end, we must reinforce our capacities and our understanding of economic and financial developments and their relation to policy tools, in order to properly respond to potential risks. This may be done by improving our current knowledge of past shocks, development, and the implications of potential shocks. Experience has shown that this knowledge is comprehensive only when it is the result of a rigorous and competent research process. Last but not least, we have to continue our policy efforts to strengthen the relationship between researchers and policy makers. I believe that these efforts can increase both from research and from the end users of the research 2/3 BIS central bankers' speeches product. Ladies and Gentlemen! The research papers to be presented in this workshop reflect the serious thoughts and discussions of expert researchers on major issues. These include not only the work of the Bank of Albania, but also the work done in other central banks and academia. The topics cover a wide range of very useful issues. I hope that the research presented at today’s workshop will spark vigorous debate and allow the sharing of diverse opinions that will help each other improve and strengthen your work form a different perspective. I invite you all and the Bank of Albania’s researchers to use this activity to learn something new, and as a platform to strengthen the cooperation for your own and your institutions’ benefit. I would like to end my speech by wishing you a productive and successful workshop! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the year-end function organised by the Albanian Association of Banks, Tirana, 13 December 2018. | Gent Sejko: Albanian economic progress in 2018 and banking industry challenges for 2019 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the year-end function organised by the Albanian Association of Banks, Tirana, 13 December 2018. * * * Honourable AAB Chairman, Your Excellency, Minister of Finance and Economy, Dear senior representatives and colleagues from the banking system in Albania, Ladies and gentlemen, It is a special pleasure for me to participate and address this year-end function organised by the Albanian Association of Banks. In my brief address, I would like to bring to your attention some highlights of 2018, regarding the contribution of the banking sector and the financial system, as well as some milestones set for 2019. Let me first focus on the overall performance of the Albanian economy. The overall performance of the Albanian economy in 2018 was positive. Economic recovery is tangible across all of its dimensions. The pace of growth picked up, employment increased, internal and external balances were strengthened, while the main indicators of the banking sector’s soundness have been improving. It is encouraging to see that the sources of economic growth are both increasing and well diversified. From the aggregate demand perspective, growth in the exports of goods and services and in the domestic consumption and investments continued to underpin economic growth. In the meantime, from a sectorial perspective, economic activity expanded, reflecting a more notable contribution from output in the industry sector and the services sector. Lastly, judging from the performance of macroeconomic factors, economic growth was also sustained by a stimulating financial environment, more favourable performance of our trading partners, improved balance sheets, and a more optimistic view of enterprises and households on the outlook. All the above reasons fuel the optimism on the perspective of economic growth in the next year and onward. Albania has reached, among others, an important milestone on its path to development and integration: the expected opening of accession negotiations with the European Union. These negotiations should surely be viewed as an important development anchor and an additional guarantee for both domestic and foreign investors. The year just ending confirmed the stability of the Albanian banking sector. It may be considered as a special year in view of important structural changes in the system, which are expected to be finalised in the next year. Banking activity continued to expand, and the banking sector continued to be well capitalised, liquid and profitable. The NPL ratio continued to improve, hitting a new record low for the last eight years, standing at 12.89%, in September. Meanwhile, deposit growth was channelled mostly into investments in securities and less into lending. Certainly, the appreciation of the exchange rate and the lost loans write off provided a statistical effect on the indicators of credit performance. Also, credit in the national currency continued to prevail over the foreign currency credit. Nonetheless, the overall level of credit to the economy is still far from its potential and the opportunities for expanding lending abound. I understand that this phenomenon entails a number of problems arising from sluggish demand as well as from supply, which is conditioned by tight credit standards. Nonetheless, beyond 1/3 BIS central bankers' speeches structural factors, I reckon that we should react so as to prevent a stagnant credit situation in the economy. For an economy that needs to develop rapidly, in order to converge with European Union levels, the situation should be changed and the levels of crediting should be higher, though still showing continual prudence concerning credit health. Moreover, it is in your financial interest to address this phenomenon with determination, in order to put it on track for a sustainable solution. The financial resources you have and the considerable space that exists for financing the economy show that financial efficiency in the banking activity could improve significantly. The financial infrastructure of the banking sector was enhanced further in 2018. The Bank of Albania and the National Payment System Committee have implemented the national strategy for enhancing the small value payment market and increasing the financial inclusion of the population. The first results are promising and they will be followed by other steps by the Bank of Albania and the banking sector, aimed at achieving a quantitative objective, that is, to see the number of bank account holders doubled by 2022. The financial inclusion of the population is one of the most important current priorities. In 2018, the Bank of Albania and the banking sector paid particular attention to financial inclusion and financial education. It is a proven fact now that improvement in financial inclusion contributes to the improvement of the welfare of the population in a harmonised way. In this regard, we have designed and implemented, among others, a series of educational projects that are adapted to various segments of the population. Financial education, tailored publications with information on bank products and services, as well as developments in the payment infrastructure and payment services are concrete steps for providing more opportunities for access to finance by all segments of the population. *** Dear representatives of the banking sector, The outlook for Albania’s development remains positive. This means that Albania offers the banking sector solid premises for business and growth. But, growth and development do not materialise out of nothing. They reflect the commitment, the hard work and the dedication of all actors. Let me now identify three challenges that we need to tackle together. First, the pace of economic growth needs to be supported by the dynamics of banking credit. We have discussed relevant reasons and factors in many forums and analyses. Today, I would like to emphasise that the economy may not grow sustainably without bank credit recovery. Your role becomes crucial in this regard. The banking sector safe-keeps the savings of Albanian citizens. It is its duty, however, to make such savings available to the growth and development of Albania. There is no growth without credit, and without growth, savings lose their value. Therefore, it is imperative that short-term goals do not prevent the adoption of a strategic and longer-term vision. Banks should invest with a view to developing functions related to financial consultancy services for their clients. They need to persistently seek to explore the market, to identify potential clients – especially households and small enterprises – and, most importantly, to help them design bankable proposals and projects. At this phase, the reduction of concentration and the diversification of credit portfolios are key elements. This requires that you design and set up relevant structures, processes and products, and plan for adequate financial resources. In parallel, you should continuously assess the surrounding environment, which certainly affects your activity. Thus, if there are concrete proposals for additional legal amendments or supervisory practices, I invite you to formulate and submit them officially to us and other relevant public authorities, so that we can, together, make a swift decision on them. In 2/3 BIS central bankers' speeches this process, the Bank of Albania will always support initiatives that lead to an eventual improvement of financial intermediation levels and safeguard the stability of the banking sector and of the financial system. Second, our ambition should aim higher than the 3, 4 or 5% annual growth rate. The country needs more optimism, which means higher growth rates and more structural reforms. The banking sector has both a direct and an indirect role to play in this regard. The direct role pertains to the further development of the banking market and products – in line with the best international experiences. Likewise, insistent work on further reducing the level of non-performing loans should not be neglected, and should be considered by all of us as a key factor for further strengthening financial stability in Albania and providing an impetus to the economy. On the other hand, the indirect role consists in the cooperation that you may offer to many structural reforms across all the sectors of the economy and in all the dimensions of the business setting. Your expertise is not insignificant. It must assume an authoritative place in the economic debate. Third, while acclaiming the cooperation between the Bank of Albania and the Albanian Association of Banks and commercial banks in educational activities, I would also like to iterate the importance of financial education and financial inclusion. As financial services and products develop and become more complicated, financial education helps users to understand and use them; it also helps preventing financial crisis and contributes to the financial stability and economic growth of a country. We need to continue to be key promoters in designing and implementing financial education programmes. Financial education is an investment in the future and it should be an integral part of our agendas, engaging more intensively in the implementation of alternative and innovative methods for enhancing financial education among the public. In conclusion, let me assure you once again that you will find in the Bank of Albania a loyal, supportive and serious partner, adherent to its legal mandate. Our decision-making will be transparent and all our initiatives will be guided by a spirit of cooperation with the banking sector, aiming at ensuring highest efficiency. I wish you a successful and prosperous year for you and your families. Thank you for your attention! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 12 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level meeting on the remittances of the Albanian diaspora, Tirana, 14 December 2018. | Gent Sejko: Address on remittances of the Albania diaspora Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the high-level meeting on the remittances of the Albanian diaspora, Tirana, 14 December 2018. * * * Your Excellency, Minister Majko, Dear guests and colleagues, It is a special pleasure to open today’s meeting, which takes place after a year of intensive coordinated effort between our institutions toward the achievement of common objectives in relation to remittances of the diaspora, and other important issues. Today, a year after the Memorandum of Understanding was signed, I have the pleasure of noting that the materialization of these efforts has been reflected in the undertaking of a number of commitments and projects in pursuit of the objectives set out below. The importance of remittances to the Albanian economy, to family welfare and to development in general is highlighted in many communications of the Bank of Albania. In this context, during 2018, the Bank of Albania engaged its resources in developments aimed at creating the necessary prerequisites for an efficient channelling of such incomes into the Albanian economy. International initiatives in the field of remittances underline the importance of reducing the costs and increasing the efficiency of remittance services, thus implying the need to intervene in the retail payment market, in both remittance-sending and remittance-receiving countries. For this reason, the Bank of Albania, as we have pointed out at the beginning of this cooperation, has engaged in a series of projects aimed at analysing the domestic market with a view to identifying and addressing the needs for intervention. These projects are assisted by the World Bank and funded by the SECO. I take this opportunity to once again thank these institutions for their contribution and support. Moreover, the Bank of Albania and the National Payment Systems Committee has already adopted and is implementing the national strategy for the retail payments market. This strategy aims to create a contemporary and comprehensive market of retail payments, supported by secure and efficient infrastructures, as well as by a wide range of payment instruments and services that meet the needs of financially capable individuals to make payments across the country. Incorporating financial inclusion into the Bank of Albania’s objectives, this strategy has set ambitious quantitative targets aimed at doubling the number of bank account holders (from 38% in 2014 to 70% in 2022) and increasing the number of electronic payments per capita (from 4.3 to 2016, to 10 in 2022). However, in order to achieve these objectives, a concrete and detailed action plan is needed. This action plan would require the support of all the stakeholders in the payments market, as well as interventions in many aspects, such as: 1. improvement of the applicable legal and regulatory framework; 2. development and improvement of financial services infrastructures; 3. expansion of the number and use of accounts and payment services; 4. expansion of access points for these services; 5. increase of education, awareness and financial inclusion; 6. increase of the volumes of transactions processed by payment systems. While the strategy was only recently approved, in June, concrete steps have been taken in this 1/3 BIS central bankers' speeches regard, for example, the drafting of the bill “On Payment Services in the Republic of Albania", which transposes the revised directive of the European Union “On payment services” (PSD2). The adoption and implementation of this bill is considered to have a direct impact for fostering competition and innovation in the field of retail payments, thus promoting efficiency and reduction of the costs for using them. Moreover, the bill is expected to enhance transparency in the services provided by the market and to create a consolidated framework on consumer protection, a very important component for our market. Last but not least, the bill also aims to expand the presence of bank services across the territory of the country (including rural areas). Beyond legal improvements, important steps have been noted in the framework of financial education. I would like to highlight the initiative undertaken in cooperation with the World Bank, and funded by the SECO, for the implementation of Project Greenback 2.0 in Berat. This project consists in enhancing financial inclusion and financial education for emigrants and their families, who receive these funds, as well as in establishing effective channels in terms of costs for the delivery of these funds. In addition, to expand the market knowledge regarding remittances, in June, the Bank of Albania published “Remittances: A support for development". This publication is entirely dedicated to remittances and adopts a comprehensive approach to various aspects in the domestic market. Some of these aspects are the macro-level analysis of remittances and their impact on development in general and on the receiving families; the analysis of the infrastructure of the remittances market in Albania, and the need for intervention, as well as providing adequate statistics on remittances. An important step in the framework of financial education was also undertaken by the Albanian Association of Banks. In June, a memorandum of cooperation was signed on establishing the Albanian Network for Financial Education and fostering inter-institutional cooperation and coordination in the field of financial education. However, there is still much to be done, despite the developments I mentioned earlier. In this context, I would like to invite you all to continue with the efforts made so far, with the same intensity, in order to modernize the domestic payment market. In the medium term, the Bank of Albania will focus its efforts on a number of initiatives, notably on further legal developments and infrastructure improvements. An important step in the medium term is the drafting of the bill “On the payment account". The bill will transpose the European Union Directive “On the Payments Account” and promote transparency by creating a public register to present all commissions applied by institutions, which can be easily compared. At the same time, during this period, the Bank of Albania will engage in a number of infrastructure developments that support financial inclusion, reduce the costs of using these instruments and is estimated to have an impact on the remittance market, mainly from the point of view of remittance receivers and their use. Here we can mention the creation of a national platform for processing payments in real time (instant payment and processing of card payments). The platform creates conditions for the development of innovative and low-cost services and also aims at market segments that create ample volumes by targeting state institution payments as well as daily payments that Albanian citizens make. Last but not least, I would like to thank the Government of Albania for the importance it places on this matter and its continuous support. In particular, I would like to thank the ministries such as the Ministry of Diaspora and the Ministry of Finance and Economy for their support and fruitful cooperation. I am confident that we will continue, with the same intensity, our joint efforts to integrate this very important factor into the Albanian economy at the fastest and broadest extent possible. 2/3 BIS central bankers' speeches Thank you! 3/3 BIS central bankers' speeches | bank of albania | 2,018 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media, Tirana, 20 December 2018. | Gent Sejko: The importance of media in analysing Albania’s monetary policy Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media, Tirana, 20 December 2018. * * * Dear ladies and gentlemen, Welcome to our end-of-year meeting with the media. I would like to thank you for your readiness, objectivity, and seriousness in covering the activities of the Bank of Albania and informing the public about them, throughout 2018. Thanks to you, our analyses and decision-making have been communicated in a thorough manner, mindfully tailored and styled in accordance with the age and profession of the targeted audience. I must note that, in addition to broad geographic coverage, your comments and analyses on the economic and financial developments in Albania have been very professional. At the Bank of Albania, my colleagues and I maintain that the current media reality is an important part of our activity. Our decision-making could not be considered complete without your contribution. Communication is a vital and delicate process for a central bank. I must emphasize that, without your help and objectivity, realisation of Bank of Albania’s decision-making regarding monetary policy and financial stability would have been an impossible mission. Figuratively, I would point out that you are the ones that enable the translation of our analyses and conclusions into an adequate and easy-to-understand message for the general public. You have informed the public on our actions and interventions related to monetary policy, as well as on our decisions related to financial stability, market efficiency, banking regulations and other more specific aspects. This leads us to the conclusion that the level of reporting has improved significantly, which, in turn, urges us to be more demanding of ourselves in all the arguments and analyses underpinning our decision-making. I would like to thank you for your constructive role in reporting news items related to developments in the economy, finances, money, the banking system, inflation, financial stability, as well as to the risks towards which our economy is exposed. I would also like to assure you that the Bank of Albania will continue to be an open and very loyal institution vis-à-vis the media. The Bank of Albania will be continuously open to communication with regard to the entire spectrum of economic, financial, contemporary, professional and unbiased news. Dear ladies and gentlemen, It has become a tradition now for us to organise, during the end-of-year meeting with the media, a modest but very meaningful ceremony: the awards ceremony for the best diploma thesis. We value true scientific research in its highly beneficial capacity, from a long-term perspective, to enable the building of contemporary and sustainable research models. From this point of view, the Bank of Albania has endeavoured to boost its research capacities, something we consider to be essential, ultimately helping to perfect our entire decision-making process related to monetary policy and financial stability. For this very reason, the award ceremony for the best diploma thesis has become a consolidated activity of the Bank of Albania geared toward supporting promising students in the field of scientific research within the scope of central banking. This year, students also showed a high interest in presenting their diploma theses. We received 1/2 BIS central bankers' speeches 27 studies on a wide range of economic, financial, and legal topics focused mostly on the Albanian economy. It is a delight to see how these studies use contemporary research methodologies and valuable information intelligently to analyse economic phenomena, employing theoretical and empirical arguments. In spite of the challenge of choosing the most interesting studies, we now have our verdict on the “Governor’s Award for the Best Diploma Thesis 2018”. The selection has not been easy. Each year, we receive increasingly more qualitative studies in terms of research methodology, topic originality and methods applied in research. I take this opportunity to congratulate all the contestants for the high quality of the presented studies. I hope and encourage you to further enrich your theoretical and empirical capacities as you advance in your careers, wherever that may lead, in academia or as experts in specific fields. I hope you will be unremittingly engaged in scientific research, in a relationship of which only the starting date is known. Thank you and happy holidays! 2/2 BIS central bankers' speeches | bank of albania | 2,018 | 12 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the ceremony of signing the Memorandum of Understanding between the Swiss Government's SECO and the Bank of Albania, Tirana, 1 March 2019. | Gent Sejko: Comments on cooperation extension between Albania and Swiss State Secretariat for Economic Affairs Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the ceremony of signing the Memorandum of Understanding between the Swiss Government's SECO and the Bank of Albania, Tirana, 1 March 2019. * * * Dear ladies and gentlemen, Today we start the second phase of the cooperation with the State Secretariat for Economic Affairs (SECO), which provides, on behalf of the Swiss Government, technical assistance to support, among others, central banks. I take this opportunity to extend our profound appreciation and gratitude to the Swiss Government, which has continuously provided assistance to the Bank of Albania – either directly or through other financial institutions – in the areas of payments, financial inclusion and monetary policy. Today, we are signing a new cooperation agreement with regard to perfecting our analyses and decision-making processes. The development and the continuous enrichment of scientific capacities of our talented staff, and the implementation of research and analysis methodologies to support the decision-making and policymaking processes are a priority for the Bank of Albania. In this context, it is a pleasure and honour for me, as the Governor of the Bank of Albania, to sign, together with H.E. Ambassador Maître, this agreement between our two institutions. At the Bank of Albania, we are very enthusiastic about this cooperation. The signing of the agreement today, follows the conclusion of a similar and very successful cooperation in the period 2013–2018, which improved significantly our analysis, research and technical capacities. I can proudly and confidently say that the programme has accomplished all the goals. It addressed three key aspects for the central bank: research, monetary policy and financial stability. It contributed not only to enhancing the knowledge, the expertise and the application of contemporary methodologies for economic and financial analyses, but also to materialising a concrete product to improve and expand evaluation, forecasting and analysis models. These models play now a significant role in the decision-making process at the Bank of Albania. Under this cooperation programme, the Bank of Albania benefited technical and financial support. Some statistics from the implementation of the first phase illustrate the extent and impact of this programme. In the period 2013–2018, we realised 30 different activities, involving 360 staff members from the Bank of Albania. Moreover, around 270 employees attended 18 workshops on dedicated topics for the Bank of Albania. In addition, representatives from the Bank of Albania participated in 8 academic conferences in which 87 members from its staff presented their research and received valuable comments for further improving their work. Three employees have been able to visit The Graduate Institute Geneva to attend post-university studies for a period up to six months, and develop their research projects under the supervision of and assistance by renowned professors of the Institute. The Bank of Albania is responsible for the formulation and implementation of the monetary policy, regulation and supervision of the banking system, regulation and development of the payment system, and promotion of financial stability. In the framework of the cooperation with SECO, it benefits not only in academic but also in concrete terms. The developed forecasting and analysis models enable the monetary policy to play a more proactive role, as testified in the successful management of appreciation pressures on the exchange rate in the previous year. Thanks to SECO-funded cooperation projects, the Bank of Albania has adopted contemporary models and methodologies for evaluating the adequate level of the foreign currency reserve – currently 1/3 BIS central bankers' speeches standing at EUR 3.3-3.4 billion, managing liquidity in the banking sector, and withstanding adverse scenarios. Also, the study of various phenomena related to the functioning of the financial system has prepared the ground for the drafting and approval of a series of regulations, which – among others – have accelerated the process for the reduction of non-performing loans and will create a safer and more efficient regulatory environment with regard to managing financial shocks. Lastly, the cooperation with SECO has generated a number of projects, which are being currently implemented in the field of payment systems. One particular example is the national strategy for promoting the use of retail payments, which serves, among others, to lowering their costs, promoting remittances and boosting financial inclusion. Dear ladies and gentlemen, The new agreement, similarly to the previous one, enables the Bank of Albania to be part of a rich, deep and diverse programme of bilateral assistance and capacity building for central banks. Through qualifications and capacity building, the goal of the cooperation agreement is to perfect the analysis, the decision-making and, consequently, the policy-making processes at the Bank of Albania. I think that we have already established firm foundations that guarantee an even stronger partnership for the second phase. Expected outcomes from the implementation of the second phase include: monetary policy decision making sustained by improved forecasting capacities, macro-prudential policy formulated based on a larger body of knowledge about various risks; and research further enriched with the best research methodologies and practices. These goals form the core of our medium-term strategy. The Bank of Albania aims to increase the impact of research results on decision-making, extend research to other departments, and adopt highest standards on ethics and rigorous research, which renders it one of the priorities of the cooperation. Many of the current developments and challenges in certain countries or regions may appear as distant and alien to us, but globalisation and economic integration disregards borders and their effect and impact may spill over into our economy. The problems that persist from the financial crisis, the continuation of quantitative easing programmes and the new normal for the monetary policy affect the functioning of the central bank. On the other hand, challenges and opportunities introduced by technological development for central bank policies and decision-making, financial inclusion and financial instruments, are phenomena that affect not only the central bank but also the rest of the society. It is, therefore, necessary to study, analyse and address such phenomena based on facts and best scientific analysis. We value international cooperation in these fields as a very important contributor to coping with such challenges and undertaking visionary policies. Notably, the selected format for providing technical assistance enables the output objectives of the cooperation to be tailored to the characteristics of the Albanian economy and dedicated to the Bank of Albania and its decision-making and operational framework. The technical assistance consists of a set of activities that include all the phases and methods of learning and, at the same time, contributes to all concrete and flexible policy-making processes at the central bank. Activities under the programme range from lectures to practical implementation of the knowledge and application in specific projects, in accordance with the priorities of the Bank of Albania. The selection of a serious partner is another important aspect for the success of this agreement. The Graduate Institute Geneva has become an important partner for the Bank of Albania, contributing with its academic staff as well as collaborators it selects among renowned professors and experts of economics, finance and banking. This agreement between the Bank of Albania and SECO, the centre of expertise for all core issues relating to economic policy, in Switzerland and not only, helps the Bank of Albania to fulfil the objectives, to carry out its duties and to withstand future challenges. 2/3 BIS central bankers' speeches I would like to thank once again Mr Maître and the State Secretariat for Economic Affairs for the contribution to the Bank of Albania. I look forward to the fruitful and successful cooperation under the new agreement Thank you! 3/3 BIS central bankers' speeches | bank of albania | 2,019 | 3 |
Speech by Ms Luljeta Minxhozi, First Deputy Governor of the Bank of Albania, at the Second Summit of the Albanian Diaspora, Tirana, 4 March 2019. | Luljeta Minxhozi: The contribution of the Albanian diaspora to the nation’s economic development Speech by Ms Luljeta Minxhozi, First Deputy Governor of the Bank of Albania, at the Second Summit of the Albanian Diaspora, Tirana, 4 March 2019. * * * Dear ladies and gentlemen, On this special day, we have come together to share thoughts and discuss on how Albanians, irrespective of where they live in the world, may achieve welfare and prosperity. This is a time, in our economic history, when the efforts of individual citizens to ensure prosperity are also considered as social efforts, for our nation to be prosperous and developed. Such forums – in which Albanians that live abroad come together to discuss, and see that while working for themselves and their families, they help the nation to advance – are signs of a rising national conscience and our modern civilisation. Albania has a large diaspora, which is present in all continents and was estimated at 1.15 million people in 2017, or around 40% of the population that actually resides within the country. A characteristic of the Albanian diaspora is that it is closely related economically with the home country, contributing to increased financial transfers from abroad. These transfers are in the form of: Remittances which are net transfers from abroad and are calculated in the balance of payments at around EUR 600 million per year, over 2013–2017, equal to 5.7% of Albania’s GDP. Income generated from seasonal emigration in the form of temporary employment. This category creates income in the form of primary income-compensation of employees, on average EUR 250 million annually during 2013–2017. If we add other income unrelated to employment, total transfers from permanent and seasonal emigration (remittances) reach around EUR 1 billion annually, or around 9.0% of nominal GDP. While the share of remittances, in terms of both the level of flows and of the ratio to GDP, is lower compared with mid-2000s, their annual growth has resulted stable in more recent years, averaging 3% for the 2015–2017 period. Through its economic activity, the diaspora contributes positively to the Albanian economy in two aspects: The first aspect are remittances and other forms of transfers. These have an evident role on the aggregate demand of Albania, for financing households’ consumption, and generating savings, which help to fund investments. Their contribution to economic growth of Albania has been cyclical. In 2009–2013, this impact was negative by 0.4%; this period experienced shocks that hit European economies after the crisis. Afterwards, particularly in 2014, remittances increased notably due to the tendency of emigrants to withdraw their money from European banks (particularly from banks in Greece) 1/2 BIS central bankers' speeches and send them as deposits in Albania. Currently, in 2015–2017, the contribution of remittances is estimated at 0.2% of economic growth. The importance of remittances on economic growth has declined over the years, also in line with the strengthening of domestic growth factors; yet, they remain an important element of disposable income and, therefore, a determinant factor for the performance of consumption in Albania. Remittances have an important role in alleviating poverty and mitigating social problems for certain categories of the society. The second aspect is the positive impact on the labour market dynamics. The export of the labour force (emigration) tends to push wages upward in Albania, by better balancing labour demand and supply. On the other hand, it diversifies the supply of Albania for qualified labour. Despite the increase of remittances and their upward contribution to economic growth, a lot remains to be done to foster the role of the diaspora and create more opportunities for a better economic use of their savings, as well as to help boost the Albanian economy. It is difficult to make an exact calculation of remittances due to the numerous formal and informal channels of their flows. Our banking system does not yet facilitate remote access and use of bank accounts by emigrants, in order for them to able to easily use them while in their respective countries; the cost of banking transactions are higher and often banking procedures are perceived as complicated. Due to these factors, in the case of Albania, only 4% of remittances are channelled through the banking system, 57% through non-bank financial institutions and 39% in the form of cash. The economic result is that remittances are disbursed in cash at 96% and this form of payment diminishes the multiplying impact of their contribution to economic growth. As regulator of the banking and payments systems, the Bank of Albania is strongly committed to promote and facilitate the transfer of remittances in the Albanian economy: First, by modernizing the procedures and alleviating transfer costs for remittances. For this reason, the Bank of Albania, in collaboration with the World Bank, is implementing a project for formalizing remittances inflows through banking channels, together with resulting effects such as cutting the costs on transfers, increasing financial inclusion and reducing the use of cash in the economy. In this context, in 2017, a study was realised focusing on retail payments, which include remittances. The findings were used as a basis for drafting the National Strategy for reforming the retail payments market in Albania. In addition, the Bank of Albania has prepared a new draft-law on retail payments, which include the remittance market. This law will approximate our payments system with the PSD2 Directive of the EU and aims to promote the creation of an innovative payments system in Albania, the decrease cash payments and the creation of adequate conditions to boost competition, foster transparency and enhance the security of the payments systems. Second, by aiming to further develop and diversify savings and capital market instruments, so as to increase the interest of Albanian citizens living abroad for depositing their savings in Albania. Thank you! 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 3 |
Address by Ms Luljeta Minxhozi, First Deputy Governor of the Bank of Albania, to the opening ceremony of the Global Money Week in Albania, Tirana, 25 March 2019. | Luljeta Minxhozi: The importance of educating young people in Global Money Week Address by Ms Luljeta Minxhozi, First Deputy Governor of the Bank of Albania, to the opening ceremony of the Global Money Week in Albania, Tirana, 25 March 2019. * * * Dear Deputy Minister of Education, Youth and Sports, Dear Chairman of the Albanian Association of Banks, Dear students and teachers, Dear old and new friends of the Bank of Albania, On this first day of the Global Money Week, I wish you a warm welcome to the central building of the Bank of Albania and thank you for participating and engaging in our activities. This is the 12th year the Bank of Albania engages, like many other central banks across the world, in financial education efforts for the public in general, with a particular focus on the young generation. This marks also the sixth year of Bank of Albania’s engagement as the organiser of the Money Week. This has become an annual meeting place for all stakeholders having an interest in this beautiful and important, at the same time complicated and challenging field. Like many other central banks, the Bank of Albania has assumed a proactive role in enhancing financial literacy. This commitment is fully in line with the spirit of transparency toward the public and raising its awareness on economic and financial issues, which have an impact on the day-to-day living for each and every one of us. Over these 12 years, with support from the Ministry of Education, Youth and Sports and the Albanian Association of Banks, numerous educational activities and projects have been designed and implemented. They have been tailored to target different age groups, and consist of a variety of activities such as training for teachers and journalists, brochures for the general public, dedicated programmes for high schools, such as the “Personal Finance in Your Hands”, the educational package for the elementary schools and the Albanian Money app. The Museum of the Bank of Albania reflects perfectly our efforts for enhancing knowledge about money. The multifunctional Museum provides visitors with a platform that helps them to learn about the monetary history in Albania, as well as the functions and importance of the central bank, and to become more financially literate. The Money Week is a global celebration campaign built to inspire children and young people to learn about money matters, livelihoods and entrepreneurship, hence becoming responsible and financially capable citizens in the future. Starting today, the Money Week will be celebrated in 169 countries across the world, until 31 March 2019. This is a Child & Youth Finance International (CYFI) initiative, with the support of the Organisation for Economic Co-operation and Development (OECD), and over 53 thousand institutions and organisations and over 32 million children and young people participate in this year’s edition. The slogan for this year is ‘Learn.Save.Earn.’ Around this slogan, partner institutions organise awareness-raising and educational activities. As active participants in the Money Week activities, we have chosen to focus on educating the young people and encouraging them not to use the 1/2 BIS central bankers' speeches outdated terms “new lek” – “old lek” in our day-to-day financial interactions. Our slogan for this year is “Too young to speak in old lek” This is the overarching theme for most of our contest categories. I take this opportunity to thank, on behalf of the Bank of Albania, all the participants and I exhort them to be an active part in the efforts for eliminating such outdated terminology. The Bank of Albania, with long-standing support from the Albanian Association of Banks, and the precious support from the Ministry of Education, Sports and Youth, will organise a series of awareness-raising activities for children and young people on such topics. Thus, during the Week, a number of activities will be organised such as lectures, contests, visits to commercial banks and the Museum of the Bank of Albania, aimed at involving as many students as possible. In all educational activities of the Bank of Albania, including these contests, we appreciate and encourage inspiration, originality and proactive thinking. The submitted projects for all the categories, whose winners are present today, feature all these elements. I take this opportunity to personally congratulate all of them for their qualitative works presented during the submission phase. Their work and engagement are a source of constant inspiration for the Bank of Albania to introduce increasingly ambitious projects. The projects category targeted sixth graders, the photomontage category targeted ninth graders and the videos category targeted high-school students. The participation rate was very high, with around 340 students from 40 schools. I would like to extend my special thanks to the teachers and professors, whose commitment and passion is a key and necessary element for the realisation of these educational projects. Lastly, I would like to thank you all for the insofar commitment, and invite all the participating institutions to continue the cooperation in the future, with a view to advancing our financial education efforts for the children and young people, contributing, in turn, to the livelihood of the society in Albania. Thank You! 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 3 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the IADI's ERC Regional Committee Meeting, Tirana, 4 April 2019. | Gent Sejko: Aiming for a secure financial system and the key role of deposit insurers Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the IADI's ERC Regional Committee Meeting, Tirana, 4 April 2019. * * * Dear ladies and gentlemen, Dear Mr Boccuzzi, Dear Guests, Good morning and thank you for giving me the opportunity to warmly welcome you all to Tirana and the Bank of Albania and address this international gathering. It is a particular pleasure to have you here at the premises of the Bank of Albania today and to host the meeting of the Europe Regional Committee (ERC) of the International Association of Deposit Insurers (IADI). After this opening meeting, the agenda will then continue with the Technical Assistance Workshop for the rest of today and tomorrow. I hope you will enjoy it and, most importantly, hold interesting and constructive discussions. I take this opportunity to thank the International Association of Deposit Insurers (IADI) and the Albanian Deposit Insurance Agency (ADIA), who have made it possible for this event to be held in Tirana. Throughout the development of ADIA, IADI’s contribution and input has been undeniable in setting standards. In this regard, IADI has played an important role as a forum for deposit insurers from around the world to gather and share knowledge and expertise. The IADI has also provided intensive training and educational programs and has produced research and guidance on matters related to deposit insurance. Such examples include: establishing new deposit insurance systems and enhancing existing ones and contributing to safeguarding the stability of financial systems, by promoting international cooperation and encouraging wide international contact among deposit insurers and other interested parties. All these efforts have helped our deposit insurance scheme grow. Since the inception of the ADIA, the Bank of Albania has been strategically committed to creating and maintaining an efficient and effective deposit insurance scheme in Albania. From the beginning, one of the Bank of Albania’s responsibilities has been to develop a stable and safe banking system. Its efforts towards the new architecture of the banking sector – guided by international standards and consumer protection principles, and in coordination with government – have helped in setting up the Albanian Deposit Insurance Agency. The Parliament approved the ADIA law in 2002 to restore public confidence in the nation’s banking system. The Bank of Albania, by law, is the supervisory authority of the ADIA. The role played by deposit insurers is essential in crisis prevention and management, as already proved by the experience during the global financial crisis. This role has proactively evolved towards mitigating financial system vulnerabilities even in the absence of deposit runs or banks in default. It is now a fact that deposit guarantee schemes mitigated the recent financial crisis, using every possible instrument available to them, such as: increasing the deposits coverage limit; expanding the scope of the guarantee scheme; and providing faster deposit pay-outs or even liquidity support. The outcome of these developments is that a new focus is being placed on deposit insurance in the post crisis period. Deposit insurance is now considered as an essential crisis management tool and an important instrument for orderly liquidation of an unsound financial institution. A well-designed deposit guarantee scheme largely supports financial stability and financial crisis resolution by mitigating risks of and maintaining trust in the 1/3 BIS central bankers' speeches financial system. However, recalling one of the most important lessons we learned from the global financial crisis, despite the mandate given to any institution, no player can alone deal with a systemic crisis and the consequences of strong spillover effects and contagion risks. It is essential that each element of the safety net develops robust mechanisms that aim to resolve financial institutions and stabilize the financial system as smoothly as possible, minimizing the cost to the economy. Moreover, financial stability can only be preserved by a well-coordinated financial safety net, which is supported by a resilient legal framework, proper tools and instruments and careful contingency planning for each of its elements. The Bank of Albania has dedicated much of the past 10 years to integrating the lessons learned from the recent financial crises into a new regulatory framework. Our financial safety net is further aligned with international best practices, as we coordinate our roles as supervisory authority, lender of last resort and, recently, resolution authority as well. Our post-crisis regulatory framework points towards a stronger banking sector, based on a more solid capital foundation that ultimately serves to protect deposits and taxpayers’ money. In this perspective, the Bank of Albania has reinforced banks’ capital position with higher requirements for core capital and is developing new demands for macro-prudential buffers, to build up the lossabsorbing capacity of banks in case of financial crisis. Moreover, the financial safety net already in place was further strengthened with a new mandate for the Bank of Albania as the resolution authority. A transposition of the BRRD, the new resolution law empowers the Bank of Albania with the necessary tools and instruments to resolve failing banks, with no eventual impact on financial stability. Nevertheless, going back to the important lessons of the crisis, these efforts would be insufficient unless undertaken in coordination with all the relevant institutions and players of the crisis management platform. Clearly, effective crisis management requires ongoing communication and coordination among: supervisors and resolution authorities, financial market authorities, deposit insurers and the government. The Financial Stability Advisory Group (FSAG) is assigned with the important role of assisting in safeguarding financial market stability in the Republic of Albania. The FSAG was established in 2006 and comprises the Ministry of Finance and Economy, the Bank of Albania, the Albanian Financial Supervisory Authority and the Albanian Deposit Insurance Agency. A Memorandum of Understanding between the FSAG participants has been in place since 2014, to support its work on monitoring developments and risks to the banking and financial system and engaging in contingency planning and crisis preparation to prevent and address systemic risks. Thanks to prudent measures undertaken in coordination with all the relevant institutions, the Albanian economy enjoys a sound financial system, with healthy banks, ample liquidity and prudent behaviour in terms of risk-taking. The banking sector operates in a sound and stable macroeconomic environment, sustained by a well-functioning and robust financial system. We are happy to observe that credit quality has improved significantly and the banking sector is consolidating, though more is expected in terms of financial deepening and credit growth. Standing from this point of view, our future efforts will certainly aim towards maintaining sound prudential practices and policies and further developing market discipline to secure a resilient financial system. Staying in this line, the Bank of Albania and the Albanian Deposit Insurance Agency’s relationship has constantly evolved over the years to become a strong partnership and cooperation, allowing our institutions to fulfil their respective, but complementary, missions. The topic of the Technical Assistance Workshop is also of great interest to the Bank of Albania and certainly to other institutions responsible for financial stability. The Bank of Albania looks forward to hearing and learning about the different perspectives and approaches that will be 2/3 BIS central bankers' speeches shared in this workshop or on the topic. Of course, the topic becomes more sensitive considering the current global financial complexity and its fast-changing landscape, and in view of the newly-acquired functions of the Bank of Albania and ADIA under the new law “On the recovery and resolution of banks in the Republic of Albania”. According to this law, the Bank of Albania has been assigned as the Resolution Authority, whereas the Albanian Deposit Insurance Agency is responsible for the administration of the resolution fund, which encompasses investing it in accordance with the policy approved by the Resolution Authority. Moreover, the law gives a new role to ADIA as an important partner in drafting resolution plans, as well as a new source of financing banks’ resolution, therefore increasing the pool of resources available to the Bank of Albania for resolving failing banks. So, to conclude, once again, thank you very much for the opportunity to speak to you today. It is a pleasure to have you here and I hope you enjoy the rest of your stay in Tirana. I wish you all a successful event! Thank you! 3/3 BIS central bankers' speeches | bank of albania | 2,019 | 4 |
Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2018 to the Parliamentary Committee on Economy and Finance, Tirana, 23 April 2019. | Gent Sejko: Albania's economic and financial developments in 2018 Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2018 to the Parliamentary Committee on Economy and Finance, Tirana, 23 April 2019. * * * Honourable Chair, Honourable Members of the Committee, Thank you for your invitation! The Annual Report and the financial statements are the key instrument for the accountability of our institution. In this light, the Bank of Albania considers the presentation of this Report as an opportunity to foster and enhance the dialogue with the Assembly. During 2018, the work of the Bank of Albania focused on three main aspects: First, on the objectives and duties set out in the legal and sublegal framework, which regulates the work of the Bank; Second, on the objectives set out in our Medium-term Development Strategy; and, Third, recommendations left by the Assembly of the Republic of Albania in the Resolution “On the assessment of the activity of the Bank of Albania for 2017”. The results of our work show that the Bank of Albania marked progress in all the three abovementioned aspects. Let me present a brief overview of developments. In accordance with the applicable legal framework, the Bank of Albania: strives to maintain price stability, as a precondition for sustainable and long-term growth in the country; licences, supervises and regulates the activity of the banking sector, hence promoting financial stability; administers the issue and circulation of the Albanian currency; contributes to the development of the payment system; and performs a number of other specific duties, which affect the economic life and financial system in Albania. Based on the available information, the Bank of Albania finds that in 2018 the Albanian economy and finances marked progress. Economic activity and employment continued to expand, wages and domestic inflationary pressures trended upward, main banking sector’s soundness indicators improved, and a series of indicators of domestic and external economic balances strengthened. This dynamics of developments reflects, significantly, the effect of policies, measures and instruments we have adopted on continuous basis. Concretely, in 2018 the Bank of Albania has: 1. implemented an accommodative monetary policy, which has boosted economic growth and the convergence of inflation toward the target, and has contributed to improving the balance sheets of enterprises, households, public sector and financial institutions in Albania. 2. strengthened and improved the policy, regulatory and operational framework for supervising the banking sector, mindful of the administration of the consolidation process; and 3. created incentives for the development of the payment system and expansion and deepening of the financial market. With regard to fulfilling strategy objectives, the Bank of Albania has worked intensively for adopting best central banking practices and standards. Thus, we have made progress with regard to improving statistics; research; compliance with EU integration criteria, strengthening 1/8 BIS central bankers' speeches the governance; and in many other aspects. Lastly, I would like to underline that the Bank of Albania has fulfilled all the recommendations left by the Assembly. The Annual Report presents in greater detail the activity of the Bank of Albania in 2018, across all the dimensions of its activity. I will present first an overview of the activity of the Supervisory Council, the decision-making body, which also monitors the activity of the Bank of Albania. I will then continue to present the activity of the Bank of Albania, in accordance with the main domains of its activity. *** Activity of the Supervisory Council The Supervisory Council exercises its powers in accordance with the provisions of the organic law and the procedures established in the internal regulation on its organisation and functioning. In 2018, the Supervisory Council met 15 times and approved 76 decisions, of which 55 were acts approved for the first time and 21 were amendments to existing acts. These decisions affect the activity of the Bank of Albania across the board. In addition to the monetary policy decisions and revisions to regulations that govern the activity of the banking sector, other important decisions include: (i) approval of the policy and measures for increasing the use of the national currency in the activity of banks; (ii) approval of the policy for the oversight of payment and settlement systems;(iii) approval of the accounting policy in accordance with the International Financial Reporting Standards; and, approval of the Medium-term Development Strategy of the Bank of Albania for 2019–2021. The strategy upheld the existing mission, vision, and values and updated the list of duties for fulfilling them. Beyond the realisation of the legal objectives of the Bank, the Supervisory Council has monitored continuously the governance of the institution and has worked towards its improvement. As the body responsible for the financial reporting and internal audit system, the Council has been informed regularly, by internal and external audit functions, on the compliance with the legislation and other acts that govern the activity of the institution. The Council has been informed also about the institution’s management policies and the use of financial assets for the realisation of the operational activity of the Bank of Albania. Information was presented regularly on the financial position and result of the Bank of Albania and the international reserve management. The internal audit has been monitored through the Audit Committee, established in 2015. The committee, has discussed issues such as: (i) annual work plan and internal audit engagements for the year; (ii) periodic reporting by the Inspector General on the auditing activity; (iii) financial statements; and, (iv) performance of operational risk management at the Bank of Albania. It has met regularly, without the presence of the administrators, with the Inspector General. Lastly, I would like to emphasise that the Council has regularly complied with Bank of Albania’s accountability obligations to the Assembly and its transparency obligations to the public, and the financial system. Albanian economy and monetary policy in 2018 The monetary policy maintained, even strengthened, the accommodative stance in 2018. The policy was in line with our inflation target convergence objective, consistent with the cyclical position of the Albanian economy, and aligned with the consolidation trend of the fiscal policy. 2/8 BIS central bankers' speeches The Albanian economy performed positively throughout 2018. Aggregate demand increasingly expanded, enabling thus a further increase in production, employment and wages, and contributing to the improvement of the main economic and financial balances of the country’s economy. A few figures to illustrate it. According to INSTAT data, the pace of economic growth accelerated to 4.1% in 2018. Economic growth was broad based; it reflected positive contributions from the expansion of the consumption of households and enterprises, and of exports. According to INSTAT data, employment in the economy rose by 1.6% in the previous year, whereas the unemployment rate fell to 12.3% from 13.4% a year earlier. The current account deficit decreased at 6.7% of the GDP in 2018, from 7.5% in the previous year. Its improvement reflected to a large extent the increase in the tourism-related activity. Budget deficit and public debt continued to record a downward trend, reflecting both the consolidation path of the fiscal policy and the economic growth as well as the exchange rate appreciation. The main banking sector soundness indicators, in particular liquidity, profitability and capitalisation, remain at satisfactory levels. Against this backdrop, annual inflation averaged 2.0%, remaining unchanged from 2017 and below our 3% target. Inflation stood stable owing to two effects of opposite directions. The buildup in domestic inflationary pressures, generated by the rise in employment, wages and production costs was offset by the rapid appreciation of the domestic currency over the first half of the year. The exchange rate appreciation was a decelerating factor for achieving the inflation target. The exchange rate has moved along a slight appreciation path over the last three years, driven by fundamental factors that dictate its behaviour such as: improvement of the balance of trade exchanges with abroad, high levels of foreign direct investments, and reduction of risk premia in domestic financial markets. Yet, beyond these effects, the exchange rate was subject to certain shocks in the first half of 2018. These shocks led to a temporary imbalance of the demand and supply for foreign currency and contributed to creating expectations for further appreciation of the exchange rate, and were accompanied also by a change in the behaviour of certain operators in the economy. They initiated a fast appreciation spiral in the second quarter and were accompanied by a disorder of the functioning of the domestic foreign exchange market. Under these circumstances, the Supervisory Council judged that the rapid appreciation of the exchange rate jeopardised the achievement of our inflation target in the medium-term horizon. Consequently, in full compliance with the price stability objective and without affecting the free exchange rate regime, in June the Council decided: To lower the policy rate from 1.25% to 1.00%. In parallel, overnight loan and overnight deposit rates were also reduced; and, To initiate a foreign currency purchasing programme, aimed at decelerating the pace of exchange rate appreciation and creating the premises for a normal trading activity in the domestic foreign currency market. Lowering the policy rate was aimed at further reducing the costs of financing and mitigating appreciation pressures on the exchange rate. The intervention in the domestic foreign exchange market, as a temporary and extraordinary instrument of the monetary policy, was considered as necessary under the conditions when the space for further lowering the policy rate was limited. Interventions in the foreign exchange market were concentrated in the summer months. Further on, Bank of Albania market interventions have been practically inexistent and the exchange rate 3/8 BIS central bankers' speeches reflected the supply and demand situation in the market. Insofar results show that Bank of Albania interventions have accomplished the objectives. The appreciation pace of the exchange rate has diminished and the activity in the foreign exchange market has returned to normal parameters. In line with these developments, the Bank of Albania kept the direction and intensity of the monetary stimulus unchanged over the second half of the year. The policy rate remained unchanged at 1.0% while the financial market was supplied with the necessary liquidity and informed through the forward guidance on the future path of the monetary policy stance. The accommodative monetary policy implemented by the Bank of Albania has proven successful for boosting economic growth, inducing better utilisation of production capacities and building up inflationary pressures in the economy. The transmission of the monetary stimulus is noted in several aspects: First, the monetary stimulus has led to the reduction of financing costs for households and enterprises. Interest rates are close to historical lows, across all the range of financial instruments. Second, the accommodative monetary policy has led to the expansion of credit in lek, and to the reduction of existing debt service costs. Lek credit to the private sector increased at 6.7%, on average, in 2018. In parallel, the reduction by 5.6 percentage points of the interest rate on lek credit compared to 2011 – when the monetary policy easing started – helps Albanian firms and households to save around ALL 15 billion per year. Third, the accommodative monetary policy has supported Albania’s financial stability. Growth of demand for goods and services and reduction of debt costs led to the improvement of the solvency of firms and households, and has encouraged loan restructuring. Also, the orientation of lending toward lek credit has reduced the exposure of the economy and of the financial system against exchange rate volatilities. Monetary policy-related measures undertaken by the Bank of Albania have contributed to the expansion of aggregate demand and boosting economic growth. Our assessments suggest that the accommodative monetary policy stance has contributed positively, on average by 0.5 percentage point, to economic growth in the last two years. Also the accommodative monetary policy stance has contributed to the stability of the domestic currency. Both transmission channels have contributed and will continue to contribute to price stability in Albania. The current trends in the development of the economy and our projections suggest that inflation will converge toward the target within a two-year horizon. Banking supervision and financial stability The main aspects of our work for safeguarding financial stability were strengthening the stability of the banking system, enhancing its resilience to shocks, adopting international standards on supervision and regulation, and administration of consolidation processes in the banking sector. The Bank of Albania judges that the ability of the banking sector to withstand risks is high. The activity of the banking sector in 2018 was stable with good performance and resilience indicators. The financial result was positive: Return on Assets (RoA) stood at 1.3% and the Return on Equity (RoE) reached 13%. Capitalisation and liquidity levels were above the respective regulatory requirements. Credit risk continues to represent the main risk to the activity of the banking sector, but the credit quality has improved from the previous year. At the end of 2018, the non-performing loans ratio was 11.1% from 13.2% a year earlier, whereas the outstanding non-performing loans reduced by 20%. The Bank of Albania remains committed to fulfilling all its obligations in the framework of the 4/8 BIS central bankers' speeches national plan for the reduction of non-performing loans. In view of this goal, it has: (i) prepared a draft-regulation on the out-of-court addressing of borrowers; (ii) expanded the requirements for using official financial statements in the assessment of credit risk for all categories of borrowers; (iii) initiated measures for improving the Credit Registry, and has started work for harmonising credit reporting in accordance with international standards. With respect to safeguarding financial stability, the Bank of Albania has continued to work for establishing and developing macro-prudential policy instruments and for establishing early warning systems for systemic risks. In this context, I would like to point out to two key developments. First one is about measures in the framework of increasing the use of the domestic currency as an instrument for increasing the effectiveness of economic policies and decreasing financial risks. In 2018, the Bank of Albania approved some regulatory amendments in this aspect: (i) decreasing the required reserve for deposits in lek and increasing the required reserve for foreign currency deposits, (ii) raising the required minimum level for the ratio of liquid assets to short-term liabilities in foreign currency, and (iii) setting out requirements to enhance transparency related to risks to the borrower in the case of foreign currency loans. Second one is about preparing the regulatory basis for setting up macro-prudential capital buffers, in accordance with best international standards and practices. Capital buffers mitigate cyclical and systemic risks in the banking activity, designed with a view to preventing a fast credit growth and build-up of indebtedness; restricting direct and indirect exposure concentration; and, restricting excessive risk in financial institutions. With regard to improving the supervisory processes, the Bank of Albania has worked for appraising internal risk assessment procedures, reviewing individual recovery and capital adequacy plans of banks; adapting the regulatory framework with the legal and regulatory acts of the European Union and Basel documents. Financial system monitoring has been supported by on-site inspections. In 2018, full-scope and partial examinations were carried out in 7 banks, 10 non-bank financial institutions, and 31 foreign exchange bureaus. Particular attention has been paid to the examination of banks with a major share in the activity of the financial market, those subject to acquisition or merger processes, or banks experiencing rapid growth. Overall, the monitored institutions have responded duly to the recommendations, by undertaking the relevant measures. Increased attention has been paid to the supervision for the implementation of measures for the prevention of money laundering, in cooperation with the Directorate General on the Prevention of Money Laundering (DG PML). Cooperation with the DG PML was more intensive in the framework of the evaluation process for Albania by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). The Bank of Albania participated actively in fulfilling the comments related to the technical and effectiveness questionnaires. In the final MONEYVAL report, the effectiveness level of financial institutions was rated as “substantial/considerable”. In particular, banks show better awareness of the AML/CFT risks and of legal obligations, and have generally taken due measures in a way that is commensurate to the assessed level of AML/CFT risk. The evaluation process was accompanied by a plan of measures for addressing the main problems identified in the report; their realisation will continue in 2019 as well. In the framework of consolidation in the banking sector, in 2018 some changes took place in the ownership structure of the banking system. As a result of these changes, 14 banks operated in the Albanian banking system as at the end of the year. Intesa SanPaolo Bank acquired and merged with Veneto Bank, and the American Bank of Investments acquired and merged with NBG Bank Albania. I would like to underline that these changes were dictated by developments in 5/8 BIS central bankers' speeches the banks’ home country or their international strategies rather than by domestic issues in the Albanian market. Moreover, at the beginning of 2019, changes in ownership were rendered possible in the case of International Commercial Bank and Societe Generale Albania. Changes in ownership took place also in two other banks, with one of them reflected in a higher share for domestic capital in the market. The Bank of Albania deems that the consolidation of the banking system is a welcomed development, which will revitalise the banking activity, will enhance the efficiency of the banking industry and will bolster development and innovative policies with regard to credit and payments. In the capacity of the Resolution Authority, in 2018, the regulatory and procedural framework for resolution planning was prepared for harmonisation with international standards. In addition, the initial phase for the preparation of individual resolution plans has started. Also, during 2018 was established the Resolution Fund and the procedures for monitoring its management by deepening the cooperation agreements with the Deposit Insurance Agency. Lastly, I would like to reiterate that safeguarding financial stability is a responsibility not only of the Bank of Albania but also of other regulatory agencies and the Government of Albania. Policies and measures for safeguarding financial stability and strengthening banking system’s resilience require all parties to continue the coordinated, inter-institutional and multi-dimensional efforts. Functioning of safe and efficient payment systems The Bank of Albania has dedicated particular attention to guaranteeing the security and efficiency of the core infrastructure of payments in lek, through its role as both operator as well as overseer and catalyst of the payment systems. Both systems operated by the Bank of Albania, the Albanian Interbank Payment AIPS) and Albanian Electronic Clearing House (AECH) have operated with no disruptions, efficiently and safely. In 2018, the Bank of Albania undertook a set of measures to further improve the legal and regulatory framework on the oversight of payment systems and payment instruments. The changes are aimed at adopting the European practices for promoting innovation in the field of payments and establishing premises for private initiatives. One of the main achievements on the improvement of the legal framework is the finalisation of the draft-law “On Payment Services” (PSD 2) which transposes the relevant EU Directive. Its approval and implementation will promote competition and innovation in retail payments, will enhance transparency of these services and will provide a framework on consumer’s protection. The National Payment System Committee (NPSC), which is chaired by the Bank of Albania and brings together public and private stakeholders in the field of payments, approved the Albanian National Retail Payments Strategy (2018–2023). The purpose of the strategy is to improve the retail payments market, promoting the use of electronic payment instruments and broadening the financial inclusion of the population. The strategy will be implemented through the improvement of the legal and the regulatory frameworks, through improvements in infrastructure and financial education. Other activities In the field of statistics, the Bank of Albania continued its work for the methodological approximation of statistics with international standards and their alignment with the acquis communautaire. In cooperation with INSTAT and with expertise from the European Union, the Bank of Albania coordinated the work to develop indicators of macroeconomic imbalances for Albania. During 2018, the EUROSTAT carried out an evaluation mission of the Statistical System in Albania, which assessed that the statistics of the Bank of Albania are in line with the principles of the European statistics Code of Practice. As at the end of 2018, the international reserve reached EUR 3.4 billion, sufficient to cover 6.7 months of imports of goods and services and 156% of the short-term external debt. In order to 6/8 BIS central bankers' speeches increase the flexibility of managing the needs for foreign currency liquidity, an agreement was finalised with the Bank for International Settlements for a foreign currency credit line. The agreement constitutes an important mechanism available to the Bank of Albania in the event of an emergency situation. Research continued to support the decision-making process for formulating and implementing Bank of Albania’s policies. During 2018, the focus of scientific research was on issues related to monetary policy, safeguarding financial stability, and coordinating these two objectives. The results of the research are shared with national and international experts in scientific panels and are published in discussion papers. An important part of Bank of Albania’s development strategy is the establishment of transparent and long-standing relations with the public. The Bank of Albania has fostered its communication with the public to provide its opinion on economic and financial developments, as well as on the Bank’s role in keeping macro-financial balances. Also, it complied with the obligations under the law “On the right to information” duly informing the public, as requested. During the year several national and international conferences and forums were organized, discussing topics that are at the centre of the current debates and of interest for the country’s development. Notably, the annual conference organized in cooperation with the London School of Economics and Political Science this year was dedicated to new approaches in the framework of monetary policy and the challenges to economic integration. This conference brought together distinguished personalities of central banking from advanced economies and regional countries, central bank governors, academics and representatives of international regulatory authorities. Conferences and discussion forums served to foster cooperation with our key partners such as the Albanian financial system, central banks of European countries and international financial institutions. Fostering co-operation was rendered more concrete with several agreements concluded, notably with the European Central Bank and the Single Resolution Board. These agreements pave the way for the Bank of Albania’s full participation in the supervisory colleges of relevant European banks present in the country and for exchanging information on resolution planning for cross-border banking groups. Financial education is an important tool for enhancing the effectiveness of the transmission of Bank’s decisions to the economy. In addition to educational publications, various activities were organized throughout the year, mainly targeting the younger generation. Also, the Museum situated within the Bank of Albania has facilitated the logistics arrangements for undertaking educational campaigns. Last but not least, the Bank of Albania remains a serious partner in the national commitments for joining the European Union. The Bank of Albania’s obligations under the European integration process are included in the medium-term development objectives of the Bank of Albania. It coordinates Chapter 4 “Free movement of capital” and Chapter 17 “Economic and monetary policy”, and it contributes to 6 other chapters of the acquis. The Bank of Albania has fulfilled the obligations deriving from the Stabilization and Association Agreement, the National Plan for European Integration and the recommendations of the European Commission. Specifically, it continued to implement measures to (i) reduce the level of non-performing loans, (ii) reduce the level of euroization in the financial system; (iii) harmonise the regulatory supervisory framework with the requirements of Basel III and Basel IV; (iv) approximate directives on payment services; and (v) increase the transparency of monetary policy. *** As part of this report, I would like to highlight an important aspect for guaranteeing good governance at the institution: the internal audit systems. The internal audit is independent from the management, guaranteed through the Inspector General, appointed by the Parliament. 7/8 BIS central bankers' speeches Fostering internal control and monitoring systems and procedures In 2018, the operational risk management function – a new function at the Bank of Albania – consolidated and matured. It is based on the international risk management standards as well as on the best practices of central banks. In the last assessment, the level of Operational Risk Management has shifted from ‘ad-hoc’ to ‘managed’, thus overcoming the ‘basic’ level. This assessment exceeds the Bank of Albania’s objective. This year, the project for “Drafting and Implementing the Bank of Albania’s Business Continuity Management Program” continued and is currently in the final phase of its completion. The purpose of this project is to ensure the continuity of critical processes and to restore normal business as soon as possible in the event of a crisis or emergency situation. Audit engagements in 2018 focused on: (i) giving an opinion on the adequacy of internal audits set by the Management for the audited functions / processes, including supporting applications for the activities; and (ii) other not planned audit and non-audit engagements upon special request by Administrators or other external institutions. *** Honourable Chairman, Honourable Members of the Committee, At the end of my presentation, I would like to assure you that the Bank of Albania will continue to be committed to complying with our legal objectives, and to implement our institutional duties and commitments. The perspectives on country’s development remain positive, yet challenges lie ahead. Addressing them requires the attention and the commitment of all policy makers and regulatory agencies in the country. The economy, the financial system and the Albanian public, as well as our domestic and international partners will continue to find in the Bank of Albania a reliable, professional and transparent partner. Thank you for your attention! 8/8 BIS central bankers' speeches | bank of albania | 2,019 | 4 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2017 to the Assembly of the Republic of Albania, Tirana, 8 May 2019. | Gent Sejko: Albania's economic and financial developments in 2018 Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2017 to the Assembly of the Republic of Albania, Tirana, 8 May 2019. * * * Honourable Speaker, Honourable Members of Parliament, The Bank of Albania pays particular attention to fostering institutional relations with the Assembly of the Republic of Albania, based on the spirit of accountability and transparency, and nourished by a constant and reciprocal dialogue. In this light, I thank you for the invitation and the opportunity to present in a plenary session to the Assembly, the main conclusions of the Annual Report of the Bank of Albania. Let me start by emphasising that the Bank of Albania has made progress with regard to all the three underlying aspects of our work: Institutional objectives and duties set out in the legal and sublegal framework; Internal objectives set out in our Medium-term Development Strategy; and, Recommendations left by the Assembly of the Republic of Albania in the Resolution “On the assessment of the activity of the Bank of Albania for 2017”. The Bank of Albania estimates that, in 2018, the Albanian economy and financial system made progress. Economic activity and employment continued to expand, wages and domestic inflationary pressures trended upward, main banking sector’s soundness indicators improved, and a series of indicators of domestic and external economic balances strengthened. Let me present a few indicators to illustrate this. According to INSTAT data, the pace of economic growth accelerated to 4.1% in 2018. Economic growth was broad based; it reflected positive contributions from the expansion of households’ consumption, enterprises’ investments, and exports. According to INSTAT data, employment in the economy rose by 1.6%, whereas the unemployment rate at the end of the year fell to 12.3% from 13.4% a year earlier. The external position of the economy improved: the current account deficit declined at 6.7% of the GDP in 2018, and the indicators of external debt stability strengthened. Budget deficit and public debt continued on a downward trend, reflecting the consolidation path of the fiscal policy, the economic growth and the exchange rate appreciation. The main indicators of banking sector soundness – in particular liquidity, profitability and capitalisation – remained at satisfactory levels. This dynamics of developments reflects, to a significant extent, the effect of policies, measures and instruments the Bank of Albania has adopted on continuous basis. In the following, I will focus in greater detail on the measures taken by the Bank of Albania on monetary policy, banking regulation and supervision and financial market development. 1. Monetary policy in 2018 In line with our primary objective – achieving and maintaining price stability – our monetary policy retained, even strengthened, the accommodative stance in 2018. This stance is consistent with 1/5 BIS central bankers' speeches the cyclical position of the Albanian economy, and aligned with the consolidation trend of the fiscal policy. Albeit the positive performance of the economy, for 2018, annual inflation averaged 2.0%, remaining unchanged from the previous year and undershooting our 3% target. Inflation reflected the effects from two developments in opposite directions: the build-up in domestic inflationary pressures, generated by the rise in employment, wages and production costs, was offset by the rapid appreciation of the domestic currency. Beyond fundamental factors, the appreciation reflected the effect from specific shocks, which led to a temporary imbalance of demand and supply for foreign currency and contributed to a change in the behaviour of certain operators in the economy. They initiated a rapid appreciation spiral in the second quarter and were accompanied by a disorder in the functioning of the domestic foreign exchange market. Against this backdrop, the Supervisory Council judged that the rapid appreciation of the exchange rate jeopardised the achievement of our inflation target in the medium-term horizon. Consequently, in full compliance with the price stability objective and without affecting the free exchange rate regime, in June, the Supervisory Council decided to: Lower the policy rate from 1.25% to 1.00%, aiming to further ease monetary conditions in the economy. Initiate a foreign currency purchasing programme, aimed at curbing the exchange rate appreciation and creating the premises for a normal trading activity in the domestic foreign exchange market. This programme, concentrated mainly in the summer period, was a temporary and extraordinary monetary policy instrument. Once the objectives were achieved, the Bank of Albania has not intervened in the market and the exchange rate stability has reflected the market equilibriums. The accommodative monetary policy implemented by the Bank of Albania has proven successful for boosting economic growth, a better utilisation of production capacities and building up inflationary pressures in the economy. The monetary stimulus transmission has been evident in several aspects: First, the monetary stimulus has contributed to the expansion of private consumption and investments, by lowering financing costs and boosting lending. Lek credit to the private sector increased at 6.7%, on average, in 2018. Second, the accommodative monetary policy has reduced the existing debt service costs, by alleviating the balance sheets of borrowing households and enterprises, and further bolstering the expansion of aggregate demand. Third, the accommodative monetary policy has supported Albania’s financial stability, by improving the solvency of the private sector, and encouraging loan restructuring. Thus, monetary policy-related measures undertaken by the Bank of Albania have contributed to boosting economic growth. Our assessments suggest that the accommodative monetary policy stance has contributed positively, on average by 0.5 percentage point, to economic growth in the last two years. Also, the accommodative monetary policy stance has contributed to the stability of the domestic currency. Both transmission channels have contributed and will continue to contribute to price stability in Albania. 2. Banking supervision and financial stability The activity of the banking sector in 2018 was stable showing good performance and resilience indicators. The financial result was positive: the Return on Assets (RoA) stood at 1.3% and the Return on Equity (RoE) reached 13%. In addition, capitalisation and liquidity levels were above 2/5 BIS central bankers' speeches the respective regulatory requirements. The Bank of Albania judges that the capability of the banking sector to withstand risks is high. Credit risk continues to represent the main risk to the activity of the banking sector, but the credit quality has improved from the previous year. At the end of 2018, the non-performing loans ratio stood at 11.1% from 13.2% a year earlier, whereas the outstanding non-performing loans decreased by 20%. In 2018, the ownership structure of the banking system underwent some changes, bringing the number of banks down to 14, as at the end of the year. Taking into account the changes in ownership taking place in 2019, the actual number of banks is 12. The Bank of Albania deems that the consolidation of the banking system is a welcomed development, which will revitalize the banking activity, will enhance the efficiency of the banking industry and will bolster development and innovative policies with regard to credit and payments. The main aspects of our work for safeguarding financial stability consisted in strengthening the stability of the banking system, enhancing its resilience to shocks, and adopting international standards in the fields of supervision and regulation. Thus, in concrete terms: The Bank of Albania has worked toward fulfilling all its obligations in the framework of the national plan for the reduction of non-performing loans. In view of this goal, the Bank of Albania has: (i) prepared a draft-regulation on the out-of-court treatment of non-performing borrowers; (ii) extended the requirements for using official financial statements in the assessment of credit risk for all categories of borrowers; (iii) initiated measures for improving the Credit Registry; and, (iv) started work for harmonising credit reporting in accordance with international standards. The Bank of Albania has initiated concrete measures to promote the use of the domestic currency in our financial system and has continued working on the development of the macro-prudential policy and on establishing early warning systems for systemic risks. Increased attention has been paid to the oversight of the implementation of measures for the prevention of money laundering, in cooperation with the Directorate General on the Prevention of Money Laundering. The final evaluation report of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), rated the effectiveness of financial institutions as “substantial”. In particular, banks show they know well their legal obligations and risks, and have generally taken due measures commensurate to the risk level. The evaluation process was accompanied by a plan of measures for addressing the main problems; their implementation will continue in 2019. In the capacity of the Resolution Authority, in 2018, the regulatory and procedural framework for resolution planning was prepared and the compilation of individual resolution plans started. Also, in 2018, the Resolution Fund was established and the procedure for its management was put in place. Lastly, I would like to reiterate that safeguarding financial stability is a responsibility not only of the Bank of Albania, but also of other regulatory agencies and the Government of Albania. Policies and measures for safeguarding financial stability and strengthening banking system’s resilience require that all parties continue the coordinated, inter-institutional and multi-dimensional efforts. 3. Improvement of financial markets and payment systems In view of its duties and commitments, the Bank of Albania has continued to promote the development of the financial market and to improve further the payment system. Thus, in cooperation with the Ministry of Finance and Economy, the project for promoting the development of the primary and secondary markets for government securities continued 3/5 BIS central bankers' speeches successfully. This project paves the way for deepening the financial market, expanding and diversifying the base of investors in government debt and reducing its cost in the long term. Moreover, the Bank of Albania has dedicated particular attention to guaranteeing the security and efficiency of the core infrastructure of payments in lek, through its role as operator, overseer and catalyst of the payment systems. The finalisation of the draft-law “On Payment Services”, which transposes the relevant EU Directive (PSD 2), is one of the main achievements on the improvement of the legal framework. Its approval and implementation is expected to foster competition and promote innovation in retail payments, cut costs, enhance transparency of these services, and provide a framework on consumer’s protection. In parallel, the National Payment System Committee, chaired by the Bank of Albania and bringing together public and private stakeholders in the field of payments, approved the Albanian National Retail Payments Strategy (2018–2023). The scope of the strategy is to improve the retail payments market, promote the use of electronic payment instruments and broaden the financial inclusion of the population. 4. Governance and other activities The accomplishment of our primary development objectives evidences the professional work of Bank of Albania staff and of the constant prudence of the Supervisory Council, as the steering and monitoring body over the activity of the Bank of Albania. In addition to the monetary policy and financial stability-related issues, other important decisions of the Supervisory Council in 2018, were: (i) approval of the policy for the oversight of payment and settlement systems;(ii) approval of the Accounting Policy in accordance with the International Financial Reporting Standards; and, (iii) approval of the Medium-term Development Strategy of the Bank of Albania for 2019–2021. The strategy upheld the existing mission, vision, and values and updated the list of duties for fulfilling them. In parallel, the Supervisory Council has monitored continuously the governance of the institution and has worked towards its improvement. In conclusion, I would like to emphasise that the Bank of Albania has realised its duties and accomplished its commitments in other fields of its activity, which have a direct or indirect impact on economic and financial developments in Albania. More specifically, progress has been made on: Support for European integration processes, through both specific contributions to the respective chapters and constant dialogue with European partners; Administration of the circulation of the national currency and the adaptation of its structure to the needs of the economy; Management of the foreign exchange reserve, in line with reserve-holding objectives and in the presence of a challenging external financial environment; Improvement of scientific research, to support informed and efficient decision-making; The quantitative and qualitative improvement of financial statistics, in accordance with the best relevant standards; Continuation of financial education of the public, by increasing the role of the Museum of the Bank of Albania and continuing with targeted educational programmes; Enhancing institutional transparency, by expanding the span of the published information with a view to foster trust and confidence in the institution and its reputation. *** Honourable Speaker, 4/5 BIS central bankers' speeches Honourable Members of Parliament, The outlook on Albania’s development remain positive; yet, challenges lie ahead. Addressing them requires the attention and the commitment of all policy makers and regulatory agencies in the country. In particular, in Bank of Albania’s opinion, guaranteeing sustainable and long-term growth requires maintaining the focus on monetary and fiscal policies that are oriented toward stability, by using in a wiser and more efficient way the available space for stimulating the economy, without affecting the stability of public finances and of the financial sector. In parallel, development policies should aim to reduce risks and mitigate structural vulnerabilities in the economy. In the long term, the further acceleration of the economic growth pace and a fairer allocation of resulting benefits from it to various economic and social categories will require continuing and revving up the structural reform agenda. I would like to assure you that the Bank of Albania will continue to be committed to complying with our legal objectives, and to realise our institutional duties and commitments. Thank you for your attention! 5/5 BIS central bankers' speeches | bank of albania | 2,019 | 5 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the third AAB Conference on Banks for Sustainable Development, Tirana, 14 May 2019. | Gent Sejko: Albania’s banking sector progresses but four key challenges remain Address by Mr Gent Sejko, Governor of the Bank of Albania, to the third AAB Conference on Banks for Sustainable Development, Tirana, 14 May 2019. * * * Your Excellency Madame Minister1, Dear Chairman of the Albanian Association of Banks, Dear representatives of the banking sector, dear guests, Let me first congratulate the Albanian Association of Banks on its 20th anniversary. The Association, which came into being as token of emancipation in the banking sector, has become now a genuine platform of communication and coordination within the banking industry, and a key player in the economic and financial life of the country. I would also like to congratulate the organisers for this event, which helps the banking sector, regulators and policymakers alike, to identify the challenges lying ahead and explore the best alternatives for addressing them. Dear ladies and gentlemen, The banking system in Albania has made considerable progress over the last two decades. To illustrate my point, I would like to bring to your attention some facts and figures. Over the span of two decades, the portfolio of bank credit has expanded significantly, leaping from 5% to 35% of the country’s GDP. Similarly, the volume of deposits – in other words, the volume of savings of the Albanian public administered by the banking sector – has grown from 45% to 70% of the GDP. At the same time, the number of households, whose deposits are guaranteed by the deposit insurance scheme, has increased six fold, to 2.4 million. In parallel with quantitative indicators, the Albanian banking sector has developed, has become more cutting-edge, and has marked significant progress in the range of bank products and payment instruments that it provides. Lastly, and equally important to the development indicators, this sector has proven resilient to shocks and – unlike many other experiences in regional countries – it did not need to use public funds. While highlighting, on the one hand, the progress made insofar, I would like to point out that the banking sector development – and of the financial system in general – has not been a linear one: it has constantly faced challenges of different forms and types. These challenges have required prudence as well as active, intelligent and courageous decision-making. I am confident that our combined experience may and will help us in future decisions. Therefore, I consider this conference as an excellent opportunity to reflect on certain challenges that we may face in the period ahead. First, let me present a brief overview of the economic and financial situation and development perspective for Albania. As we have repeatedly said, the Bank of Albania deems that the Albanian economy is set on a steady path of improvement of its cyclical position. Aggregate demand has expanded leading, in turn, to acceleration of economic growth, increase in employment and wages, better utilisation of production capacities and improvement of the financial situation of enterprises and households. In parallel, the balance sheets of the banking sector are sound and improving. The key 1/3 BIS central bankers' speeches parameters of liquidity and capitalisation are above our regulatory requirements, the nonperforming loans ratio is on a clearly downward trend, and the banking sector appears profitable. In addition, as a result of the consolidation process underway in the banking sector, new actors have been introduced to the market – I take this opportunity to welcome them – and premises for fostering competition and efficiency in the banking system are created. Lastly, our stress tests show that this sector is capable – overall – to withstand shocks. This process has been anchored to prudent economic policies: monetary stimulus, fiscal consolidation and prudential supervision and regulatory policies. In particular, let me point out that the Bank of Albania has earnestly worked on the following: Approximation of our regulations to European Union standards and Basel Committee requirements; Improving the supervision architecture of the financial system and strengthening safety nets; Improving the credit environment by facilitating the solution of issues related to nonperforming loans; and, Developing and expanding further the financial and payment systems market. Dear ladies and gentlemen, The banking sector plays a key role with regard to the administration of the savings of the Albanian households, intermediation and allocation of funds, and expansion of financing instruments, risk management and payments. The level of accomplishment for these functions will be mutually related to the pace of Albania’s development in the long-term horizon. From this perspective, let me identify four primary challenges for the sector: First, the banking sector should accomplish better its intermediation role in the economy. The improvement of soundness indicators, the reduction of credit risk and the consolidation of the banking sector should pave the way for a more active approach of banks to lending. The financial capacity of the country should be reflected better in lending to Albanian enterprises and households. Second, the banking sector should pay more attention to the efficient allocation of funds, toward more productive and high-potential sectors in the long term. The banking system, in general, is matured enough to discern between good and bad borrowers, thus minimising problems arising from moral hazard and information asymmetry. Yet, the constant financing and the reallocation of capital provide the basis for the development and restructuring of the economy. In this regard, banks would need to identify profitable sectors, which may guarantee added value for the economy and employment, and support them with funds. Third, in parallel to the improvement in the allocation of funds, more efforts are needed for the financial inclusion of the population. The improvement in access to finance, coupled with concrete initiatives to deep financial education of the population, with which it is in a complete symbiotic relationship, helps enterprises and households to capitalise their growth potential, by generating profit for themselves and gains for the economy. Lastly, modernisation and innovation should be an important and long-term priority of the banking sector. A constant evolution would provide the premises for a sector that is competitive and efficient and avant-garde with regard to technological development in Albania. Taking into account the insofar substantial impact of the banking sector on the advancement and diffusion of innovation to other sectors, this investment would be necessary and profitable to both the financial industry and the overall Albanian society. Forward looking, I remain confident that the banking sector will know to rise to these challenges 2/3 BIS central bankers' speeches and that the conclusions of today’s conference will serve as another stepping stone in this regard. Thank You! 1 Ms. Anila Denaj, Minister of Finance and Economy 3/3 BIS central bankers' speeches | bank of albania | 2,019 | 6 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the discussion meeting with senior banking sector officials, Tirana, 29 May 2019. | Gent Sejko: Role of the banking industry in the future development of Albania - challenges and opportunities Address by Mr Gent Sejko, Governor of the Bank of Albania, to the discussion meeting with senior banking sector officials, Tirana, 29 May 2019. * * * Dear banking system executives, Dear guests, dear colleagues, I have the pleasure of welcoming you to this event, which brings us together to address some issues of particular importance to the banking sector and the Albanian economy as a whole. Today, we will be discussing the role of the banking sector in the development of Albania’s economy, from short, medium, and long-term perspectives. This is, in our opinion, a matter of both private and public interest. I am confident that the discussions around this table will yield a tangible product. Our aim is to adopt a common development philosophy that will guide the banking industry into the future, as well as to agree on a concrete and detailed plan of measures for improving the quantity and quality of lending and enriching the array of financial products. This meeting takes place only two weeks after the Third Conference of the Albanian Association of Banks, which was dedicated to the sustainable development of the banking sector in the future. At this Conference, where I had the honour and pleasure to address, I underlined the valuable contribution of the banking industry to Albania’s development over the past two decades and identified some challenges and opportunities that may lie ahead for all of us, together, in the future. In our vision, these challenges and opportunities are related to the degree and quality of intermediation of funds in the economy – in other words, the volume and structure of credit, and the expansion of the range of financial products – to boost financial inclusion of the population and innovative technological development in the economy. The premises of this meeting remain consistent with what I said earlier. The Albanian banking sector has developed rapidly over the past two decades. Now, this sector administers around 2.4 million bank accounts of individuals, and provides credit to around 327,000 economic units, of which around 307,000 are households and around 19,000 are small or large enterprises; the rest are other public or private entities. In macroeconomic terms, the volume of financial savings administered by the banking sector accounts for around 70% of the GDP, whereas the volume of credit accounts for around 35% of the GDP. Moreover, in the past two decades, the banking sector has expanded its operational network across the territory of the country and has introduced bank products and payment instruments in line with global developments in this sector. In brief, the banking industry has contributed to the development of the Albanian economy by encouraging savings and generating credit. It has also contributed to the development of financial markets and the expansion of payment instruments, by offering advice and expertise to enterprises and providing for risk diversification in the economy. In return to these contributions, the banking sector – now entirely privately owned – has constantly generated positive returns and has experienced relatively low volatility in its profitability indicators. It has offered and continues to offer a positive business prospect for all investors that have a long-term vision and are dedicated to accompanying Albania on its journey toward progress and European integration. 1/5 BIS central bankers' speeches The banking sector has been and remains the backbone of the financial system and the most professionally avant-garde segment of the Albanian economy. I am confident that – irrespective of the trend for expansion and diversification of other segments of the financial market – the banking sector will continue to play a unique role in the near and distant future. In this context, I would like to share with you the vision of the Bank of Albania on development challenges. 1. Credit as an instrument that brings together the interests of both the economy and the banking sector Sustainable development of the banking sector requires increased attention to its primary role: transforming savings into financing instruments to the economy. In practical terms, the banking industry should ensure that the credit supply concords in terms of time and diversity to the needs of the economy, while factoring risk in directly and responsibly. Before I elaborate on this topic, let me emphasise two key moments. The first moment pertains to a misunderstanding we often encounter in the public opinion, even within the professional discourse, that is the Albanian banking sector is not lending. This is not true. Our data show that, excluding the accounting effect of the exchange rate and the write offs, the portfolio of bank loans has recorded 6% annual growth in the last year. Moreover, the pace of growth has shown an improving trend, in line with the overall context of the performance of the economy. In parallel, the expansion of the bank loan portfolio has shown a more balanced composition in terms of both the currency structure and the destination of funds. I would also like to underline that the term to maturity of the bank loans portfolio is short, which means that it is renovated frequently. Thus, regardless of the pace of change in the size of the portfolio, the Albanian banking sector continues to lend. To illustrate my point, only in 2018, the banking sector has granted new loans amounting to around EUR 1.1 billion (equivalent) to fund business investments, house purchase and consumption. The second moment pertains to the responsibility and the diligence of the banking sector vis-àvis lending. As the administrator of public savings, responsibility and due diligence in lending are non-negotiable conditions. Measures undertaken to bolster the short and medium-term development of Albania should not run against its financial stability in the long term. Yet, in coherence with my observations above, I judge that the banking sector should pay more attention to lending. This judgement is based on two theoretical premises and is enabled by an important precondition. First, a more proactive approach to lending is beneficial for the sustainable and long-term development of the banking industry. Low return on assets is one of the problems facing the banking sector in Albania, in the region, and beyond. Such low rates of return – which in Albania are induced also by ample foreign currency liquidity and will continue to be favoured by the reduction trend of the public debt and domestic borrowing by the Government – increase the vulnerability of the sector to shocks. Against this backdrop, the banking sector should increase its orientation toward lending as an instrument to enhance asset profitability and boost its longterm stability. In the same vein, leaving potential sectors or clients outside the focus will push them to turn to other segments of the financial market. This implies less income for the banking sector not only in the form of less income from lending, but also in the form of less income from other products in the package of services that banks offer to clients. Second, a more proactive approach to lending is beneficial for the sustainable and long-term development of the Albanian economy. Our analyses, based on the available information and the bank lending survey for Albania suggest a divergence in the pace of improvement in loan demand and supply. While this divergence does not seem to have, as of yet, a substantial impact on 2/5 BIS central bankers' speeches lending, if it deepens further it will jeopardise the performance of credit and the pace of economic growth. In this light, I would like to underline that a series of studies, both at home and abroad, emphasise the fact that the Albanian economy would benefit from credit growth, for as long as and provided that such growth is based on firm structural and institutional premises. It is our common duty not to let this opportunity pass. This conclusion leads me naturally to the precondition I mentioned earlier. The Albanian economy offers positive business prospects, coupled with a high crediting potential and reduced credit risk. This reality dictates the need and the possibility for a bolder approach toward crediting. I have had the opportunity to elaborate – on a continuous basis – our standpoint on the economic development perspective. I would like, however, to bring today to your attention again that, in cooperation with the Albanian Association of Banks and the Government of Albania, we are implementing an ambitious plan of measures for reducing non-performing loans. From a strategic point of view, the objective of this plan was not only to simply clean banks’ balance sheets, but also to provide for a qualitative improvement of the crediting environment in Albania. In this context, the banking industry now has a more adequate legal and regulatory framework on protecting the interests of the creditor, repossessing collateral and executing it, and a more transparent environment for assessing the risk of individual borrowers. On this basis, the Bank of Albania deems that the banking sector, should: Pay additional attention to crediting as a commitment that generates mutual benefits both for it and the Albanian economy; Empower internal structures and its analytical and managerial capacities in terms of crediting; Ensure prioritized implementation of outstanding commitments under the plan of measures for reducing non-performing loans; and, Be more vocal and more transparent in identifying obstacles or deficiencies it finds in the crediting environment, both in legal and in regulatory aspects. These recommendations should not be addressed separately from the second challenge. 2. Efficient allocation of bank loans as a precondition for sustainable and long-term development Increased attention to crediting does not imply merely increased attention to the volume of credit, but also additional attention to its quality. These two aspects are complementary and do not contradict each other in the long run. The history of credit in transition economies, including Albania, features some problematic elements which we need to avoid in the future. First, credit has been notably concentrated in non-tradable goods and services, such as residential buildings and services, which are oriented solely – or primarily – toward the domestic market. Clearly, this trend reflects, at the same time, the lack of managerial knowledge and capacities in the Albanian economy, and the banks’ behaviour in terms of crediting. This has produced two negative consequences: it has failed to promote the growth of productivity and the improvement of the long-term growth pace of the domestic economy; and, it has restrained the diversification of the production base in the economy, limiting its resilience to various shocks. Second, a part of the credit portfolio, not quite insignificant, has been granted to borrowers who have been exposed to and unhedged against exchange rate volatility. These borrowers have often had limited and deficient knowledge on the exchange rate risk and have suffered the consequences. 3/5 BIS central bankers' speeches Beyond macroeconomic aspects, the structural deficiencies of crediting are, in part, responsible for the rapid growth of non-performing loans in the post-financial crisis period. In this context, the Bank of Albania deems that the banking sector should: Expand the range of credit products, especially with regard to funding projects, so as to ensure a better coverage of the sectors of the Albanian economy and of the needs of borrowing households; Increase its attention to sectors that offer a high potential for returns, given the low usage of financial leverage, such as agriculture and innovative business start-ups in information technology; Supplement the range of financial products with derivative instruments for hedging against the exchange rate, especially for borrowers exposed to it. 3. Enriching the array of financial products and payment instruments In addition to its primary function, intermediation of funds, the banking sector has an essential role to play in providing payment services to the economy. The scale and efficiency of accomplishing this role is in proportionate correlation to the scale of financial inclusion of the population, the overall efficiency of the economy, and – why not – the level of its formalisation. In the framework of its role as overseer of payment systems, the Bank of Albania has undertaken a series of measures to further improve legal and regulatory frameworks. These improvements aim to accommodate innovative technological developments in the field of payments, enhance effectiveness by promoting competition and ensure transparency and consumer protection. Acknowledging the role of other institutions, the Bank of Albania, together with the National Payment Systems Committee, have drafted for the first time the National Retail Payments Strategy, which identified market needs and relevant measures for intervention. The goal of the Strategy is to improve the retail payment market by providing Albanian citizens with more choices for their daily transactions, in an easy-to-use cost-effective way, as well as to increase financial inclusion. The Strategy has a detailed action plan; the Bank of Albania is fully committed to its implementation. In this framework, I would like to emphasise a notable achievement, the finalisation of the draft law on “Payment services”, which transposes the Revised EU Directive on Payment Services (PSD2). The draft is currently subject to public consultations. The approval of this draft-law would provide the preconditions for promoting innovative technological solutions, and introduction of more efficient and less-costly instruments. At the same time, it contributes to enhancing the security of payment services by addressing risks related to the implementation of innovative technological developments in these services. In the period ahead, we will continue to improve payment services; an important initiative in this regard is the preparation of a draft-law “On payments account” which transposes another EU Directive. It seeks to underpin the objectives for increasing financial inclusion of the population, which is currently at relatively low levels. I am confident that the expansion of financial inclusion, notwithstanding its short-term costs, will contribute significantly to bolstering your intermediation activity in the long run. In addition to regulatory improvements, we are engaged in a series of projects on infrastructure improvements. Such as: Creating a national platform for real-time processing of payments. Such platforms have proven to be very effective, as they realise a payment within seconds and may replace or supplement areas where the activity of card payments have not been effective. 4/5 BIS central bankers' speeches Creating a national SWITCH, which implies processing a cad payment through a domestic platform, avoiding prolonged cycles via international card processors. Creating a system for the settlement of euro payments domestically in order to lower the existing very high commissions resulting from the use of correspondent banks, which are very costly. All these legal improvements and technological modules, which are being made available to you should be followed by concrete actions on your side, to expand the range of instruments and lower their costs. *** Dear ladies and gentlemen, The banking sector has had and will continue to have a positive development prospect in Albania. That does not mean, however, that there are no challenges lying ahead of us. On the contrary, there are numerous, complex and dynamic ones, often combined with unpredictable development, domestically and internationally. It is our duty, as actors and regulators of this industry, to respond in a timely and decisive fashion, to turn the already identified challenges into development opportunities, as well as to enhance the stability and resilience of the sector against unforeseeable shocks. As we proceed, I would like to invite you all to openly share your thoughts on these issues. I am certain that a constructive dialogue will enable us to prepare a concrete, realistic, and – why not – ambitious plan. Once again, let me reiterate that the banking sector is a national treasure and a strategic sector. This status allows it to have an important voice in the formulation of development policies, along with an obligation to serve with utmost commitment to the economy and the society. Thank You! 5/5 BIS central bankers' speeches | bank of albania | 2,019 | 6 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the new Albanian banknote serie, Tirana, 12 September 2019. | Gent Sejko: Launching of the new Albanian banknote serie Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the new Albanian banknote serie, Tirana, 12 September 2019. * * * Honourable Minister Denaj and Minister Shalësi, Your Excellencies, Distinguished guests, Ladies and gentlemen, It is a great pleasure to have you with us in this very important day for the Bank of Albania and our national currency. In the history of the modern Albanian state, the establishment and modernisation of its monetary and financial systems has a substantial place. The Albanian currency is a symbol that has been present throughout the development of the country, bearing distinctive features of each era in the history of Albania. It is not a coincidence that one of the key objectives in the creation of a national bank was, among others, the issue of the Albanian currency, immediately after the sublime act of the Declaration of Independence that laid the foundations on which the Albanian state was created. In 1926, one year on from its founding, in 1925, the National Bank of Albania presented and put in circulation, for the first time, a complete series of Albanian banknotes and coins. Subsequent developments in the centralisation and later modernisation of the Albanian state dictated the need for continuous improvements of banknotes in terms of both content and design. It has always represented, however, the economic, social and political development phases of Albania. Through the themes and art embodied in its design, the national currency remains a faithful herald of the development, culture and history of a country. Thanks to these attributes, the currency is in itself a significant element of the national identity. The theme of the current series of Albanian banknotes, created more than 20 years ago, features important historical periods of the Albanian nation, and prominent personalities of Albania. These themes, embodied in each banknote through the portraits of some of the most illustrious national figures, evoke notable episodes in the history of Albania in its endeavours for freedom and prosperity. The themes lead us on a journey through historical eras, starting from Antiquity, moving through the Middle Ages, the National Awakening, the Independence of Albania, and concluding with the symbols of the national flag and anthem on the latest and largest denomination, the 10.000 lek banknote. These symbols have been chosen as representative and unifying elements for every Albanian. While the new series that we are presenting today retains the same themes of the already existing series, its design is reconfigured and restyled, through the application of modern technologies in banknote production. Thanks to cutting-edge technology, the Albanian banknote is now more secure. Its security features – a key priority of the Bank of Albania – are enhanced. In addition, innovative printing techniques and materials have been used to increase durability and the banknotes’ dimensions have been optimised. The design now boasts a fresher look. The new series of Albanian banknotes combines maximum security, modern design, artistic communication of the historical message, and a longer lifespan. It consists of six denominations: 200, 500, 1000, 2000, 5000 and 10000 lek. While the first two denominations – 200 and 5000 lek, 1/2 BIS central bankers' speeches issued in 2017 – are ready to be put in circulation in September 2019, the other banknotes of the series will be put in circulation gradually over the coming years and will be legal tender alongside the existing denominations. The presentation of the new series demonstrates the continued commitment of the Bank of Albania to further enhance the quality and security of banknotes in circulation. Both these attributes guarantee the absolute integrity of our banknotes and represent with dignity the Bank of Albania and the Albanian state itself. In this context, today’s ceremony marks the culmination of a voluminous work started four years ago. In addition to Bank staff, many renowned academics, historians, Albanologists, numismatists and experts from the most experienced companies in the field of banknote production have actively and intensively provided their invaluable contribution. The combination and cooperation of specialists from various fields of expertise, coupled with the latest technological innovations in banknote printing, enabled the refinement and presentation of a new series of banknotes which are simple to use, boast a contemporary design and strike a balance between innovation and current tradition. Dear ladies and gentlemen, Safe and efficient fulfilment of the economy’s need for money, in terms of value and structure, and guaranteeing the confidence of the public in our currency, which is one of our main responsibilities, have been at the core of our efforts in preparing this new series. Therefore, I am very honoured to unveil today, for the first time, for the eyes of the public, this new series of banknotes. As the Governor of the Bank of Albania, through this symbolic signing, I open the doors for the first two banknotes of the new series to start their journey and circulate in the Albanian economy. In the hope that the new banknotes will be welcomed by the public, let me now present to you their design. I would also like to call on the public to handle banknotes with due care, in order to preserve their durability, quality and integrity. From 30 September 2019, the banknotes of the new series 200 lek and 5000 lek will be legal tender in the Republic of Albania and will be used as means of payment, alongside the existing banknotes. 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 9 |
Address by Ms Natasha Ahmetaj, Second Deputy Governor of the Bank of Albania, at the launching of the new Albanian banknote serie, Pristina, 12 September 2019. | Natasha Ahmetaj: Launching of the new Albanian banknote serie Address by Ms Natasha Ahmetaj, Second Deputy Governor of the Bank of Albania, at the launching of the new Albanian banknote serie, Pristina, 12 September 2019. * * * Distinguished guests, Ladies and Gentlemen, Today, we have invited you all to the premises of the Bank of Albania – also known as the “homeplace of money”, both figuratively and in the physical sense (as we are standing above the old treasury room) - to celebrate the two dimensions of the currency: a means of exchange and an authentic work of art. At the very beginning, our process of banknote production started with a design contest. This process is still in place today. Designs had to meet three criteria: be a genuine and unpublished work; have a national character; employ a set of techniques that serves security needs, namely, the use of fine and complicated lines which are extremely difficult to replicate. These three criteria are applicable to our banknotes. From the very beginning, banknotes have been designed not only as a means of exchange, but also as a part of national identity. That is why, in examining banknotes, numismatists are able to discern different eras, the extent of a nation’s freedom, or even aspects of social interdependence. Often, especially in dictatorial systems, banknote design manifests a government’s influence on markets. A lack of these influences is a dimension of social freedom. Time has proven that nothing has changed the educational and national mission of the banknote. It continues to realise its purposes, as it stands tall against other types of currency. Over the years, in accordance with international standards, taking into account average income levels in Albania, new denominations have been added. The series of denominations allows for an adequate banknote structure for the public and fends off its illicit use. Recently, a new banknote has been added – 10 000 lekë, which is in the production process and is expected to be put in circulation in 2020. The current series dates back to 1996 and its theme evokes the history of our nation, through the representation of prominent personalities who have left a legacy in our national memory. The Bank of Albania decided to retain this theme in the new series, which is practically an evolution and upgrade of the existing series. This option was preferred over a new theme not only because familiarity with the existing theme is considered as important for public trust, but also because it preserves an emotional bond with the content of the images. That is why in the new series we still see the engraved portraits of Naim Frashëri, Ismail Qemali, Pjetër Bogdani, King Gent, and Scanderbeg, concluding with Asdreni, the author of our National Anthem, on the 10 000 Lekë banknote. On each denomination, the portrait on the obverse blends harmoniously into the design on the reverse. The portraits account for most of the banknote design area and are engraved in raised print. In 200 and 500 Lekë banknotes, the portraits of Naim Frashëri and Ismail Qemali have been notably improved. 1/2 BIS central bankers' speeches The designs on both the obverse and the reverse of the banknotes have been reconfigured and enriched with new or improved security features. The dominant colours have been preserved, but they have been given a fresh look, with more vivid and balanced colours for the eye. The design composition of each banknote is in harmony with the rest of the series. The overarching goal was to create a series of banknotes that are modern and easy to use, still in balance with tradition. The personalisation, versus unification, of some of the security features for each denomination is a new approach. The reduced dimensions make the banknotes more user friendly. Special attention has been paid to features for the visually-impaired. The nominal value on each side of the banknote is easier to read, the dimension of each denomination are different, and the raised print that may be felt on the edges of banknotes has been kept to help identify different banknotes. For the first time in Albania, the new series introduces polymer banknotes. This plastic material, which is more durable than cotton paper, was selected to be used for the 200 Lekë banknote, taking into account the higher frequency of changing hands and a lower paper quality evidenced in this denomination over the years. Polymer banknotes are more resistant to dirt and moisture, as well as more secure and difficult to counterfeit, as they allow for the insertion of a number of advanced security features, among others, the transparent window. Importantly, the existing banknotes of all denominations will continue to be circulated along with the new banknotes. They will continue to be legal tender and serve as means of payment. Dear ladies and gentlemen, Banknotes may seem familiar to many of us, as our intuition may suggest, but studies show that, even in advanced countries, only a few people are capable of distinguishing the images featured on each banknote. In order to strengthen the emotional relationship between the public and banknotes – part of our national identity – in the following days, the Bank of Albania will engage in an intensive campaign to introduce the new series of banknotes. The campaign, which starts today, will focus on helping the public become familiar with the new design. Detailed information will be provided on the security features used in each of the denominations and on ways to identify them. Promotion will be made for how to keep and care for banknotes with a view to increasing their lifespan. Last but not least, information will provided for how to read the messages that are artfully transmitted through the banknotes design, to boost our national awareness. In conclusion, I am grateful for the excellent work that has been done on the new series and look forward to its success. Only the public can measure the degree of success and our goal is to provide the public with elements and emotions related to our national identity, through a worthy banknote series, created by renowned brands in the banknote production industry such as G&D, De La Rue and Oberthur, whose logos have been present on our currency since it was first issued. 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 9 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the 5th meeting of the National Payment System Committee, Tirana, 1 October 2019. | Gent Sejko: The need for a retail payments market and infrastructure, and promoting financial literacy Address by Mr Gent Sejko, Governor of the Bank of Albania, to the 5th meeting of the National Payment System Committee, Tirana, 1 October 2019. * * * Dear Minister Denaj, Dear members of the National Payment System Committee, Dear ladies and gentlemen, Please allow me, at the outset, to express on behalf of the Bank of Albania our sincere appreciation for your continuous commitment and collaboration to achieving common objectives in the field of payments and beyond. The collaboration and discussion of development alternatives among the main market actors is considered as one of the main pillars for the success of the undertaken reforms. In this light, since 2015, the Bank of Albania has organised the National Payment System Committee (NPSC) to support and contribute to increasing the security, stability and efficiency of the national payment system in Albania. These objectives are rather important for the implementation of our monetary policy and for the financial and economic stability of Albania, by building up firm foundations for development and welfare. I would like to highlight that the NPSC is set up based on best international and European Union practices. It is a strategic, consulting and communicating entity, whose decisions support the activities of the participating institutions in the area of payments. In this framework, it is worthy to note that during the five years of its existence, crucial results have been achieved, most noteworthy the approval of the National Retail Payments Strategy (2018–2023). The insofar findings clearly evidence the low financial inclusion of the Albanian population, not only compared with the European Union, but also with regional countries. All these are reflected in a high use of cash in the Albanian economy. Empirical studies by the Bank of Albania in collaboration with the World Bank Group show that the use of cash in economy, beyond the diminishing effects on the mechanisms of the Bank of Albania used for maintaining price stability and safeguarding financial stability, and supporting economic development, has a real cost from its use as a means of payment, amounting to more than 1% of GDP. Furthermore, the use of cash may be seen as a promoter of informality in economy. Hence, this strategy aims to establish a contemporary and comprehensive retail payments market, supported by safe and efficient infrastructures, as well as by a wide range of payments instruments and services that fulfil the needs of financially capable users across the country. This strategy, compiled with the valuable support of the World Bank Group, is the outcome of a long and analytical study and aims to best address the needs of the domestic market. The realisation of this vision is assessed to be materialised through a set of legal, regulatory and infrastructural developments, which promote technological developments and innovation in the payments market. In this regard, I would like to point out that the inclusion of information technology developments in financial services is increasingly drawing the attention of central banks, regulatory and supervisory authorities worldwide. Both international and domestic practices show that a comprehensive approach through collaboration considerably supports the achievement of 1/3 BIS central bankers' speeches effective and optimal results. A concrete example of aligned efforts in this regard is exactly the one in the field of payments. In this field, the measures undertaken by the Government of Albania for the digitalisation of government services and recently for the draft-law “on billing and monitoring system of circulation”, which aims at increasing and strengthening the fiscalisation of the Albanian economy, appear to fully harmonise with the initiatives undertaken by the Bank of Albania, through the National Payment System Committee, for modernising the payment market and increasing financial inclusion. The Bank of Albania has worked on drafting a new legal and regulatory framework, which aims at promoting digitalisation in the area of payment services. The compilation of the draft-law “On payment services” is considered as the first and crucial step in the framework of reforming and digitalising the small-value payments. In concrete terms, this draft-law is seen to considerably encourage the competition in the market, by providing a crucial contribution to the establishment of low cost services and easily accessible by the large public. Dear ladies and gentlemen, The promotion of the above objectives is not only important for the functions of the Bank of Albania as the monetary authority, but it also provides an essential contribution to the economic development and welfare of the general public. All these developments would provide the expected effects only if they are based on measures in the framework of financial education of the public. Being aware that financial literacy constitutes a significant instrument for promoting the development of the market, for more than a decade, the central bank has been engaged in designing and developing educational programmes to address the needs of groups of interest. It is not a coincidence that the focus of central bank, in both, advanced and developing countries, is on enhancing financial literacy. Numerous studies have shown that financial education has multiple benefits. Being familiar with the basic financial and economic concepts, appropriately knowing and using banking products and financial instruments as well as the ability to manage personal and household finances, are crucial to achieve individual, and societal welfare. On the other hand, a well-informed financial decision of households helps central banks to accomplish their mandate in achieving price stability and safeguarding financial stability. A better understanding of monetary policy accelerates its effective transmission to the real economy. Meanwhile, the quality of decisions for financing or investment has a direct impact on the stability of the whole financial system. The Bank of Albania has been intensively involved in financial education over the years and this long-standing experience has clearly identified the need for a coordinated initiative at national level up to the upgrading this objective to a reform level of crucial importance for the country. For this purpose, the Bank of Albania, driven by the requirements of other authorities, and of market stakeholders, considered as indispensable the drafting of a National Strategy for Financial Education that you are also going to address in this meeting and the real outcomes in this regard are expected to become materialised very soon. We are confident that such a strategic document – tailored for the local financial education context – would help through joint and coordinated actions and resources of various stakeholders in increasing effectiveness of objectives for cultivating a financial literacy in the Albanian society. I invite, therefore, all the participating institutions to engage and contribute actively to this 2/3 BIS central bankers' speeches initiative. Concluding, I sincerely hope that this NPSC meeting will actively discuss and deliberate on various issues that need to be addressed about relevant topics. Thank you for your attention! 3/3 BIS central bankers' speeches | bank of albania | 2,019 | 10 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the Annual Conference of the Bank of Albania 2019, Tirana, 10 October 2019. | Gent Sejko: A brave new world? The future of banking in emerging Europe Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the Annual Conference of the Bank of Albania 2019, Tirana, 10 October 2019. * * * Your Excellency Mr President, Honourable Madam Minister and Chairman of the Parliamentary Committee, Dear representatives of the banking system, ladies and gentlemen, dear guests, It gives me great pleasure to welcome you on behalf of the Bank of Albania to our Annual Conference. This year the conference is co-organised again with the London School of Economics and Political Science (LSE), namely its Institute of Global Affairs – internationally renowned for its leading expertise across the social sciences. The Conference this year will seek to address the latest trends in the banking industry in Albania, in the region and the rest of the world, focusing on challenges and opportunities that lie ahead of us. Naturally, these issues are of great interest not only to actors in the banking market but also to central banks and other regulators of the financial market. As we share experiences and engage in open discussions, we will be able to identify far-reaching approaches that are best fitted to meet the challenges ahead. We have invited distinguished speakers and experts from renowned international institutions as well as other actors and regulators from Albania and the region. I am confident the conference will live up to its reputation. Dear Ladies and Gentlemen, The financial system and the banking sector at the heart of it play a unique role for economic development and welfare in Albania. This system provides payment instruments, contributing to the free circulation of products and services. It also offers savings and credit instruments for households and enterprises, promoting therefore development and enhancing welfare. The financial system helps households, enterprises and the economy to withstand shocks, by undertaking risks on its balance sheets and offering products to insure life, business activities and against natural disasters. Therefore, the efficiency, stability and sophistication of the financial system are essential preconditions for rapid, stable and comprehensive growth. The development level of an economy is inter-related and inter-dependent on the development level of its financial system. This has been extensively illustrated by the Albanian experience over the last three decades. The progress marked in the first decade of transition was conditioned by, among other things, embryonic developments in the banking and financial sectors. In the second decade, the activity of the banking sector expanded and competitiveness in this sector increased, setting the stage for crediting and economic growth to gather speed. This performance was disrupted by the global financial crisis effects spilled over to Albanian economy. However, unlike in many countries of the region, the crisis did not trigger recession or a proper financial crisis in Albania. Yet, indirect effects were present both in the economy and in the financial system. As a monetary, supervisory and regulatory authority of the banking sector, in recent years, the 1/4 BIS central bankers' speeches Bank of Albania has focused on addressing challenges introduced by the crisis. Let me present a brief overview. First, due to aggregate demand slowdown and exchange rate depreciation, the financial situation of households and enterprises worsened; hence non-performing loans rose rapidly and credit supply contracted. Among other things, the rise in non-performing loans pointed to the need for comprehensive improvement of the legal and regulatory environment, especially with regard to the execution of collateral. Against this backdrop, in cooperation with other public agencies, the Bank of Albania compiled and implemented a detailed programme of measures, which addressed thoroughly the identified inadequacies. As a result, the level of non-performing loans dropped rapidly and credit supply improved. This action also created adequate conditions for its growth to gradually pick up the pace. Second, following the introduction of stricter regulatory requirements on banking activity in the European Union, foreign banks reduced their exposure to both regional economies and Albania. Known also as deleveraging, this effect showed that higher integration of the banking sector exposes us to monetary policies and regulatory requirements applied in home countries. In response, the Bank of Albania has worked towards aligning our domestic supervisory and regulatory framework with European Union standards. We have implemented, in this regard, a new macro-prudential strategy, after the model of the European System of Central Banks. We have also carried out a comprehensive review of the supervisory and regulatory frameworks, to better address the risks to the banking sector: operational risk, market risk, credit risk and liquidity risk. Finally, we have actively participated in an international forum for addressing this phenomenon, known as the Vienna Initiative, and have enhanced our communication with international partners and home-country regulatory agencies. Third, we have spent a lot of time and energy administering a consolidation process in the banking sector. As a result of this process, which may now be considered as finalised, the number of banks has now been reduced to 12. This has created the premises for the banking sector to be more motivated to lend, innovative in terms of products, and more competitive in terms of cost. From a broader perspective, the Bank of Albania has worked on improving the regulatory architecture of the financial system in Albania and strengthening financial safety nets. Together with other public agencies, we have, established the Financial Stability Advisory Group; improved the legal framework for the functioning of the Deposit Insurance Agency; approved the Resolution Law; drafted a sub-legal and regulatory framework; and, established the necessary structures for them to function. In parallel, we have adopted a modern framework for formulating and implementing the monetary policy, and steadily maintained an accommodative stance. Monetary stimulus has enabled the financial environment in Albania to be transparent, and have low interest rates, ample liquidity and moderate exchange rate fluctuations. This has boosted consumption and private investments, reduced credit price, and eased debt servicing costs for all segments of the economy. Reflecting these actions, the Albanian economy has made notable progress towards steady and long-term growth. The progress has been characterised by gradual acceleration of the pace of growth, expansion of employment and decline in unemployment, as well as improvement of private sector balance sheets. In particular, the banking sector appears liquid, well capitalised, with good profitability indicators. Regulatory capital hovers around 18%, notably above the minimum requirement, whereas the ratio of non-performing loans has dropped to 11% against the 25% maximum level recorded in 2014. Dear ladies and gentlemen, 2/4 BIS central bankers' speeches The ultimate objective of our work has been and remains promoting sustainable development for the country. The philosophy of our work is built on four main pillars: professionalism, responsibility, accountability, and transparency. This philosophy has been tested and enriched with some valuable lessons learned during the last decade: First, monetary, supervisory and regulatory authorities should adopt a proactive approach to the country’s monetary and financial stability. This requires adequate institutional capacities and adopting a counter-cyclical approach, both toward monetary policy and macroprudential policy. It also requires constantly identifying current and potential challenges in order to address them in due time. Second, long-term economic growth should be anchored in continuous structural reforms. Public authorities may find it virtually impossible to predict or avoid shocks completely; however, both public authorities and the private sector may minimise the effects of these shocks through structural reforms aimed at creating productive and flexible structures, and preserving balance sheet stability. Public authorities and the private sector should be aware of the fact that long-term benefits from reforms exceed their short-term costs. Third, financial integration provides an additional channel of exposures to foreign shocks, whether in the form of global financial crisis or volatility in the regulatory framework. Overall, financial integration has been and remains a positive factor for development. In the case of Albania, it brings in financial capital and managerial know-how, with a series of positive effects on the Albanian economy, spearheading the economic and political integration of the country. Yet, integration requires fostering cooperation and exchanging information with our international partners and counterpart institutions. Lastly, the monetary and financial stability of the country should not be seen as an exclusive responsibility of the central bank, notwithstanding its primary role in it. It requires the contribution and cooperation of all state authorities. Dear ladies and gentlemen, The Albanian economy has solid premises for continuing and even accelerating the pace of growth. Strengthened financial stability, coupled with prudent monetary policies, offers additional guarantees for its sustainability. However, let me point out that many challenges lie ahead of us. From a broader perspective, the financial industry, both in our region and globally, is under pressure from four powerful currents: Rapid development of information technology, which has created opportunities for financial innovation and has challenged classical banking models. New payment and credit instruments, new financial market actors, and new business models, such as digital and electronic banking and payments, boost the penetration of financial services. Conversely, they challenge not only classical actors of the financial sector but also its regulators. Globalisation, which has expanded the scope of market actors and regulators. This phenomenon significantly exposes emerging economies to volatility in the regulatory framework or in the risk appetite in advanced economies. Re-regulation, currently underway in the financial system in Europe and globally. This process is aimed at enhancing security in the banking sector, lowering the probability of systemic crisis, and enhancing the capacities of authorities for managing them. However, it imposes additional costs on the banking sector and places it under less favourable conditions vis-à-vis other market participants. Very low interest rates that characterise many segments of the global financial market. 3/4 BIS central bankers' speeches These rates reflect the accommodative monetary policy stance adopted by major central banks, the decline in global productivity and unfavourable demographic developments in advanced economies. These have a toll on the balance sheets of broader segments of the financial market such as banking sector, pension funds and insurance companies. From a nearer-term perspective, Albania needs to improve financial literacy, across the board. Among other things, financial education would help both individuals and firms establish sounder financial situations and reduce financial risks such as unnecessary exposure to exchange rate volatility. The Bank of Albania has been on the vanguard of financial education in Albania and will continue to spearhead such efforts. Albania needs also to develop further payment systems and improve access to finance for various segments of the society, such as small and medium-sized enterprises or the rural sector. The Bank of Albania has responsibly exercised its duties in the area of payment system development. In this regard, we: Established, in 2015, the National Payments System Committee, to coordinate the work of all relevant public and private sector agencies; Compiled the draft law “On payments services”, which approximates the respective EU directive and paves the way for developing new payment products; and, Improved the technological infrastructure for payments, reducing therefore their costs. However, our work may not be considered as completely finished. Lastly, Albania should pay attention to the development of new financial market segments, such as capital markets and pension and investment funds. In this context, alignment of the legal and regulatory framework is of primary importance with a view to preventing the potential emergence of systemic risks or the possibility of regulatory arbitrage. *** Dear ladies and gentlemen, Our agenda for the work that lies ahead of us is as complex as ambitious. Its successful realisation will enable our economy to grow at a fast and steady pace, and will mark a step forward in our journey towards EU integration. On behalf of the Bank of Albania, let me affirm our readiness to rise to the challenge. I am also confident that today’s conference will provide a significant contribution to finding optimal solutions. Hoping that you will find the Conference and your stay in Tirana both valuable and enjoyable, I wish the conference a great success! Thank you for your attention! 4/4 BIS central bankers' speeches | bank of albania | 2,019 | 10 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the graduation ceremony of the students of economics, University of Tirana, Albania, 7 November 2019. | Gent Sejko: Bank of Albania’s support for new graduates and the importance of ongoing education Address by Mr Gent Sejko, Governor of the Bank of Albania, to the graduation ceremony of the students of economics, University of Tirana, Albania, 7 November 2019. * * * Dear students, Distinguished members of the Faculty, Dear parents, relatives and friends, Thank you for inviting me here and for the wonderful welcome. It is a great pleasure for me to have the opportunity to address this audience on this special day for you, your families and the academic staff of the Faculty. Today, you have the absolute right to be proud, enjoying the reward of your laborious efforts and sacrifices throughout the years of your studies, from the first grade to the completion of university studies. I take this opportunity to wish you all successes in the long and challenging journey of postuniversity life. Starting tomorrow, you will not return to university auditoriums, you will start making your own journey, as new perspectives and opportunities open up. Starting tomorrow, you will enter into a new stage of your life, characterised by complex and rather challenging relationships. This is the big truth of human life, and I hope that you have already grasped it. Looking at your achievements, the appraisal of your professors and the results from your internships at the Bank of Albania, I can only be optimistic about your ability and sagacity to find the right path in life. My appeal today for you is to embrace a different philosophy of thinking and acting, more modern and forward-looking, obviously always capitalising on our best national values and traditions. My advice is: never absent yourselves from knowledge and books. Education is a never-ending experience and process, and will accompany you throughout your carrier, notwithstanding your specific engagement, a bright member of the academia, a successful entrepreneur in the private sector or an expert of important public or international institutions. To be on the top list, you should always update your knowledge on the most recent theories, trends and findings, which explain the most basic laws and functioning of markets and economy. As the administrator of an important institution in the field of the economic and financial policies decision making, I have always believed and supported the involvement of the new generation in the daily activity of the institution. Beyond the fact that the new generation dominates the human resources in the Bank of Albania, we try to maintain the interest and the inclusion of students in our everyday activity, through a range of various educational and informative programs. The Bank of Albania is open for all students studying in finance and economics or other related fields for internships, continuously supporting the scientific and research work of the students. I take this opportunity to assure you that, in the future, the Bank of Albania will continue to fully support the new and talented generation of Albania, as we keep our doors open, in all possible ways and forms. Dear students, Today you have reached an important milestone in your life. It is up to you, only to you, to take the destiny in your hands, and determine with courage, determination and the characteristic vivacity of your age the future path in your lives. Wherever you are, in Albania or abroad, never give up on your ambitions and dreams. To make them come true, you have to work tirelessly, with confidence, integrity and professionalism. 1/2 BIS central bankers' speeches I wish and hope everyone would find the right path! 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 11 |
Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 13th SEE Economic Research Workshop, Tirana, 5 December 2019. | Gent Sejko: The importance of studying technological and demographic developments disrupting labour, finance and markets Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 13th SEE Economic Research Workshop, Tirana, 5 December 2019. * * * Dear Ambassador Maître, Dear guests and speakers from academia, central banks and research institutions, Dear participants, It is a great pleasure for me to open the proceedings of the 13th SEE Economic Research Workshop, in which we present and open for discussion research projects undertaken by the Bank of Albania in the current year, and have the opportunity to get feedback from colleagues from academia, central banks and research institutions worldwide. This is a very important event for the Bank of Albania, since all the projects that will be discussed during the two days of the workshop are designed to help the analysis, decision making and implementation in the areas of monetary policy and financial stability as well as other central bank aspects. Based on this careful formal analysis, our policies have been successful in preserving monetary, macroeconomic and financial stability. Despite hardships, our economy has registered positive growth rates, and our banking system’s performance has been stable. The banking sector is well capitalized and profitable, non-performing loans have decreased and banks continue to support economic activity with credit, while managing potential shocks originated from the external sector of the economy. The agenda is rich and covers the most important areas of research related to traditional central bank activity. In these two days, discussions will focus on monetary policy, financial stability, economic modelling and forecasting, risk assessment and management, which are all traditional instruments in the central bank toolkit and need to be improved constantly. It is very important to note that, in addition to these traditional topics, the workshop will discuss research in new and important areas such as: digitalization of financial services, structural reforms, healthcare and its implication for central bank objectives and national welfare. Technological developments disrupting traditional labour, financial products and markets, and demographic developments may impose some of the most important challenges to our societies and institutions. Therefore, it is important to study and adequately understand these phenomena. In addition, we are glad and eager to discuss research findings from a number of authors who come from academia, central banks and other research institutions. The ideas and methodologies that are embedded in their research will introduce our researchers and economists to new ideas, will help them extend their research agenda, and will reveal potential opportunities of cooperation in the future. I believe that research in these and other innovative areas, like green finance, will develop further and become traditional topics in central banks’ research agenda. For this reason, I challenge our researchers to consider these trends in their future research agenda. Continuous enhancement of research topics and methodologies is a must for a central bank. In this respect, I would like to thank Ambassador Maître, the Swiss Government, the State Secretariat for Economic Affairs (SECO) and its Bilateral Assistance and Capacity Building for Central Banks (BCC) program for supporting research activity at the Bank of Albania. This 1/2 BIS central bankers' speeches cooperation has been a significant instrument for improving our research work and exposing it to academic and international research community. Our cooperation will continue in the future to improve research methodologies and products. We are currently working with SECO toward the optimization and institutionalization of research agenda and research implementation in central banks. These important issues will be discussed in a jointly-organized workshop with all BCC partners on capacity building for central banks, in Tirana in spring 2020. Dear ladies and gentlemen, Our SEE Research Workshop has become a cherished tradition for Bank of Albania and central banks of the SEE region. It is a great pleasure, and we are very happy to see that the workshop continues to generate interest beyond the SEE region and central banking community. The list of participants has expanded to include speakers from academic institutions in the EU, the US and South-Eastern Asia, as well as from international financial institutions. Your participation is contributing to broadening and enriching our network and we hope that discussions will help our researchers to improve their work and strengthen their research recommendations. These days, your participation in the workshop takes another and even more significant meaning in the wake of the tragic consequences caused by the strong earthquake. It helps to show that, despite many losses, we are resilient and will continue to work to overcome the emotional and economic hardships of this tragic event, shed the desperation, fear and despair, and return to normal activity. I wish the workshop a great success, and all guests and participants a pleasant stay in Tirana! 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media and the Governor's Award ceremony, Tirana, 13 December 2019. | Gent Sejko: Transparency, communication and the importance of the media partnership Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media and the Governor’s Award ceremony, Tirana, 13 December 2019. * * * Dear ladies and gentlemen, Welcome to the Bank of Albania, to spend some time together as the year end approaches. Sadly, the atmosphere at the end of this year is different from previous ones, following the devastating earthquake, which hit Albania in late November. In the aftermath, we are all heartbroken by the tragic loss of 51 lives, with hundreds of others injured and many buildings, which have collapsed or have been heavily affected by the strongest quake in decades. Yet, beyond the material consequences and psychological shock, this tragic event foregrounded another – somewhat dormant – dimension of our society: solidarity and unconditional support for each other. We all witnessed an impressive demonstration of voluntary support from fellow citizens to those affected by the devastating earthquake. In this extraordinary situation, the media played a key role in promoting solidarity and alleviating the human pain caused by this natural disaster. In light of this event, and in retrospection of 2019, let me express my sincere thanks and heartfelt gratitude to the media, to those who are present here tonight, and those that were unable to attend, for their invaluable work, reporting news truthfully and in real time. Staying on the media, but shifting to another, concrete contribution of it, professionalism and integrity in covering news related to economic and financial developments in Albania increased notably this year. Let me emphasise. We are glad to say that we find your work has advanced in all its dimensions. The language you use as well as the breadth and depth of your analysis in presenting our reports to the public reflect a serious approach and professionalism. Thanks to you, our decisions have been passed on in a timely fashion. Further, they have been translated and adapted using simple and easy-to-assimilate language, not only for market actors, but also for the general public. The media is a unique ally in our efforts to enhance the effectiveness of our decision-making. Please allow me to thank you once again for your work, filled with passion and dedication during the course of this year. I am confident that in the coming year your dedication, truthfulness and objectivity in reporting economic and financial news will continue to characterise your work. I would like to assure you that the Bank of Albania will continue be a transparent institution, ready to provide opinions and assessments as necessary in all public debates related to the performance of our economy and financial markets. For the Bank of Albania, macroeconomic stability and financial solidity in Albania are essential and long-term objectives. We work incessantly to enable such stability, which is vital for all the citizens of Albania. I want to underline today that you are an important partner in our efforts and when we join forces guaranteeing the welfare of future generations becomes an easier task. Dear guests, We have constantly emphasised that financial education and research are an integral and significant part of the activity of the Bank of Albania. They are a precondition and source for the social-economic development and welfare of the citizens of Albania. In this regard, I would like now to turn your attention to what has now become a tradition, the ceremony for the Governor’s Award for the Best Diploma. 1/2 BIS central bankers' speeches This is the 13th year that the Bank of Albania has selected and awarded three diploma theses. Over the years, we have found that the quality of research work has been improving, to the point that it has become actually difficult to distinguish the work presented by a recently graduated student from that of a researcher at the Bank of Albania. The selected topics present great interest, as they focus on critical issues related to the economic and financial reality in Albania and beyond. As in previous years, Albanian students from domestic or foreign universities have applied and presented their best research work. We are happy to note that participation and interest from students and universities has been significantly on the rise, revealing the recognition, reliability and reputation this Award has achieved. This year, we received 39 studies, ranging from monetary policy and economic and financial development of the country to topics related to aspects of management of production and financial activities, European integration, and technology innovations applied in the fields of virtual money and finance. These works are characterised by the use of contemporary research methodologies and make use of ample statistical information, to research, through theoretical arguments and cause-effect practical relations, various economic phenomena and the rules governing them. Despite the objective difficulties in selecting the most interesting studies, we have eventually come to a decision on the “Governor’s Award for the Best Diploma Theses” for 2019. Having said that, while limited to selecting only three winners, I take this opportunity to congratulate all the participants for their serious commitment and the ideas, methods and conclusions in their laudable research. I would encourage you to continue in your career, after this first step in scientific research, with many more ambitious ones. Let us now present the winning candidates. Thank you and happy holidays! 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching ceremony of the Twinning Project "Enhancing Bank of Albania's alignment with EU Acquis", Tirana, 19 December 2019. | Gent Sejko: Enhancing Bank of Albania’s alignment with EU Acquis Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching ceremony of the Twinning Project “Enhancing Bank of Albania’s alignment with EU Acquis”, Tirana, 19 December 2019. * * * Your Excellencies Ambassadors, Representatives of Banca d’Italia and Deutsche Bundesbank, Ladies and gentlemen, Dear guests, I have the pleasure, as the Governor of the Bank of Albania, to welcome you to the launching ceremony of the Twinning Project on “Enhancing Bank of Albania’s alignment with EU Acquis”. The project is financed with IPA 2015 EU funds, following a previous project on needs analysis for the Bank of Albania – designed and led by the ECB in partnership with 11 central banks of the European System of Central Banks. From this perspective, the new twinning project we are launching today may be considered a continuation of the previous one, given that it will address a significant number of recommendations from 2014. Hoping that in the spring of 2020 we will see a green light for the opening of accession negotiations for Albania, I would like to reassure you of Bank of Albania’s commitment to fulfilling priorities arising from the European integration process. Major objectives for strengthening the long-term capacities of the institution coincide with the approximation of its legal, regulatory and operational frameworks to that of the European System of Central Banks. I would like to emphasise that undertaking such projects emphasises the mutual engagement of the EU and Albania with regard to deepening integration processes of our country, and reiterates Albania’s European perspective. Dear ladies and gentlemen, In the last decade, Bank of Albania has implemented a number of EU-funded projects. The first twinning project was implemented during 2012 – 2013. At that time, like now, Banca d’Italia – in partnership with Banque de France – contributed successfully to achieving concrete results in six areas of Bank of Albania’s activity. The second project – needs analysis for Bank of Albania’s approximation, funded by the EU – was led by the European Central Bank and was implemented during 2014. The aim of the sixmonth project was to assess the legal, regulatory and operational frameworks of the Bank of Albania vis-à-vis standards and best practices applied in European central banks. From this perspective, it should be underlined that the recommendations left upon the completion of this project are incorporated in the list of main priorities for Bank of Albania’s institutional approximation to the model applied in the European System of Central Banks. In addition, in light of addressing these priorities, the European Commission decided to allocate EUR 800 000 as under IPA 2015. After a long process of consultations and sharing information, for the first time, Bank of Albania’s experts put together a Twinning Project, which was submitted to the European Union Delegation to Albania. At the end of the process, Banca d’Italia and Deutsche Bundesbank were selected to implement Bank of Albania’s project. Banque de France and National Bank of Romania are also part of the team for certain components of the project. We feel privileged, certainly, by this close partnership with these two major central banks. Relations with these two institutions date back to quite early in the history of the Bank of Albania. 1/2 BIS central bankers' speeches Whether multilaterally or bilaterally, they have assisted for many years the Bank of Albania achieve its objectives and operate like a modern and reliable institution. I am therefore optimistic about the success of this next project, irrespective of the relatively tight agenda and deadlines. Now, let me briefly introduce you to the main components of this project. It will involve eight departments at the Bank of Albania and will address important issues, grouped as follows: 1. Banking Supervision and Financial Stability 2. Monetary Policy and Statistics 3. Internal Audit 4. Payment Systems 5. Other central banking functions such as human resources and European integration For each component, measurable results have been envisaged, which will be translated into regulatory documents, guidelines and specific recommendations related to policies. All outcomes will aim to approximate the final product at a higher level to standards and models of the European System of Central Banks. Dear ladies and gentlemen, I hope that this project will deliver long-term results, and will strengthen the regulatory and operational frameworks at the Bank of Albania, an institution that makes substantial contribution to the sustainable economic development of Albania. On behalf of the Bank of Albania, let me iterate our readiness and commitment for the successful implementation of the Twinning Project, as we strive with professionalism and responsibility to achieve its objectives. Concluding, I would like to thank the European Commission, for its support in securing funding for this project. I am certain that the Commission will continue to support future initiatives of the Bank of Albania, as we deal with approximation challenges and endeavour to progress toward the European family. I would also like to thank the EU Delegation to Albania for their support and valuable suggestions during the design and consultation phases of the project, as well as the General Directorate for Financing and Contracting, for their insistence throughout the design and selection process for compliance with all EU procedures related to fund management. Special thanks go to Banca d’Italia, an institution that has constantly supported us with their invaluable experience. I believe that the experience and dedication of Mr Gola is an added guarantee in this regard. We are grateful to Bundesbank for their active participation in this project – as well as in their specific role in the regional project on “Strengthening the Central Bank Capacities in the Western Balkans with a view to the Integration to the European System of Central Banks”. We would also like to thank National Bank of Romania and Banque de France for their involvement in this project. Last but not the least, I would like to thank staff members of the Bank of Albania intensively engaged in the design and implementation of the project. I do believe that, as with previous experiences, this project will be implemented and finalised successfully, contributing to the advancement of capacities in our institution. Thank You! 2/2 BIS central bankers' speeches | bank of albania | 2,019 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the meeting organised by the Albanian Association of Banks, Tirana, 12 February 2020. | Gent Sejko: Financial inclusion, governance, tackling nonperforming loans, and Albania’s milestones for 2020 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the meeting organised by the Albanian Association of Banks, Tirana, 12 February 2020. * * * Dear ladies and gentlemen, It is always a pleasure for me to attend meetings and round tables with representatives of banks operating in Albania. They are also an excellent opportunity to discuss and harmonise our efforts for a stable deepening and expansion of the financial market, as one of the core pillars of the economy and the main driver for sustaining development and enhancing the public’s welfare. I would like, in my brief address, to bring to your attention some highlights of 2019, regarding the contribution of the banking and financial systems, as well as some milestones for 2020. Let me first focus on the overall state of affairs in the Albanian economy. The devastating earthquake that hit Albania on 26 November 2019 was a major event with a strong impact for 2019, on all the sectors of economy and the whole society. It was an unexpected shock giving rise to economic and psychological consequences in the affected areas and beyond. On the other hand, it was a difficult test, and I may say that all banks passed it successfully, in terms of continuity of financial market’s critical functions. In such a disastrous situation, it was very important that people could perceive the security, at least in the financial aspect, regarding their deposits with banks and continuous access to their funds to meet their basic needs. Under these circumstances, not only did all banks generously contribute to recovering from earthquake consequences, but they also supported their clients in alleviating their pain and offering adequate solution, while ensuring continued operations and activities. Beyond this event, overall, the Albanian economy in 2019 performed in positive terms. Its growth pace continued to trend upward, employment increased, internal and external balances strengthened, and main indicators of the banking sector’s soundness have been improving. All the above reasons boost the optimism on the outlook of economic growth in the medium-term horizon. Among others, Albania has reached an important milestone on its path to development and integration: the expected opening of accession negotiations with the European Union. These negotiations should be definitely considered as an important development anchor and an additional guarantee for both domestic and foreign investors. Year 2019, as I stated above, affirmed the stability of the Albanian banking system. All structural changes that started in 2018 were successfully completed in 2019, driving to the targeted consolidation of the banking system. The activity of the banking sector grew in terms of the volume of assets and deposits. Meanwhile, the quality of the credit portfolio improved by around 3 percentage points during 2019 (the NPL fell from 11.1% to historical low 8.36%). This improvement is attributable to the zestful actions undertaken by most banks to address the nonperforming loans portfolio, by offering solutions both within the e.g. repayment, repossession, restructuring, debt forgiveness), and also outside it the e.g. sale of loan portfolios). The financial infrastructure of the banking sector was strengthened further in 2019. The Bank of Albania and the National Payment System Committee have implemented the national strategy for 1/3 BIS central bankers' speeches enhancing the small value payment market and increasing the financial inclusion of the population. The first results are promising and further steps by the Bank of Albania and the banking sector will be taken aimed at achieving a quantitative objective, which is to see the number of bank account holders doubled by 2022. The financial inclusion of the population is one of the most important current priorities. In 2019, the Bank of Albania and the banking sector paid particular attention to financial inclusion and financial education. It is a proven fact now that the improvement in financial inclusion contributes to the improvement of the welfare of the population, in a harmonised way. In this regard, we have designed and implemented, among others, a series of educational projects tailored to various segments of the population. Financial education, targeted publications with information on bank products and services, as well as developments in the payment infrastructure and payment services are concrete steps for providing more opportunities for access to finance by all segments of the population. *** Dear representatives of the banking sector, We should not limit ourselves to seeing only the consequences from a natural disaster; we should see an opportunity for recovery and development. The Government has announced the areas designated for reconstruction after the earthquake and in addition to the allocated funds for this purpose funds are expected to be collected from the Conference of Donors. Amid this situation with financing opportunities from the Government, donors, and a high interest from households to invest in re-building their properties and making them safer, banks should be active, to intensify their intermediary role and enhance their lending to another dimension. Let me now address some key issues, which should be addressed attentively to ensure sustainable pillars for banking activity to continue to build on as a whole, particularly with regard to sound and competitive lending, which ensures sustainable income. First, the reduction of the non-performing loans portfolio does not guarantee they do not arise again if we do not look behind and address the problems and errors made when they were originally provided. Addressing them starts with improving governance, building-up and strengthening audit lines, attracting and training sufficient and qualified staff, above all, establishing an effective supervision by senior management bodies to maintain the adequate balance between risk appetite and the objectives of the business. These are only a few of the steps to be implemented in this regard. The Bank of Albania, in the framework of legislation approximation with the EU acquis, has increased the regulatory requirements to ensure more qualitative governance. But, beyond the formal fulfilment of the regulatory requirements, these principles are indispensable to be incorporated into and become part of the culture of the entire organisation. This is a long-term investment, which generates positive and stable outcomes. Second, while adopting better governance, the same expectation should be transmitted also to your clients. The principle not to accept informal data from firms when assessing their repayment capacities has provided absolute positive results in preventing the creation of new non-performing loans. Yet, the issue of informality is still present in our economy. Banks may do more in this regard by offering to your clients and encouraging them to use existing or personalised products, which ensure a higher circulation of funds within the system, enhance the interconnection between firms and clients, and facilitate the establishment of a more complete financial profile and a more precise assessment of the repayment capacity. Third, there is still a relatively high quantity of “intangible assets” in the balance sheet of banks, despite the insofar success. In total, the properties regained from legal processes are a high potential waiting to be transformed into funds. But, it may lose its value very quickly, becoming an unnecessary cost, which harms the reputation and competitiveness of banks. For a relatively 2/3 BIS central bankers' speeches small market, such as Albania, it is proved that the costs of non-performing clients are borne by the whole system, and individual strategies have no effective results. To provide an effective restructuring for clients in distress, it is indispensable to have an honest collaboration between banks, which ensures not only a more fair assessment of the client’s repayment capacity, but also optimises the time and cost of assessment for both the bank and the client. The Bank of Albania remains committed in supporting energetically such collaborative projects, by guaranteeing impartiality; meanwhile banks should show a good will in this regard. Last, in these days of daily technology advancement, banking business would not be able to survive without investing in technology, in the right time. All banks are fully aware of this, but the pace of development in each of them has been different. Thanks to the strong relations and exchanges with our European neighbours, and the firm aspiration to be part of the EU, a postponing of the necessary investments in this regard would be at the cost of competitiveness. But, investments in technology only, without the support of internal human resources, may expose banks to high operational risks and irreparable consequences. While educated young people are moving abroad, I invite you to consider investments in technology, not only for the automation of processes, but also as an opportunity to prevent the impoverishment of the labour market, thus contributing to setting up conditions for keeping the qualified labour force in this market, which is also part of the elite clientele of the banking market. In conclusion, let me assure you that the Bank of Albania provides the maximum support and attention to all your proposals, not only in capacity of the regulatory authority, but also, as a loyal, supportive and serious partner, aiming at achieving the common objective, that is a developed market which offers attractive possibilities for investors, for financial stability and a fair competition which respect the consumer’s rights. Our decision-making will be transparent and all our initiatives will be guided by a spirit of cooperation with the banking sector, aiming at ensuring highest efficiency. Thank you for your attention! 3/3 BIS central bankers' speeches | bank of albania | 2,020 | 2 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Discussion Forum on ''Bank - business relationships: common economic challenges in face of global Covid-19 pandemic", Tirana, 13 May 2020. | Gent Sejko: Bank - business relationships: common economic challenges in face of global Covid-19 pandemic Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Discussion Forum on ''Bank business relationships: common economic challenges in face of global Covid-19 pandemic”, Tirana, 13 May 2020. * * * Dear representatives of business community in Albania, Dear banking system executives, First, I would like to thank you for your participation in this round table, held to discuss on the way and optimum instruments to face the common challenges ahead. This meeting is being organised under extraordinary circumstances. The outbreak of Covid-19 pandemic and the prudential measures adopted to confine it, drove to a rapid drop of the demand for goods and services, in the domestic and foreign markets, and to a considerable contraction of output. The challenges we are facing are serious, in terms of both size and complexity. The Albanian economy is expected to undergo a strong drop of the economic activity during 2020, in those levels never being experienced during the last two decades. It will be accompanied by an increase of unemployment, fall of revenue, and financial difficulties to firms and households. In the microeconomic view, the fall of revenue, reduction of liquidity and worsening of solvency will test the financial stability of firms. In the macroeconomic view, the increase of private and public debt will test the stability of economic equilibriums of Albania. Last, the shock experienced by the real sector will not overcome without leaving traces in the financial market and in the indicators of the banking sector’s business, as well. The dimensions and complexity of the crisis demand for a coherent and comprehensive response. Absolutely, public authorities have the primary role to play in this regard. The fiscal, monetary and financial stimulus, are essential instruments to boost the aggregate demand, mitigate the liquidity problems and avoid the long-term consequences of the crisis. Nevertheless, firms and banking sector should not consider themselves as passive consumers of the economic policies, but as exceptional actors in our efforts to resolve the crisis. The stimulus of public authorities could be neither effective nor potentially sufficient, without the adequate reaction of both firms and banking industry. Dear guests, Allow me to introduce briefly the reaction of public authorities, and further to share with you our vision on the challenges and role that the Albanian firms and banking sector should play. 1. Reaction by public authorities In the face of the unprecedented health emergency, the focus of public policies – in Albania and globally- was the undertaking of severe social distancing measures. Naturally, these measures have hit the economic activity and have demanded for a comprehensive easing of fiscal, monetary and financial policies. 1/4 BIS central bankers' speeches Fiscal policy – rightfully- has been given a primary role in facing the situation. This policy may provide a direct support to aggregate demand, through fiscal transfers, and an immediate and targeted improvement of liquidity to enterprises, through the postponing of the payment of taxes and through the sovereign guarantees programs. The two introduced fiscal packages, so far, provide for a maximum potential stimulus at around 3% of GDP. Even without considering the negative effect on public income, this stimulus transfers to the balance sheet of public sector a considerable part of the financial costs of the crisis. On its side, the Bank of Albania has increased the dosage of the monetary stimulus. This stimulus has been taken the form of the reduction of policy rate, already in its historical minimum of 0.5%, aiming to boost lending and reduce the servicing cost of existing loans. Also, it has been in the form of removing the quantitative limits of liquidity injection into the system, aiming to a better supply of the banking market and the Albanian economy. The volume of liquidity that we inject every week in the system fluctuates around the level 2%. In addition, the Bank of Albania has undertaken operational measures for guaranteeing the supply of economy with cash, in response to its increased demands. In parallel, the Bank of Albania – in an agreement and good understanding with banking industry – has carried out regulatory amendments which ease the postponing with one quarter of the credit payment for firms and households which face temporary financial difficulties. The reports, so far, show that more than 20.000 firms have benefited from this easing, who have a credit at banks which account for higher than EUR 2 billion. Also, we have temporary suspended the allocation of dividend by the banking sector, for the purpose of strengthening the capitalisation indicators of this sector. Dear guests, The reaction philosophy of the Bank of Albania is the mitigation of crisis consequences and the establishment of preconditions for a rapid recovery of the economy once the pandemic is overcome. In detailing this philosophy, we deem that: the safeguarding of the monetary and financial stability, and the minimisation of the negative effects of pandemic on our production capacities, are two crucial preconditions for the recovery. For this reason, the objective of our policies is the application of the right stimuli in timely manner, without prejudice in any moment to the monetary and financial stability of Albania. I am confident that both business community and the banking sector share this philosophy. 2. Business and banking sector in face of Covid-19 As I already emphasised, the Albanian business is facing a serious challenge to its future. This challenge has almost existential dimensions in certain segments. At the same time, the longterm soundness of banking sector is closely related with the soundness of business. Banking credit to firms is almost 4 times higher during the last two decades. It accounts for around 25% of banks’ balance sheets and has a comparable share to GDP, while the bank – business relationships’ flow is present also in the field of other financial products and in the payment services. For this reason, your reaction against the shock should be decisive, courageous and visionary, as well as based on the spirit of collaboration and common long-term interests. Allow me to be more concrete in detailing the vision of the Bank of Albania on the challenges ahead. The first challenge is the facing of health emergency. The business and banking sector should 2/4 BIS central bankers' speeches be clear that human capital is the most precious asset for every company. For this reason, any necessary measure to guarantee the health of the employees should not be considered as an expense, but as a strategic investment for the future of the firm. The second challenge is the revision of the business model and the increase of operational flexibility. One of the lessons of this crisis is that each of us can make more to adopt the information technology, to shift part of the business on line, and to increase the operational flexibility and efficiency. Putting into practice these lessons is particularly useful in case of the prolongation of the pandemic. The third challenge is maintaining liquidity and solvency of firms. The shock we are suffering found the Albanian business with a high historical level of liquidity; its deposits with banks accounted for around 12% of GDP in the first quarter. In parallel, business access to banking liquid funds, in the form of overdrafts or lines of credit, is at a comparable size with the deposits of the business itself. This liquidity is a reasonable security restrain to risk. Nevertheless, the historical experience shows that liquidity crises frequently are the starting point for complete financial crises. For this reason, I would like to point out that: Business should be prudent in the operational management of liquidity, being based on real plans and by taking measures to handle the contingent or unforeseen needs. Also, banking sector should continue to support the economy with liquid funds, by performing an objective and real assessment of the situation, but without compromising the lending risk criteria. In this regard, the Bank of Albania has undertaken and will undertake all the necessary measures in order the banking sector will have all the sufficient liquidity to support the Albanian economy. The fourth challenge is the maintaining of production capacities of economy. This challenge implies the safeguarding of individual firms’ soundness and the functioning of the entire production and trade chain. For this purpose, the Bank of Albania suggests: The business should be careful in fairly sharing the cost of crisis, by offering – wherever possible and on mutual interest – the necessary financial facilities to suppliers or long-term clients. The banking sector should carry out a reassessment of the stability of the borrowers’ business model, under the post -Covid reality. Clients facing temporary financial difficulties but with stable business models, should be supported with liquidity and temporary operational easing. Clients facing serious difficulties may be supported through the restructuring of credit, always so far and at the level that the long-term perspective of the business remains solid. On its side, the Bank of Albania will encourage a pro-active approach of the banking sector towards this process, without prejudice to the stability of the sector and transparency of its balance sheets. Lastly, the fifth challenge is the safeguarding of the monetary and financial stability of Albania. In this regard, I would like to underscore that: The Albanian business should show transparent and loyal to the banking sector. This sector should provide its help to face the crisis, but it may not counter alone its financial costs. Also, banking sector should find a fair equilibrium between the support to borrowers in need – in a bilateral long-term interest and benefit – and the safeguarding of its balance sheet soundness. As I already mentioned, the monetary and financial stability is not negotiable to the Bank of 3/4 BIS central bankers' speeches Albania. In compliance with our legal mandate it has been and will continue to be the milestone of our polices. Dear guests, At the end of my speech I would like to emphasise that, although the challenges ahead are serious, their successfully countering is within our possibilities, if we all will know to rise to these challenges. I invite you to have an open and fruitful discussion, aiming at identifying a common work agenda for the continuing period. Thank You! 4/4 BIS central bankers' speeches | bank of albania | 2,020 | 5 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2019 to the Parliamentary Committee on Economy and Finance, Tirana, 1 June 2020. | Gent Sejko: Albania's economic and financial developments in 2019 Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2019 to the Parliamentary Committee on Economy and Finance, Tirana, 1 June 2020. * * * Honourable Madam Chair of the Committee, Honourable Members of the Committee, Allow me, to thank you, notwithstanding the unexceptional circumstancing, for the invitation and the opportunity to present the main messages of the Annual Report for 2019 of the Bank of Albania. The Annual Report describes the work performed by the Bank of Albania for fulfilling its legal mandate, the strategic development objectives, and the recommendations left by the Assembly of the Republic of Albania in the Resolution “On the assessment of the activity of the Bank of Albania”. I am pleased to affirm that our work has provided a positive contribution in strengthening the financial and monetary stability of Albania. As always, I would like to emphasise that the Bank of Albania considers the financial and monetary stability as an indispensable precondition for the sustainable and long-term growth, and for successfully overcoming the challenges lying ahead. Honourable Members of the Committee, While preparing the Annual Report, our assessments on the current situation and the economic and financial outlook of the country have changed substantially. The Covid-19 pandemic outbreak was a severe shock on the Albanian economy and finances. For this reason, in my address today, I found it appropriate to speak, not only about the directions and main outcomes of the work of the Bank of Albania throughout the previous year, but also in the light of the current situation and our expectations for the future. Our main message is that the Albanian economy has the premises to successfully withstand this challenge, by only temporary deviating from the sustainable and long-term growth path. Nevertheless, the minimisation of coronavirus pandemic costs requires for a strong and coordinated response by public authorities, as well as flexibility and courage by the private sector. Allow me, to start this presentation with the main achievements of the Bank of Albania over 2019. *** 1. Albanian economy and monetary policy in 2019 According to the Law “On the Bank of Albania”, the main objective of the Bank of Albania is to achieve and maintain price stability. To fulfil this objective, the Bank of Albania has continued to implement an accommodative monetary policy throughout 2019. This stance was dictated by the still undershooting inflation values. Year 2019 was a challenging one to the Albanian economy. The external economic environment was unfavourable, characterised by the slowdown of the economic growth pace, low inflation and heightened uncertainties due to the strengthening of protectionist measures across global markets. On the other hand, the Albania economy continued to benefit from the increase of private consumption, and the expansion in the export of services, mainly driven by the continuation of tourism positive trend. Nevertheless, the economic activity in Albania was negatively affected by: the sharp fall in production of electrical energy; the gradual finalisation of 1/7 BIS central bankers' speeches investments in large energy projects; and the earthquake of November 2019, which caused considerable economic damages and losses. Hence, the economic growth in 2019, stood at 2.2%, downward from 4.1% in the previous year. We deem that the shocks we suffered drove to the slowdown of the economic growth pace, but did not deviated the Albanian economy from the positive development trend. This performance was reflected in the fall of unemployment rate, which hit its historical minimum, standing at 11.2% at the end of year, the growth of employment and wages, and in the reduction of both external and public debt of Albania. In parallel, the main indicators of the banking sector’s soundness remain at adequate levels. In 2019, inflation averaged 1.4%, downwards from the previous year. The reduction of inflation reflected the fuller transmission of the exchange rate appreciation and the fall of inflation of goods in international markets, while domestic inflationary pressures trended upwards. The still undershooting inflation rates dictated the maintaining of the accommodative monetary policy stance over 2019. Hence, the Bank of Albania: kept the policy rate unchanged at 1.0%; oriented the markets towards maintaining the accommodative monetary policy stance in the medium-term horizon; and supplied banks with the necessary liquidity. In response to our monetary policy, the financing conditions simulated the growth of aggregate demand and were adequate for the convergence of inflation to target. Allow me to highlight the main channels through which our accommodative monetary policy helped the economy. First, the monetary stimulus drove to the reduction of credit price and fostered the increase of lending. The financial markets were characterised by low interest rates, a good liquidity position and an increasing stability of the exchange rate. In these circumstances, lending to private sector experienced a relatively rapid growth and showed a better allocation. Excluding the effect of written off loans and that of the exchange rate, this credit recorded an average growth rate of 8% during 2019, considerably accelerating compared with the previous years. Also, lending to private sector showed an upward trend toward the financing of firms’ needs for investments, while the foreign exchange structure of credit continued to improve. The ratio of loans in lek to total loans increased at 48.7%, from 44.7% in 2017. The positive lending trend benefited from the increase in both credit demand and supply. In particular, while the low interest rates boosted the credit demand, the improvement of the supply reflected the downward risk of lending in Albania – as shown by the fall in non-performing loans – and the positive effects and increase of competition in the banking sector, due to its restructuring. Second, the monetary stimulus has led to the reduction of debt servicing cost to households and firms. Our assessments suggest that this effect in 2019 stood at the interval ALL 14–15 billion. These funds help to improve their financial situation and are an additional source for financing the consumption and investments. Third, the monetary stimulus has created the premises for a more stable exchange rate during 2019. Although the Bank of Albania was not present in the domestic foreign exchange market to affect the exchange rate, the establishment of a calm monetary environment supported its stabilisation. Fourth, the informing of market through the forward guidance on the future path of the monetary policy stance helped the market’s actors to be clear on the expected trajectory of inflation and interest rates. 2/7 BIS central bankers' speeches Through these channels, our accommodative monetary policy contributed for bolstering the economic growth and building-up the domestic inflationary pressures. Our empirical assessments show that thanks to the monetary stimulus, the economic growth and inflation stand averagely around 0.6 and 0.7 percentage point higher, respectively, during the last three years, than in case of monetary stimulus lack. As I mentioned it previously, the spread of coronavirus pandemic has changed the economic reality and the outlook for the future. With the crisis outbreak, the Bank of Albania has undertaken a full package of measures to address the immediate situation and establish a solid ground for the robust recovery of the economy. I will detail them at the end of my speech. Meanwhile, I will proceed with another direction of our work: The promotion of financial stability, thorough the strengthening of banking system resilience and the effective and smooth functioning of the payment systems. 2. Banking supervision and financial stability The financial situation of banking sector is sound and stable. This performance is shown by the expansion of the banking sector activity, the increase of RoA and RoE indicators at 1.4% and 13.5%, respectively, and the maintaining at a high level of 18.3% of capital adequacy ratio. Also, our stress test results show that banking sector’s exposure to systemic risks is contained, and its ability to withstand risks is robust. Following, there are briefly summarised some of the main directions of our work for strengthening banking supervision and supporting the financial stability. First, the Bank of Albania concluded the work on the management of the banking sector consolidation process during 2019. The Bank of Albania has coordinated and monitored carefully the process, during this period, in order to avoid any negative effect and to ensure the well-functioning of banks’ activity. Currently, 12 banks operate in the Albanian banking system, from 16 banks in 2018. During 2019, it was concluded the process of ownership transfer for two banks, the acquisition of one bank and the self-liquidation of another bank. This process reconfigured the domestic banking market, which currently experiences a higher presence of the domestic capital and increase of competition. Second, the Bank of Albania has worked toward fulfilling all its obligations in the framework of the national plan for the reduction of non-performing loans. The nonperforming loans ratio dropped from a maximum of almost 25% in 2014, to 8.4% at the end of 2019, attributable to the measures undertaken in years. The stock of non-performing loans reduced around 25%, by reflecting the decrease of non-performing loans to firms. In 2019, it was finalised the regulatory framework for the implementation of Tirana Approach project. The purpose of this Project is the establishment of a common inter-bank platform for finding an adequate solution for large past-due borrowers. The implementation of this platform will affect the further decrease of non-performing loans ratio in both short- and medium-term future. Third, the Bank of Albania has been working vigorously to fulfil the recommendations provided by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). In the fifth round on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, the Bank of Albania has played a crucial supportive role as the supervisory authority for the major part of the financial system. In the final MONEYVAL report, the effectiveness level of financial institutions was rated as “substantial/considerable”. In particular, banks show a good awareness of the AML/CFT risks and of legal obligations, and have generally taken due measures in a way that is commensurate to the assessed level of AML/CFT risk. The evaluation process was accompanied by recommendations and a plan of measures for addressing them. These recommendations have been implemented over 2019, through the amendments in the 3/7 BIS central bankers' speeches regulatory framework and the strengthening of on-site supervisory effectiveness. Fourth, the Bank of Albania continued to participate in the supervisory colleges organised by the European Central Bank during 2019, for exchanging information for some banks with origin in the EU members and which operate in the Albanian market. The work for boosting sound lending to the economy is continuously accompanied with a prudential on-site monitoring of the financial system. In 2019, 17 full-scope and partial examinations were carried out covering almost all banks, three non-bank financial institutions, one SLA and 97 foreign exchange bureaus. The examinations programme has considered also the accomplishment of the recommendations provided by Moneyval experts and some examinations were conducted in cooperation with the Directorate General on the Prevention of Money Laundering (DG PML). The Bank of Albania has continued to adopt new regulatory acts on banking activity, or to amend those which are in force, aiming at the further approximation with the directives and regulations of the European Union (EU) and Basel Committee documents. In the capacity of the Resolution Authority, the Bank of Albania has worked to strengthen the ability for resolution, through the drafting of individual resolution plans for each systemic bank, and for the continuous improvement of banks’ reporting. With respect to safeguarding financial stability, the Bank of Albania has played a primary role for the compilation and implementation of the macroprudential policy. This policy prevents the accumulation of risks and strengthens the financial system’s resilience. In this regard, the Bank of Albania focused in the introduction of the regulatory capital buffers, as a macroprudential instrument, and in developing a package of analytical indicators of early warning systemic risks, in accordance with the requirements and practices of the European Supervisory authorities. In the framework of the implementation of the inter-institutional strategy for strengthening the use of the national currency, the Bank of Albania has regularly assessed the effectiveness of the undertaken measures. These effects were positive, although small ones. Nevertheless, their complete materialisation demands for more time and the full and continuous commitment of all responsible institutions. The realisation of institutional duties implies also a constant attention on other fields of the Bank of Albania’s activity. Due to the lack of time, I am going to highlight the main ones. 3. Other activities The functioning of the economy and banking system is underpinned by a safe and efficient payment system. Both systems operated by the Bank of Albania, the Albanian Interbank Payment AIPS) and Albanian Electronic Clearing House (AECH) have functioned efficiently and safely. In 2019, the use of electronic payment instruments by the public increased. The number of payments carried out through these instruments was 24% higher from the previous year. During 2019, the Bank of Albania started the work for improving the regulatory framework related to the operation of these systems, to enable the non-bank financial institutions access AECH system and establish the conditions for promoting the electronic payments. Also, the Bank of Albania paid attention to regulate the activity of securities settlement by the private operators and the licensing of the operator that will carry out the settlement and registration of securities issued by the private companies. The presence of this operator completes the infrastructure for the functioning of capital markets in Albania. 4/7 BIS central bankers' speeches In the framework of promoting the reforms in payments market, the Bank of Albania has played an active role for the implementation of the National Retail Payments Strategy 2018–2023. The Bank of Albania has collaborated for fostering the projects related with the formalisation of the economy, (the “Draft-law on fiscalization”); the development of the respective infrastructure for the realisation of instant payments and for the settlement of payments in Euro within Albania; as well as for increasing financial education. In the view of legal improvements, it was drafted and presented for approval to the Assembly of the Republic of Albania the Draft-law “On payment services” which transposes the respective Directive of the European Union. The Assembly approved this Draft-law on 30 April 2020. The implementation of this Law will serve to promote and increase the financial inclusion of the population, reduce the payment services costs and boost the use of electronic payment instruments. The Bank of Albania is the sole authority for issuing banknotes and coins of legal tender in the Republic of Albania. During 2019, the Bank of Albania finalised the many-years’ work for the production of the new series of “Lek” banknotes with respect to enhance their quality. Also, the new denomination of 10 000 LEKË was added to the five existing denominations. On 30 September 2019, the Bank of Albania put into circulation the first denominations of the new series, 200 LEKË and 5000 LEKË. The new series of denominations 1000 LEKË and 10 000 LEKË banknotes will be put into circulation within 2020. The launching of the new series was accompanied by an informative and educational campaign, taking place throughout the Republic of Albania. With respect to implementing the Parliament resolution, the objective of the educational campaign, was also making public aware to not use the terminology “new lek– old lek, but simply lek”. The Bank of Albania is the national authority responsible for holding and managing the official international reserves of the Republic of Albania. In this process, the Bank of Albania is guided by a hierarchy list of objectives, which imply the maintaining of international reserve liquidity, its security and earnings. At the end of 2019, the international reserve is invested into liquid assets with maturities of 0-3 years, and around 84% of portfolio is invested in securities issued by high quality rating institutions. The return on the investment of reserve is positive, but at low levels due to an environment with low interest rates. The Bank of Albania is also one of the public statistical agencies. In this framework, this year it was completed the compilation of statistics on the external sector in compliance with Eurostat requirements and it is being worked to build the “micro data”. As one of the institutions involved in the National Plan for European Integration, the Bank of Albania has accomplished all its obligations for reporting, and it has integrated the recommendations of the European Commission in fulfilling is daily duties. The Bank of Albania has continuously been transparent and present to the public through the visual and online means of communication. This communication has aimed to be clear and understandable. Lastly, special attention has been given to the improvement of the internal governance of the institution. Following the establishment of the operational risk management function, the implementation of the platform on business continuity management was finalised in 2019. This platform orients the units of the Bank of Albania to react effectively for ensuring the continuity of critical processes during a crisis, and to recover the normal activity as fast as possible. The platform on business continuity management overcame successfully its test, where the measures foreseen in this platform enabled the Bank of Albania to normally continue its activity during the pandemic period. *** Honourable Madam Chair of the Committee, 5/7 BIS central bankers' speeches Honourable Members of the Committee, I would like to use the remaining time to share the opinion of the Bank of Albania on the current and expected economic situation, as well as the measures we have undertaken during the last months to offset the effects of the pandemic on the economy. This pandemic, absolutely, had a sharp negative shock on the economy and finances of the country, and heightened the uncertainty for the future. The containment measures of social distancing and the temporary closure of some economic activities, both in Albania and internationally, provided a negative impact on consumption, investments and on the export of goods and services. The Albanian economy is expected to fall during 2020, being accompanied by: a reduction of employment; increase of unemployment; drop of households’ income; worsening of the financial situation of firms; and increase of non-performing loans in the banking sector. This shock struck in a delicate moment for the Albanian economy, which suffered economic damages and losses accounting for 7.5% of GDP from the earthquake of 26 November 2019. The coordinated fiscal, monetary and financial stimuli have aimed at helping the affected households and firms, safeguarding the monetary and financial stability, and establishing the premises that the effects of this crisis remain transitional. The Bank of Albania, in the view of this rather difficult economic environment, since the beginning of the COVID-19 pandemic outbreak has undertaken a complete package of measures to support the households and sectors mostly affected by the crisis. These measures provide the needed liquidity to the banking system and to the whole economy, cushion the uninterrupted flow of lending to households and firms, and maintain favourable financing conditions to them. The package of the measures undertaken by the Bank of Albania consists in: reducing the policy rate, at 0.5%, and the unlimited supply with liquidity to the baking system, aiming to boost the smooth functioning of financial markets and reduce credit cost to private sector; the temporary easing of bank regulations, to provide the temporary extension, with two quarters, of the payments of credit, with the aim to keep the liquid position of firms and households in temporary difficulty, and increase their chances to survive; eliminating the operational costs of electronic payment system, in response to the upward demand for this type of activity; and enhancing the operational capacities to guarantee the supply of economy with cash, by providing a sufficient stock to meet the increasing demand of market for cash. I deem that the Bank of Albania has taken adequate and timely measures. In their response, the financial markets continue to function normally, although the increased demand of the public sector for financing and the heightened uncertainty about the duration and severity of the negative impact of COVID-19 pandemic on the economy. These measures enable the implementation and complete the fiscal package of the Albanian Government. Without a common and coordinated reaction of macroeconomic policies, the economic outlook of the country would have been more challenging and the economic recovery more difficult. *** Honourable Members of the Committee, We are experiencing unprecedented and hard times. Nevertheless, our guidance 6/7 BIS central bankers' speeches should remain forward-looking, towards the drafting and implementation of the necessary public policies for the recovery of the country. All the actors should play their role. First, the fiscal policy should continue to have a primary role in facing the situation. The ensuring of the necessary funds to health system, the financial aid for the affected employees, and the measures to improve liquidity to firms, imply the increase of public debt, but they are and remain exceptional. In the current circumstances, the increase of debt is an affordable cost to guarantee the maintaining of the economic and financial equilibriums. Second, the Bank of Albania will continue to implement an accommodative monetary policy stance, coupled with the supervision and prudential regulation of the banking sector. In one hand, the monetary stimulus – implemented timely and based on the instruments provided by the legal framework of the Bank of Albania and the needs of the Albanian market – will establish the premises to boost the demand and reduce the costs of financing. On the other hand, the supervision and prudential regulation of the banking system will be oriented toward the maintaining of its soundness indicators and of the Albanian households’ savings. Third, the private sector should be willingness to review the business model, to adopt innovative and efficient production forms. Also, it should take care to optimally manage liquidity and effectively allocate the cost of shock on the production chain, to enable their rapid activation once the COVID-19 pandemic is over. Honourable Members of Parliament, The forecast about the forthcoming developments is relatively difficult, although the logic of the events is largely dictated by the considerations of health nature. In our base-line scenario, we expect the second quarter to mark the peak of shock on the economy, then the situation returns to improve: at the beginning gradually in the next two quarters. Further, this improvement will turn more obvious and notable during 2021. In any case, we are confident that dealing with this shock is within our possibilities, if everyone will do the best and if we will continue to guarantee with priority the monetary and financial stability of Albania. Thank You! 7/7 BIS central bankers' speeches | bank of albania | 2,020 | 8 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, during the presentation of the Annual Report of the Bank of Albania for 2019 in the Albanian Parliament, Tirana, 2 July 2020. | Gent Sejko: Albania's economic and financial developments in 2019 Speech by Mr Gent Sejko, Governor of the Bank of Albania, during the presentation of the Annual Report of the Bank of Albania for 2019 in the Albanian Parliament, Tirana, 2 July 2020. * * * Honorable Mr. Speaker of the Assembly, Distinguished Ladies and Gentlemen, Let me thank you for the invitation and the opportunity you have given me to present to you the Annual Report of the Bank of Albania for 2019. In general, I find that the work of the Bank of Albania has had a positive contribution to strengthening the monetary and financial stability of the country. This stability is a necessary precondition for the sustainable and long-term development of the country. Also, the Bank of Albania has fulfilled its other legal duties, has made progress in the implementation of the Medium Term Development Strategy, and has implemented the recommendations left by the Albanian Parliament. *** In accordance with the legal framework in force, the main objective of the work of the Bank of Albania is to achieve and maintain price stability. 1. Albanian economy and monetary policy during 2019 2019 was a challenging year for the Albanian economy. Economic activity continued to benefit from rising private consumption and the rapid expansion of tourism. However, the foreign environment proved to be unfavorable, while the decline in electricity production, the gradual termination of investments in major energy projects, and the November earthquake had strong negative effects. As a result, the economic growth of 2019 resulted in the level of 2.2%, down from the level of 4.1% recorded in the previous year. The shocks we suffered slowed down the growth rate, but did not divert the Albanian economy from the positive development trend. This performance was reflected in the reduction of the unemployment rate, in the increase of employment and wages, as well as in the reduction of the foreign debt and the public debt of the country. In parallel, the main indicators of the health of the banking sector remained at satisfactory levels. The average inflation of 2019 resulted in the level of 1.4%. The performance still below the inflation target, required the maintenance of the stimulative direction of monetary policy during 2019. For this reason, the Bank of Albania kept the key interest rate unchanged at 1.0%, oriented the market on maintaining the easing direction of monetary policy in medium-term horizon, as well as supplied banks with the necessary liquidity. In response to our monetary policy, financial conditions were stimulating to increase aggregate demand and appropriate for returning inflation to target. The monetary stimulus brought about the reduction of the credit price and stimulated the growth of lending. Under these circumstances, private sector lending experienced a relatively rapid growth and showed a better distribution. Also, the monetary stimulus reduced the cost of debt service for businesses and households, as well as created the premises for a more stable exchange rate. In addition to supporting price stability, the Bank of Albania has also paid attention to the promotion of financial stability, through the supervision and careful regulation of the banking 1/3 BIS central bankers' speeches sector, as well as through the coordination of work with other supervisory authorities of the financial sector. 2. Banking supervision and financial stability The Albanian banking sector continues to remain financially sound and has shown increasing dynamism. This sector has been profitable during 2019, while its liquidity and capitalization indicators are above our regulatory requirements. Also, resistance testing exercises show that the banking sector exposure to systemic risks is controlled and that the banking sector’s ability to withstand risks is strong. Below I will briefly list some of the main directions of our work to strengthen banking supervision and to support financial stability. First, the Bank of Albania successfully administered the banking sector consolidation process. This process reshaped the domestic banking market, bringing in new and motivated actors, as well as increasing domestic capital. Second, the Bank of Albania fulfilled all its obligations under the national plan for the reduction of non-performing loans. Thanks to measures taken over the years, the nonperforming loan ratio fell from a maximum of almost 25% in 2014 to 8.4% at the end of 2019. Third, the Bank of Albania worked to meet the recommendations of the CoE Committee of Experts on the Evaluation of Measures against Money Laundering and Terrorist Financing (MONEYVAL). In the Moneyval valuation report, financial entities were rated at the level of “substantial” or “substantial” effectiveness. Fourth, the Bank of Albania has continued to adopt new regulatory acts of the banking activity or to review them in force, with the aim of further approximation with the directives and regulations of the European Union and with the documents of the Basel Committee. Finally, the work to promote sound lending to the economy has been accompanied by careful supervision of the banking system, through full and partial examinations. Carrying out institutional tasks also means a constant attention to other areas of activity of the Bank of Albania. Here I find it appropriate to emphasize the further development of the emergency intervention function, the promotion of the development of the payment system, the increase of the banknote quality, the administration of the foreign exchange reserve, the improvement of statistics, the support of European integration, and the work to educate the public and improving communication with it. *** Dear ladies and gentlemen, The moment I am making this presentation is unusual. The Covid-19 pandemic and the measures needed to control it have dealt a severe blow to Albanian families and businesses over the past three months. The Albanian economy is expected to decline during 2020, a decline which will be accompanied by rising unemployment, declining household incomes, as well as deteriorating financial situation of businesses and increased non-performing loans in the banking sector. This blow required a quick and comprehensive response of the public authorities, both in terms of health and economic and social. In addition to fiscal easing measures, the Bank of Albania undertook a comprehensive package of measures to provide the necessary liquidity to the banking system, to boost lending and to control debt service costs. This package includes: 2/3 BIS central bankers' speeches reduction to 0.5% of the key interest rate and unlimited supply of liquidity to the banking system; temporary easing of banking regulations, to enable the temporary postponement of the payment of loan installments to customers in difficulty and the consensual restructuring of loans to customers with solid business prospects, helping business finances and increasing their chances of survival; elimination of operating costs of the electronic payment system, in response to the increasing demand for this type of activity; increase operational capacity to guarantee the supply of the economy with physical money. In response to these measures, financial markets continue to function normally, despite increased public sector demand for financing and increased uncertainty in the economy. They also enable and complement the fiscal package of the Albanian government. In economic terms, coordinated fiscal, monetary and macroprudential measures have partially mitigated the negative effects of the pandemic. However, the challenges ahead remain serious. In our judgment, the Albanian economy has the premises to successfully withstand this blow. However, this requires that all public actors and private sector operators make the right decisions, in a timely manner and in the most coordinated manner possible. Coping with the shock is within our means, if each of us will do our best and if we continue to guarantee with priority the monetary and financial stability of the country. Thank you! 3/3 BIS central bankers' speeches | bank of albania | 2,020 | 8 |
Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 14th SEE Economic Research Workshop, virtual, 10 December 2020. | Gent Sejko: Welcome remarks -14th SEE Economic Research Workshop Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 14th SEE Economic Research Workshop, virtual, 10 December 2020. * * * Dear professors and researchers from academia, Dear fellow central bank colleagues/researchers, Dear participants, It is a great pleasure to open the proceedings of the 14th SEE research Workshop. Due to the difficulties and restrictions imposed on all of us by the COVID 19 pandemic this year’s workshop is organized virtually. I am glad to see that you are all well, and wish that you and your families stay safe and healthy during these difficult times. In a way it is sad that we cannot welcome you all in Tirana during these December days. However, at the same time I am very glad that despite the forced change in the format and in the presence of the many inconveniences caused upon all of us by the pandemic and related restrictions, we are having a full house with participants from the academia in Europe and central banks. We thank you for your interest and take this as a certification of the quality and reputation of this activity. Our research staff is eager to get to know your work and discuss with you the research that has been produced by bank of Albania during 2020. I am glad to see that almost all selected papers, including the ones by academia focus on the practical issues that are important for the policy formulation and decision making in the central bank. These works serve as the foundation for our understanding of economic and financial phenomena and the interaction of our monetary, macro and micro prudential policies with the economy. It is due to this understanding and knowledge that Bank of Albania crafts its policy response and chose its policy instruments to respond to significant negative shocks that have hit our economy. Recent data suggest that the pandemic has had severe impact on the Albanian economy, which experienced the strongest contraction of gross domestic product in the last two decades, at – 10.2% during the second quarter of 2020. Macro data on labour markets show that compared to the end of 2019, the Albanian economy lost about 50 thousand jobs, equal to an annual decline in employment of 3.6%. As a result of this the unemployment rate increased to 11.9%. Responding to such developments, inflation in the third quarter decreased to 1.4%, from 1.9% in the previous quarter. Despite these negative shocks, the measures taken by the Bank of Albania have provided the necessary monetary stimulus to support the normal functioning of the financial markets and to ensure the flow of credit in the economy. Interest rates for households and businesses are low and liquidity pressures are under control, while the exchange rate appears stable. The Albanian banking sector remains sound, despite the challenges posed by the pandemic. The immediate operational measures taken by banks, as well as the macro and micro prudential measures taken by the Bank of Albania, ensured not only a continuation of the operation of the critical functions of the banks, but also satisfactory financial intermediation despite the great shock suffered by the economy. Credit to economy is growing (it grew by 6.3% in the third quarter 2020), capital is adequate and the banks’ balance sheets remain healthy, signalling their ability to withstand first-round shocks. We are optimistic that the economic activity is expected to revitalize over the next two years. However, the economic outlook for the future is accompanied by a high level of uncertainty and downside risks. In the short term, the risks are mostly related to 1/3 BIS central bankers' speeches the uncertainty of the pandemic itself, its severity, duration, and potential return of restricting measures. In the long run, the risks relate to the long-term damage sustained by the productive capacities and domestic demand, as well as potential structural change sustained in the economy as a result of the altered behaviour of economic agents. We are sure that research based evidence, analysis and forecasts will provide accurate and timely information for policy orientation and coordination. Research in the area of monetary policy, financial stability and banking supervision has always dominated the topics of our workshop. This year COVID-19 has entered the agenda by brute force. This shock and the negative effects that it brought upon the economy and the central bank policies have been beyond comprehension. The authorities are feeling the difficulty of performing their task in the zero lower bound or very close to it. In this respect central banks have lost the traditional instruments of monetary policy and are reverting to money as the instrument of monetary policy. The shift has been significant not only in size but also in concept. The leading central banks in developed economies, the ones which set the trends, are under process of reviewing their objectives and monetary policy. Using support of research analysis and conclusions they are eventually rewriting monetary economics by giving central banks new instrument in the form of permanent use of the central bank balance sheet as a tool of monetary expansion. However, while implementation of balance-sheet strategies is easy to implement and deal with for developed countries central banks, same policies might not be easily adaptable and applicable by developing economies. Narrow and shallow capital markets, problems of financial inclusion and financial education, stressed private, public and fiscal balance-sheets and history, remind us of several potential risks that such policies can have for the highly dollarized/euroized economies of South-East Europe. Yet in the presence of current constrains faced by monetary policy we have to react and to find new ways to support the economy. It is the role of research to guide policy reviews and policy models for sustainable economic policies that can promote growth in the presence of stable prices and financial system. The news about successful trails of the Covid-19 vaccine candidates, hoping that many more would result successful in the near future, brings much needed relief. However, as I mentioned before, uncertainty remains not only regarding production, distribution and the success of vaccine campaign in the real world, but also regarding the shape and speed of economic and financial recovery once COVID-19 is defeated. Yet, other risks like climate change, along with natural disasters, loss of habitats and arable land, demographic and pandemic risks represent significant long term challenges for global economy. They pose significant risks for our economies of the South east countries as well. We would need to dedicate more research resources to the study of these phenomena and their implications for the economy, price and financial stability in our countries. I am sure they will become important topics of this workshop in the future. During the recent years we have seen that research based on surveys and micro data has provided important information for the financial situation of families and business, their sources of financing, payment instruments, savings and economic and financial behaviour. I would like to call your attention that this same information is useful for understanding financial inclusion and financial literacy in the country. They are two different aspects for wellbeing of families and business and the stability of our economy. We can make good use of this information as a starting point for the design and implementation of a national strategy of financial education and financial inclusion. They are both important objectives for the central bank. These two topics are set to gain central stage following the emergence and growing trend toward digitalization, emergence of digital financial instruments and potential introduction of Central Bank Digital Currencies. I am sure that as financial inclusion and financial education gain more attention in the mainstream central bank agenda, we will see these topics discussed in our future workshops. My most important recommendation is that research produced at the central bank, remains close to central bank interest and has practical value for policy and decision making to achieve their objective. It must flow naturally into policy making and provide solid foundations for 2/3 BIS central bankers' speeches monetary and financial stability policy. Finally, I am proud to see how our researchers have progressed in the adoption of the most sophisticated techniques of research. Simultaneously, I am glad to see that the adoption of research methods has crossed the boundary of research department and is spreading well into other departments. Our economists are doing independent research work in support of their day to day activity. This is the result of our continuous efforts to increase the impact of research in policymaking. However it is without doubt also a result of activities like this, which introduce or staff to the relevant work that is done in academia and other central banks. Whether you are from Academia or central banks, we are grateful for your continued interest and thankful for your participation. We hope that you and your colleagues will continue to join our workshop in the future, hopefully, in a COVID free world. Hence, we can go back to our traditional ways of the past, and give you the opportunity to present your works at Bank of Albania, engage with our research and introduce yourself to our beautiful Tirana, Albanian culture and the delicious taste of Albanian cuisine. Wish you the best and the most productive event! 3/3 BIS central bankers' speeches | bank of albania | 2,020 | 12 |
Welcome address by Ms Luljeta Minxhozi, First Deputy Governor of the Bank of Albania, to the Virtual Conference of the Bank of Albania "Covid-19: The Impact on the Economy and Central Bank Policies", 29 October 2020. | Luljeta Minxhozi: Covid-19 - the impact on the economy and central bank policies Welcome address by Ms Luljeta Minxhozi, First Deputy Governor of the Bank of Albania, to the Virtual Conference of the Bank of Albania “Covid-19: The Impact on the Economy and Central Bank Policies”, 29 October 2020. * * * Dear Guests, Ladies and Gentlemen, For a few years now, the Bank of Albania and the Institute of Global Affairs (IGA) of the LSE have been co-organizing a series of joint conferences. These annual events are aimed at encouraging an open discussion amongst academics and policymakers, in order to promote new thinking and policy-based approaches to the most pressing challenges we face. The Bank of Albania is proud to associate itself with the Institute of Global Affairs, an institute which is positioned as a leading academic center for exploring research-based strategic approaches to policy challenges. On its behalf, the Bank of Albania strives to adopt the emerging academic consensus, while tailoring it to the idiosyncrasies of the Albanian economy and its financial markets. Being said that, it is a special my pleasure to address this conference, focused on “Covid-19: The Impact on the Economy and Central Bank Policies”. The ongoing pandemic has the undoubted potential to re-shape our way of life for the foreseeable future. As the health emergency is still unfolding, its implications might have far-reaching impacts in our social and economic fabric. For policy-making institutions, particularly in emerging economies, the challenge to fulfill key objectives like price stability, sustainable growth and financial stability, is driving them into uncharted operational territory. I take this opportunity to touch upon some of the most pressing issues at stake. *** Dear Guests, Life with the Sars-Cov2 virus continues to be an unprecedented health and social challenge. Fortunately, health institutions today know more about the virus and which policies serve best to contain it. Unfortunately, we are still far from a definite and practical epidemiological solution. Against this background, the economic fallout from the pandemic is still unfolding. The strict lockdown in the second quarter paved the way towards a synchronized global recession; the economic activity in most emerging and advanced economies shrunk rapidly while unemployment jumped sharply. However, the easing of lockdown measures in the third quarter and the quick deployment of both fiscal and monetary policies at national level, have started to pull up the global economy from the brink of collapse. The scale of the two key support measures at national level, fiscal and monetary policy, reached unprecedented levels in many economies, not seen even during the recent global crisis of 2008. The aggregate fiscal support at global level has reached almost 12 trillion USD. Key policy rates have declined to zero and in some cases have pushed through that boundary and into negative territory. Old-style central bank balance-sheet expansion coupled to ever higher risk-taking, operations that were considered unthinkable until a decade ago, have become almost a 1/4 BIS central bankers' speeches mainstream instruments. The pandemic has tested the resilience of the Albanian economy and of our banking system. It has put an immense social and financial strain on households and businesses and has forced the authorities to act swiftly to address the health crisis and to introduce major policy initiatives in order to contain its impact. The Bank of Albania has used a wide range of policies to support financial activity and aggregate demand. We reduced the policy rate to a historical low of 0.5% and increased the amount of liquidity injected into the system. These actions were aimed at reducing the debt servicing costs across the economy and at supporting continued financial intermediation. In addition, in close consultation with the banking industry, we applied targeted – though temporary – regulatory reliefs, designed to encourage both the temporary deferral of loan installments and the consensual restructuring of loans for borrowers in difficulties, but with sound business prospects. Finally, we took both macro and micro prudential measures in order to strengthen the banks’ balance sheets and preserve their lending capacity. On the fiscal side, the Albanian government delivered fiscal accommodation through: Allocating additional funds to support the health sector; Increasing social transfers to compensate for the households’ loss of income; Offering temporary tax relief to businesses and introducing sovereign credit guarantee schemes to improve their access to finance. These timely, coordinated and comprehensive set of measures, were ultimately aimed both at containing the adverse economic impact and at preserving monetary and financial stability, as a precondition for the future recovery of the economy. I believe we got the balance right. So far, Albania managed to avoid both a spike in unemployment and major business failures, despite the financial difficulties they faced. Furthermore, our financial system remains solid, with little volatility across financial markets, low lending rates, a stable exchange rate, and a liquid and well capitalized banking sector. Just as importantly, our stress-tests indicate the banking sector’s resilience to additional shocks. Under these premises, I believe the Albanian economy enjoys sufficient preconditions for a gradual recovery. However, challenges remain. For the remainder of my speech, I would like to briefly share with you our perspective on them. *** Ladies and Gentlemen, While most baseline economic projection scenarios remain positive, it’s clear the ongoing global recovery remains fragile. Policy challenges still present, both in the short and in the mid to long run. The first challenge is to ensure the sustainability of the ongoing recovery and to safeguard it against downside risks, such as potential second lockdown. At the Bank of Albania we believe the overall policy stance should remain accommodative over the foreseeable future. Any policy normalization should be coordinated and data-dependent. A coordinated normalization means an ideal sequencing of macroprudential policy stance first, followed by fiscal and monetary policy later. A data-dependent normalization means policymakers need to see tangible evidence of a solid recovery, prior to any policy tightening. 2/4 BIS central bankers' speeches Given the fragile recovery policymakers would be best advised to lean on the side of caution. Faced with additional shocks, we believe our priority should be to offer additional accommodation to the economy. However, policy makers should be careful in getting the policy mix right so that potential long-term costs do not outweigh short term benefits. To that extent, we believe: Fiscal policy should provide additional support, subject to existing fiscal space. So far, public sector sin the developed economies have little financing constraints, partly on account of massive injections of liquidity from central banks. The same appears to be true also for the emerging market economies, such as Albania, which continue to enjoy both market access and relatively low financing costs. However, the fiscal authorities of emerging market economies should be mindful on the need to preserve market credibility on the sustainability of their finances. Financial intermediaries – such as banks – have also shared their fair share of the burden. They would naturally absorb a large part of the additional financial costs incurred in case of further shocks. However, financial and macroprudential policies should avoid the temptation of shifting an ever increasing part of the cost on the banks’ balance sheets. Financial stability and a robust banking sector remain paramount for the long-term growth. Finally, monetary policy should offer additional stimulus. Liquid financial markets are not the cure to the crisis, but they remain a necessary precondition to any solution. Unconventional instruments are fast becoming a natural part of the policy toolkit of major central banks. Central banks across emerging markets – including Albania – are also exploring the possibility of employing unconventional instruments. However, it is not without risks and it might not be easily implemented in emerging economies. In particular, we believe emerging markets’ central banks should avoid raising the risk profile of their balance sheets and should strive to preserve the credibility of their policy frameworks and independence. The second set of challenges is to acknowledge the long-term impact of the pandemic on our economies and societies, and to account for them in our policy frameworks. The spectrum of potential implications is wide but I will try to concentrate my remarks on a few items: The pandemic may drive a greater gap in terms of inequality, both among the advanced and developing economies as well as within an economy. An economic consequence of this pandemic is that it may slow down the catch-up process of developing economies relative to advanced ones. An additional one may be inequality within an economy, given that unemployment hits more the young population and those less educated. How these divergences may shape the future of social and economic policies aiming at addressing these divergences, this remains to be seen. The enforced limited social interaction due to the risk from coronavirus has accelerated the shift towards digital business and digital finance. While financial technology (or FinTech) has been on the rise prior to this pandemic, the lockdown and limited social interaction has promoted further growth of this sector which may change the landscape of financial industry in the future. The pandemic may well trigger permanent shifts to the work-life balance. Remote working can become a permanent option in the future as some global companies may have already predicted. A final issue, is how the pandemic may affect the current climate crisis in the long run. Besides the short-term impact of the lockdown on the climate issue, an optimistic view holds that the lockdown may trigger e new momentum towards a cleaner economy. *** Honorable participants, I am looking forward to an open discussion and your fruitful feedback on these issues. 3/4 BIS central bankers' speeches I am confident a frank exchange of ideas will enrich our joint understanding on the nature of challenges we are facing as well as on the best policies and instruments we should deploy to tackle them. Let me close by thanking you for being with us today! 4/4 BIS central bankers' speeches | bank of albania | 2,020 | 12 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at CESEE meeting of Finance Ministers and Central Bank Governors with the IMF Managing Director, Ms. Kristalina Georgieva, virtual, 23 October 2020. | Gent Sejko: Speech - CESEE meeting of Finance Ministers and Central Bank Governors with the IMF Managing Director Speech by Mr Gent Sejko, Governor of the Bank of Albania, at CESEE meeting of Finance Ministers and Central Bank Governors with the IMF Managing Director, Ms. Kristalina Georgieva, virtual, 23 October 2020. * * * Dear Madame Georgieva, Mr. Chairman, Honorable Ministers, Fellow Governors, After the severe economic and social stress caused by the Covid-19 pandemic, the global outlook appears to be improving. Determined action from policymakers, coupled to initially successful efforts to contain the contagion, has sheltered economies and societies from the worst of the crisis and paved the way towards a nascent recovery in the future. Nevertheless, policy challenges ahead are both multiple and complex. First, the recovery is surrounded by downside risks while policy space is getting increasingly scarce. Second, the severe shock might lower potential growth across the globe. Third, a potential reversal of trade and global supply chain integration might lead to policy fragmentation and pose additional headwinds for emerging economies. At the Bank of Albania, we believe a successful policy solution requires courage and flexibility at a national level, as well as coordination and cooperation at a regional and international one. I will try to briefly expand upon these points, while offering a regional and an Albanian perspective. The spread of the pandemic threw the Western Balkans into a deep recession. Production and incomes dropped sharply, unemployment rose, the balance sheets of the private and public sectors deteriorated, and societies at large were put under stress. Estimates of the drop in GDP for 2020 range from –3.1% (the World Bank) to –5.2% (the IMF). Across the region: Central banks deployed both conventional monetary policy instruments (policy rate cuts) and unconventional ones (ranging from QE type of operations to long term liquidity injections and credit support schemes). In addition, they provided temporary macroprudential relief to encourage loan payment deferrals and loan restructuring. At the same time, fiscal policy turned expansionary. Most governments applied large stimulus packages, comprising increased outlays for the health sector, tax relief, direct transfers and credit guarantee schemes. As a result, debt to GDP ratios are expected to increase by 10p.p. on average. Albania shares a similar experience. In the wake of a double shock in the form of 2019’s earthquake and the pandemic, GDP is expected to drop by around 7% of GDP. The policy measures of the Bank of Albania were aimed at ensuring an uninterrupted flow of credit and financial services, as well as at preserving monetary and financial stability. More specifically, we: Increased the monetary stimulus by lowering the policy rate to 0.5% in March and by switching to fixed-price full-allotment liquidity injection operations. Instructed banks to offer liquidity relief to viable businesses facing temporary difficulties, in 1/2 BIS central bankers' speeches the form of a short-term moratorium on credit installments as well as in the form of a targeted credit restructuring, and we facilitated this process with targeted and temporary regulatory actions. Abolished dividend payments across the banking sector, in order to strengthen its capital. Finally, we forfeited fees on the interbank transactions costs for the payment systems operated by the BoA. Our monetary and financial accommodation was coordinated and greatly facilitated by the fiscal stimulus. By leveraging the balance sheets of the public sector, fiscal policy compensated the loss of income for households, offered liquidity support for affected businesses in the form of delayed tax payment and improved access to finance through sovereign credit guarantees. In this regard, I would like to emphasize the role of the RFI (Rapid Financing Instrument). It was one of the first reach outs to Albania. It had a large impact in facilitating our fiscal stimulus, alleviating its impact in the domestic financial markets, and signaling the ability of our country to access various sources of funding. Initial results of our policies have been encouraging. The Albanian banking sector remains solid, solvent and liquid. Our domestic financial markets are calm, while both interest and exchange rates are stable. In addition, the positive flow of credit to the economy has been instrumental in mitigating business failures and related costs. Finally, both our public and the private sector have preserved access to international financial markets. First, unprecedented shocks require timely and unprecedented measures, measures which should critically question conventional thinking of economic policy. Second, the complexity of the crisis requires careful policy coordination, in order to deliver targeted relief to key economic sectors. Third, international cooperation – in the form of financial assistance and policy guidance – is crucial for alleviating costs to emerging economies and avoiding negative spillovers on a regional and global scale. Fourth, sound monetary and financial fundamentals are the best insurance policy and investment we can make to sustainable long term growth. These fundamentals can most efficiently be constructed through careful policies and structural reforms during ‘good times’. Hence, a degree of perspective should be retained when designing solutions to any short term challenge we face. Dear colleagues, The scale of future challenges is potentially greater compared to what we have faced so far. Beyond ensuring the cyclical recovery of our economies, we have yet to properly account for the structural changes this crisis is bound to leave with us. I believe we can only rise up to this task if we heed the lessons learned so far and proceed in the spirit of mutual coordination and solidarity. Thank You! 2/2 BIS central bankers' speeches | bank of albania | 2,020 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2021 in Albania, Tirana, 23 March 2021. | Gent Sejko: Global Money Week 2021 in Albania Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2021 in Albania, Tirana, 23 March 2021. * * * Honourable Minister of Education, Youth and Sports, Honourable Chairman of the Albanian Association of Banks, Dear students, teachers, friends and colleagues, I am pleased to welcome you in the opening ceremony of Global Money Week 2021. For more than one decade, the Bank of Albania has been engaged in this world-wide movement, in organising during the last week of March, educational and awareness activities dedicated to children, young people and students. Global Money Week, already turned into a tradition, is organized in collaboration with the Albanian Association of Banks, and with the valuable support of the Ministry of Education, Youth and Sports. Due to difficulties arisen by Covid-19 pandemic, the Global Money Week, this year won’t be launched at the premises of the Museum of the Bank of Albania, but virtually, in compliance with the health safety and social distancing measures and regulations. I have already emphasised in my previous comments to this event, that GMW is an world-wide initiative organised by the OECD International Network on Financial Education (OECD/INFE), aimed at raising awareness of the younger generation to become in turn financially responsible citizens in the future. Every year, in March, central banks, public agencies and financial institutions and civil society organisations from around the world organise GMW activities. The number of countries engaged in this global event and consequently the number of the involved of children and young people has been trended upwards. This year, GMW will take place in around 175 countries and will involve around 40 million children and young people. The global health and economic emergency caused by COVID-19, and its social effects have affected almost all aspects of life to all age groups of the society. We know that different age groups are experiencing these effects in different ways. Hence, related to students and younger people, in addition to health aspect, the pandemic has posed to them challenges in the field of education and employment. For these reasons, it is more important and relevant than ever, to provide them with the required knowledge on the personal finance management and the correct use of banking products. In this context, the theme of this year competitions and activities to take place is “Take care of yourself, take care of your money”. This theme highlights the crucial importance of knowledge in an evolving digitalised and innovative market, which enable people to avoid physical contact while using the financial and banking products, hence providing for a better protection of public health. In this view, the Bank of Albania, as the supervisory and promoter institution of the Albanian banking system, in addition to the immediate response to the difficulties created by COVID-19, through a complete package of monetary, supervisory, macro-prudential and operational measures, finds also important the drafting and organisation of educational initiatives, like Global Money Week. Through these educational and awareness-raising activities, we aim at approaching the young generation to the complicated world of finance and banking; to introduce and pass through knowledge on possibilities; the risks that both financial and banking products have; as well as introduce the young public to the necessary information on borrowing and savings. This communication and awareness of young people, in turn help both financial and banking markets become more resilient, comprehensive and efficient. 1/2 BIS central bankers' speeches The Bank of Albania, has not limited its educational activities only with the Global Money Week. Financial literacy of public is an important part of our daily work. Thus, through virtual educational tools available at our webpage, students and teachers may learn throughout the year on financial issues, by watching videos and reading the literature dedicated to both the pre-university education and students. Our webpage contains simplified information on themes of everyday life, as: the opening of a bank account; personal budget management, drafting a saving plan; applying for a bank credit, etc. In addition, for those who opt for deeper information and knowledge, our website provides didactic tools to better understand aspects of economy and finance which affect the life of all citizens, like: what is economic growth; labour market, circulating flow, how do financial crises spread; what is competition, etc. Also, the elective module “Personal Finance in Your Hands", from some years now integrated in the high school teaching curricula, introduces to students the world of personal finance, informs and shape their needed skill to manage money in a more profitable way. This textbook is supplied and allocated for free to all high schools which elect to study it. It is accompanied with a guideline to teachers of economy subject. A similar approach has been adopted for younger children. Hence, the teaching package tailored for the financial education of pupils in class I, II and III of secondary schools, addresses issues, as: the difference between needs and desires; where does money come from and for what does it serve; the right management of money and savings, etc. This package may be used in free classes; classes dedicated to school projects; or in intra-subject projects. All that I mentioned above, makes clear that the Bank of Albania assesses that financial education should start at an early age. This affirmative sentence constitutes the philosophy of our programmes. The Bank of Albania aims at building up the communication bridges, awarenessraising and financial knowledge empowering to the new generation. They should gradually acquire the necessary knowledge, abilities, position and behaviour to take sound financial decisions and be able to deal with emergency situations, like the current one we are experiencing. Concluding, I would like to thank all participants and collaborators of the Bank of Albania in all its educational initiatives and programmes, and particularly for the Global Money Week. Absolutely, such themes as planning personal finance may not be quite attractive to new age groups, nevertheless being aware of their importance and impact on the life of everyone, it is crucial that our institutions never stop their efforts to bring them to the attention of the young people. This is what we have tried to achieve through the activities and competitions that will take place during GMW 2021, and which I kindly invite you to attend. I sincerely thank you for your contribution and I wish a successful performance to all participants! 2/2 BIS central bankers' speeches | bank of albania | 2,021 | 3 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2020 to the Parliamentary Committee on Economy and Finance, Tirana, 20 April 2021. | Gent Sejko: Albania's economic and financial developments in 2020 Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2020 to the Parliamentary Committee on Economy and Finance, Tirana, 20 April 2021. * * * Honourable Chair, Honourable Members of the Committee, Thank you for the invitation and the opportunity to present to the Committee, the Annual Report 2020 of the Bank of Albania! The Report presents the contribution of the Bank of Albania to preserving the monetary and financial stability of Albania – such a valuable achievement in the view of unprecedented challenges we have been facing throughout the previous year – and the measures we have taken in fulfilling our legal and institutional duties and commitments. The COVID-19 pandemic and the necessary measures taken to control it strongly hit the Albanian economy. It caused a negative impact on: the volume of economic activity; employment; the financial situation of households and enterprises; and on the domestic and foreign equilibriums of Albania. In coordination with fiscal stimulus, the Bank of Albania implemented a complete package of macro-prudential, operational and monetary measures, which were aimed at preserving liquidity in financial markets, reducing borrowing costs, continuation of lending and maintaining uninterrupted flow of financial services. Through these measures, the Bank of Albania enabled: the reduction of crisis financial cost to households and enterprises; the avoidance of its transmission into the financial sector; and the preservation of a calm monetary and financial environment, by establishing the premises for a faster recovery with the normalisation of the situation. Hence, the impact of crisis on the economy was lower than expected, by showing both the positive effect of measures taken by public authorities and the flexibility and resilience of our economy and financial system. Our forecasts show the Albanian economy will turn towards recovery during 2021 with the gradual reduction of the negative impact of pandemic. The volume of economic activity is expected to shift on an upward trajectory in the medium and long term, underpinned by the favourable financing conditions, the reduction of uncertainties and the progressive recovery of both domestic and foreign demands. Nevertheless, the guaranteeing of stable economic growth and the management of many-downside risks would call for ongoing attention and prudence. Dear Ladies and Gentlemen, Following, I will detail the directions and main results of our work over 2020. *** 1. Economic performance, price stability and the reaction of the Bank of Albania 2020 was a hard and challenging year, marked by the negative impact of the COVID-19 pandemic. The measures taken to contain the pandemic coupled with the heightened uncertainties drove Albanian economy to recession. They drove unemployment increases and posed financial difficulties to many enterprises and households. Indicators of economic balances worsened: current deficit expanded; budget revenues dropped; public debt lifted up; while 1/6 BIS central bankers' speeches balances of banking and finical sector’s operators were put under pressure. In parallel with them, premises for the return of inflation to target faded out. Figures published by INSTAT for 2020 provide a more detailed view of the impact of this crisis on the Albanian economy. Thus, the volume of economic activity contracted by 3.3% and unemployment rate increased to 11.8%. The economic downturn reflected the simultaneous contraction in almost all components of aggregate demand and in all sectors of economy. The crisis has hit more particularly private consumption and trade flows, where the exports of both goods and services fell. On the other hand, consumption and public investments have been upwards, by partially compensating the decrease in the private demand. The increase of budged expenditures, in parallel with the fall of fiscal revenue drove to a growth of budget deficit and public debt. At the end of 2020, public debt to GDP reached 76.1%, from 66.3% at the end of 2019. In terms of time, the maximum negative impact of the crisis appeared in the second quarter, while the two next quarters recorded a gradual improvement of economic indicators, albeit remaining below the levels recorded in the previous year. In particular, output and employment remain at a low level compared with 2019, by reflecting the weak cyclical position of Albania and suggesting that the aggregate demand remains at insufficient levels to generate complete employment of output factors. Hence, the domestic inflationary pressures remain low, while fall of inflation in our trade partners has curbed the increase of imported inflation. Thus, in 2019, annual inflation averaged 1.6%, remaining below our target. Dear Ladies and Gentlemen, The COVID-19 pandemic is the most serious economic challenge we have been facing during the last two decades. In these circumstances, the intervention of public authorities with extraordinary simulating measures was indispensable, to mitigate the negative immediate effect of the crises and contain its long-term impact on economy. The Bank of Albania, within its jurisdiction, embarked on a comprehensive package of measures, which consisted in: The reduction of the key interest rate at historically minimum of 0.5%, and the increase of liquidity injections, through the adoption of an operational strategy which enabled the unlimited injection of liquidity in the interbank market. Regulatory measures which encouraged the temporary extension of credit payments for clients in difficulties and the restructuring of credits to clients who appear with solid business perspectives, but were facing short and medium-term financial difficulties. Suspension of profit distribution to the banking sector, to enhance the amortising capacities of the sector against the shock. Elimination of costs on the use of electronic platforms of payments operated by Bank of Albania, aimed at reducing the physical costs, increasing the use of electronic payments and better managing the demands for cash to economy. Addressing in an eased way the exposures of banks to debt securities of the Albanian Government in foreign currency, according to the Regulation on Capital adequacy and Regulation on large exposures, for securities issued during 2020; Last, we were engaged in a more frequent and transparent communication with the public, on: the undertaken measures; their effect; and the expectations for the future. We assess that the implemented measures have been efficient, by supporting the economy in some directions: First, the monetary and macro-prudential stimulus enabled the reduction of financial costs and 2/6 BIS central bankers' speeches the continuous support to households and enterprises with bank loans. Our immediate reaction and the injection of ample liquidity quantities enabled the smooth functioning of financial markets and the transmission of reduction of the key interest rate to credit prices. Currently, financing and debt servicing costs in economy are lower than in the previous year and the exchange rate is stable. The low interest rates and ample liquidity were followed by an average growth of 6.7% of credit portfolio during 2020, by supporting the continuation of investments and the increasing needs of economy for working capital. Lending to enterprises and in lek, supported by the state guarantee schemes were the main contributors to credit growth. In this regard, I would like to underline, that for the first time in the last two decades, the share of credit portfolio in lek was equal to the share of credit portfolio in foreign currency at the end of previous year. This positive trend establishes the premises for enhancing the monetary policy’s effectiveness and strengthening the financial stability of Albania. In addition, more than 23, 000 enterprises and households having loans at around ALL 200 billion, benefited from the moratorium on the payment of credit instalments and the restructuring of the existing loans. These funds available to them have served to mitigate the financial difficulties that both households and enterprises faced at the beginning eve of the crises. Overall, our estimations suggest that our simulating monetary policy has yielded a positive effect of 3.7 percentage points on the economic activity during the last four years, by providing a notable contribution to employment and welfare of Albanian households. Second, the prudential supervision and monitoring of the banking system performance, the intensive and continuous communication with it, and the temporary suspension of profit allocation, have served to maintaining a liquid and well-capitalised banking system with sound practices for risks management. Indicators of assets quality, financial result and capital of the banking sector appear at good levels. Non-performing loans ratio has remained at low levels and the direct exposure of its activity to market risks remains contained. Third, the increase of operational capacities for supplying cash to economy, the guarantee for the uninterrupted functioning of the national payment system and the reduction costs on electronic payments in lek, enabled the smooth functioning of the financial system. Last, the intensification of communication with national and international partners and with public at large, helped to reduce the uncertainty and increase confidence in the future. Overall, we assess that the Albanian economy has the necessary premises for a fast rebound of the economic activity once the epidemiological situation has been normalised. Also, this assessment is affirmed by our forecasts, which project an expansion of consumption and investments, growth of the economic activity’s volume, increase of employment and improvement of the financial situation of enterprises and households in the following period. The economic growth will help the strengthening of inflationary pressures and the return of inflation to target within 2022. 2. Banking supervision and financial stability Notwithstanding the challenges posed by pandemic in Albania, the activity of the banking system was stable. The operational measures taken by banks to ensure the continuity of critical functions and the relationships with clients, intertwined with the measures taken by the public authorities to mitigate the pandemic shock, enabled the financial intermediation activity to continue appropriately and the financial indicators of the banking sector remaining at good levels. 3/6 BIS central bankers' speeches The activity of banking system grew by around 7%. Although the banking sector undertook a considerable part of financial burden during the crisis of 2020, it resulted with a positive financial result, albeit 15% lower than in the previous year. In parallel, the capitalisation of the system remains at a good level, above 18%, by enabling this sector to continue the activity of financial intermediation. In addition, credit quality slightly improved during 2020. The ratio of nonperforming loans fell to 8.1%, as at end of 2020, from 8.4% in the previous year. The measures taken by the Bank of Albania to help banks to deal with borrowers facing temporary financial difficulties for the restructuring of loans, created room for the stabilisation of the overall level of non-performing loans. Thus, the Bank of Albania remains particularly attentive in monitoring this indicator. Direct exposure of banking sector’s activity against risks remains contained, but some indicators of these risks have trended upwards. The banking sector remains sensitive to the exchange rate risk through the segment of unhedged loans in foreign currency. Exposure to the interest rate risk remains present, but it is assesses as limited. The Bank of Albania has addressed these risks through regulatory actions of macro-prudential nature and through the macro-prudential policy instruments. Uncertainty about economic developments in the presence of the pandemic remains considerable, and so do the challenges to the banking and financial activity. However, assessments of the banking industry and stress test exercises suggest that the banking sector has sufficient capacities to counter these challenges. After this panorama of the banking sector in Albania, I will briefly highlight some of the main directions of the work of the Bank of Albania for strengthening banking supervision and supporting financial stability. The implementation of the recommendations from the Committee of Experts of CoE on the Evaluation of Anti-Money Laundering Measures and counter Terrorist Financing (MONEYVAL).In the evaluation Report of Moneyval, financial entities, particularly banks, are evaluated with a high level of effectiveness (“substantial/considerable”), by undertaking, overall the appropriate measures for the prevention of money laundering and terrorist financing. Also, the Committee has provided a set of recommendations to the Albanian authorities. In the framework of addressing these recommendations, the Bank of Albania is involved in the implementation of the national plan of measures accordingly, by performing the necessary completions in the regulatory framework and by strengthening the supervisory process. The number of examinations, with particular focus on the terrorism financing issues and implementation of international sanctions, has been increased. These examinations have taken place in non-bank financial institutions and foreign exchange bureaus. Regulatory and methodological approximation and strengthening of supervisory capacities. The Bank of Albania has continued to work for the improvement of the regulatory framework through the approval of new regulatory acts, as well review of applicable regulations, by further aligning this framework with the EU acquis, the Basel Committee principles and the best practices of banking supervision. The review of the applicable regulatory framework has also taken into account the situation created in Albania by the pandemic. Also, a part of the approved by laws have aimed at complementing the regulatory framework in the field of resolution, whose responsible authority is the Bank of Albania. The rigorous monitoring of financial system through on-site examinations. The pandemic situation and the restrictions in place imposed the differentiated condition of on-site examinations. On the other hand, we have intensified the correspondence with banks and nonbanks financial institutions, for the sharing of information and increasing the reports. In 2020, 27 examinations were performed, covering banks and non-bank financial institutions, and 74 examinations in Foreign Exchange Bureaus. Credit risk was the main objective of these examinations. 4/6 BIS central bankers' speeches Strengthening the ability for resolution in banks. In capacity of Resolution Authority, the Bank of Albania has drafted the resolution plans for systemic banks, has identified the potential obstacles to the implementation of resolution and has drafted the measures for overcoming these obstacles. In addition, in 2020, the Bank of Albania completed the first cycle of drafting resolution plans for non-systemic banks. Development and implementation of macro-prudential policy for the purposes of financial stability. The Bank of Albania has a primary role in drafting and implementing the macroprudential policy. This policy prevents the accumulation of risks and strengthens the financial system’s resilience. Throughout 2020, new regulatory acts were implemented – liquidity coverage ratio and the regulation on the implementation of additional macro-prudential capital buffers – which aim at mitigating risks and strengthening the resilience of the banking sector. The realisation of institutional duties implies also a constant attention on other areas of the Bank of Albania’s activity. Following, I will try to provide an overview of them. 3. Other activities The functioning of the economy and banking system is underpinned by a safe and efficient payment system. Both systems operated by the Bank of Albania, the Albanian Interbank Payment AIPS) and the Albanian Electronic Clearing House (AECH) have operated efficiently and safely. In 2020, the regulatory framework on the functioning of both payment systems was reviewed. Both systems have been assesses by international experts related to the principles of Bank for International Settlements (BIS) and the European Central Bank. They have resulted in compliance with these principles. In the framework of promoting the reforms in payment market, the Bank of Albania has played an active role for the implementation of the National Retail Payments Strategy 2018–2023. More than 50% of the measures set forth in the action plan of the strategy have been accomplished, through a set of regulatory interventions and measures for enhancing financial education. For the purposes of accomplishing the objectives set forth in the strategy, the Bank of Albania has started the work for the transposition of the EU Directive “On the Payment Account”, which is expected to increase both transparency in payment services and financial inclusion of the population. In 2020, the use of electronic payment instruments jumped to 18.5%. This trend was also affected by the measures implemented by the Bank of Albania for the reduction of costs on electronic transfers in lek. The finalisation of the Law “On Payment Services” is expected to boost the use of electronic payment instruments and, overall, the expansion of population inclusion. The approval of this Law, which is initiated by the Bank of Albania, is an important achievement to increases access of population to payment services, and marks a further step towards the integration with the best EU practices. As one of the institutions involved in the National Plan for European Integration, the Bank of Albania has accomplished all its obligations for reporting, and it has integrated the recommendations of the European Commission in fulfilling is daily duties. In parallel with them, we have continued the preliminary work for the preparation of negotiations of Chapters 4 and 17. The Bank of Albania has the role of national coordinator for these chapters, and in this regard, we have strengthened the dialogues to identify the optimum paths for countering the pandemic. In addition, we have focused our attention on the preventive measures and the effects of the pandemic on the internal activity of the institution. A year earlier, we completed the platform on Business Continuity Management. In 2020, this platform enabled the units of the Bank of Albania to react effectively for ensuring the normal continuation of processes during the pandemic. All the main activities of the Bank of Albania have continued to operate normally, without any interruption. 5/6 BIS central bankers' speeches Nevertheless, I take the opportunity to emphasise that the Bank of Albania has recorded a progress also in other areas of its activity, as: compilation and dissemination of financial statistics; management of international reserve; the scientific research; and communication with the public, etc. All these aspects of our work are truly reflected in the Report. *** Honourable Members of Committee, The Albanian economy showed resilient to the shock during the previous year and has positive development premises in the next and far future. Nevertheless, there are many downside risks and the economic and financial environment remains challenging. We deem that the macro-economic policies should continue to maintain the simulating direction, so far the economic growth and employment expansion be put on stable paths. Further, the priority of policies should move towards the strengthening of economic balances, particularly to the reduction of public debt and establishment of necessary fiscal premises to counter other shocks in the future. In parallel with them, policymakers, at every level, should work for advancing the structural reforms. Fiscal, monetary and financial stimuli are crucial instruments to bolster the aggregate demand. But only structural reforms enable the stable expansion of production capacities and the increase of social welfare. Allow me to assure that through the preservation of monetary and financial stability, the Bank of Albania remains committed to provide its contribution in this regard. Thank you for your attention! 6/6 BIS central bankers' speeches | bank of albania | 2,021 | 4 |
Keynote speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Conference on "New normal: Challenges & Opportunities", European University of Tirana, Tirana, 30 April 2021. | Gent Sejko: New normal - challenges and opportunities Keynote speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Conference on “New normal: Challenges & Opportunities”, European University of Tirana, Tirana, 30 April 2021. * * * Honourable Professor Gjuraj, Honourable Professor Xhepa, Dear students and participants, It is a great pleasure for me to greet the proceedings of this Conference on the “New normal”. This topic is both an emergent and unresolved issue of the current economic debate. We altogether: policy makers; academics; and operators in the private sector, are aware that a new reality lies ahead in the post-pandemic world. “What would be the contours of this new reality?”; “What challenges and opportunities lie ahead of the private sector?” and “Which will be the objectives and instruments of the monetary policy”. These questions still lack a thoroughly answer. For this reason, I would like to thank the European University of Tirana, for selecting this topic of an utmost importance. The European University of Tirana is a hearth of knowledge which has succeeded in positioning at the centre of: education; academic discussion; and innovation enhancement. Today, it manifests a consolidated profile in the academic debate. While trying to summarise the Bank of Albania’s opinion on the selected topic, following, I will address in my speech three specific issues: First, I will show briefly the impact of the pandemic on the Albanian economy and the measures taken by the Bank of Albania to minimise its effects. Next, I will focus on the academic discussion about the “New normal”. Last, I would like to highlight the role that has the institutional flexibility and strength to change, as an instrument for accommodating the new paradigms and adopting the best practices in policy making. *** 1. Bank of Albania confronting the challenges of Covid-19 pandemic The Covid-19 pandemic and the containment measures taken to protect the public health triggered an unprecedented economic crisis, in Albania, and worldwide. The increase of uncertainty and the induced restriction of the mobility of goods, services and citizens, in Albania, drove to a 3.3% contraction of the economy and the loss of 40,000 jobs during 2020. In addition, the pandemic generated economic problems, at both macro and micro levels, and tested the resilience of the foundations of the Albanian economy and society. The response of authorities in Albania, like across the world, was fast and unprecedented. The Bank of Albania intervened through a package of monetary and financial measures. These measures were aimed at containing the short-term impact of the pandemic and safeguarding the production capacities and the economic and financial stability of Albania. These are two indispensable preconditions for the rapid, solid and long-lasting growth of the country. In this context, the Bank of Albania: reduced the policy rate to a historical low of 0.5%, in March 2020, and established the needed operational conditions to supply with sufficient liquidity to banks; provided the necessary regulatory relief and instructed banks to help enterprises and 1/4 BIS central bankers' speeches households in difficulties, through the placement of a short-term moratorium on credit instalments as well as in the form of a targeted credit restructuring; temporary forfeited the commissions applied by banks on the use of electronic payment platforms and the fees applied on the interbank transactions costs for the payment systems AIPS and AECH operated by the BoA; last, we suspended the distribution of profit from commercial banks for 2020 to enable the maintaining of capital adequacy of the banking system. The stimulating measures undertaken by the Bank of Albania were coordinated with an augmented fiscal stimulus. Fiscal stimuli were in the form of tax relief and direct transfers to households and enterprises, whose income were affected by the closure of the activity and in the form of sovereign guarantees on loans to enterprises, aimed at minimising the negative effect from income and preserving the liquid position in their balance sheets. The simulating macro-economic policies helped in containing the impact of the pandemic on the real and financial sectors of Albania, and succeeded in safeguarding the macroeconomic stability uncompromised. The economic contraction, fall of employment and the damage in the financial balances of enterprises resulted lower than our initial projections. The banking sector continues to be well-capitalised, liquid and profitable. The risk premia and interest rates in the financial market remain at low levels, by underpinning lending to the economy, in response to its needs for working capital, consumption and investments. In particular, non-performing loans ratio remains at a low level, notwithstanding the worsened cyclical position of the economy, by showing the benefits of the banking sector’s consolidation process and the advantages of the continuous improvements in the regulatory and supervisory framework. The undertaken simulating policies have helped in reducing risk in the short run, but they cannot address structural changes, which have been noted from times now or which are directly related to the pandemic. A “New normal” is expected to guide the need for the adaption of the private sector and a re-thinking of the institutional government paradigms. 2. Challenges of the future Policy-making institutions are expected to tackle complex structural challenges, which will determine the shape and content of a new reality within a not too far future. The increase of barriers in international trade, the population ageing, international migration, decrease of innovation, global warming, the growth of inequality and increasing social tensions, are critical global issues. Public authorities, in their response, should engage, without losing time, in coordinated structural reforms – among others – bolstering innovation and reallocation of sources among the sectors of economy, free trade, stability of pensions system and maintenance of social consensus. Further, a “New normal” would call for a prudential coordination of public policies, for reaching an optimum balance between the economic growth and the economic, monetary and financial stability. Allow me to elaborate somewhat further on this issue. The global financial crisis and the pandemic renewed attention to the indispensable role of fiscal policy: an instrument for the stabilisation of the economy and mitigation of crises. This lesson is expected to be relevant – both in medium- term and long-term- by paving the path to a more active role of fiscal policy in the future. Nevertheless, it should in no case skip the need for preserving the fiscal stability. In contrary, fiscal stability remains a precondition to long-term 2/4 BIS central bankers' speeches growth and enables the establishment of the necessary premises for the amortisation of shocks. In the area of central banking, the “New normal” will continue to be characterised by a flatter Phillips curve, where wages, employment or economic growth will continue to have a weak relation to inflation. Challenges to maintaining price stability will continue to be present. It dictates the need for the improvement of transmission mechanism of monetary policy by making indispensable the exploring of unconventional instruments as feasible and valuable alternatives for managing future shocks. All these challenges lead to the need for enhancing the flexibility of public institutions making them more able to evolve, adapt to changes around them, and to boost innovation. In this context, I am proud that the Bank of Albania has always been and remains frontrunner of change. 3. Bank of Albania, an evolving institution Throughout the transition history, The Bank of Albania has shown able to change and embrace better contemporary and most effective practices. The nature and functions of the institution were fundamentally transformed in 1992, when the Albanian economy started the transition process towards a free market economy. Within a short period of time and in the presence of a shortage of an institutional heritage, the Bank of Albania succeeded to establish the contours of an independent monetary policy, being empowered in the presence of a free-floating exchange rate, regulate and supervise a private banking sector that functions based on the market principles. The qualitative transformation of the Bank of Albania towards a modern central bank evolved further with the approval of the new Law on the Bank of Albania in 1997, which lays down the primary objective “to achieve and maintain price stability”. This Law sets out the decision-making, financial and operational independence of the central bank in the pursuit of its objectives, in line with the best international practices. In addition, it is encouraging that this institutional independence enjoys a broad social consensus. During these years of transition, our monetary policy has marked a notable progress towards: developing a theoretical framework; building up the completion of our knowledge with empirical studies; perfecting the instruments for its implementation; and the transparent communication with the public. Since 2015, we have formally adopted “the inflation targeting regime”. This regime provides the adequate incentives, discipline and flexibility to the maximisation of the longterm social welfare. In parallel with the evolution of the monetary policy, the Bank of Albania, in years, has built on a modern and effective regulatory banking framework, in line with the best international practices. From time we have implemented the regulatory standards incorporated in Basel I, II and III. Then, we have helped the establishment of the Albanian Deposit Insurance Agency (ADISA) and the resolution framework. These two elements are crucial for the stability of the financial system. In addition, we have been working in collaboration with other public authorities, on the development of the complete supervisory and regulatory architecture. I would like to mention in this regard the establishment of the Financial Supervisory Authority (FSA) and the Financial Stability Advisory Group (FSAG). In the light of such a historical background of development and evolution, the Bank of Albania has shown itself an institution able to be adapted and change to keep up with the times. In parallel, the gradual, well-thought and to some extent, conservative evolution has always been important to the Bank of Albanian aimed at adopting the best international experiences resistant to the time. I think these two development features provide the appropriate guarantees that we will know to face the challenges of the “New normal”. 3/4 BIS central bankers' speeches *** Dear participants, I avail the opportunity for addressing to this Conference and highlighting the importance of sharing knowledge and experiences among us on such an important theme. I would like to conclude my speech by thanking you again for the invitation! 4/4 BIS central bankers' speeches | bank of albania | 2,021 | 5 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Launching of the two banknotes, 1000 lek and 10000 lek, of the New Albanian Banknote Series, Tirana, 15 June 2021. | Gent Sejko: Launch of new banknotes Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Launching of the two banknotes, 1000 lek and 10000 lek, of the New Albanian Banknote Series, Tirana, 15 June 2021. * * * Dear Ladies and Gentlemen, Welcome in this special day, when we are introducing to the public the two next denominations of the new Albanian banknote series. One of the main responsibilities and legal obligations of the Bank of Albania is guaranteeing the supply of economy with cash, both in value and structure, and ensuring confidence of the public in the national currency. After 20 years, the Bank of Albania, in 2016, undertook the initiative to start the production project of a new banknote series, which is legal tender, by improving and fully refreshing up its style and shape. In this framework, in September 2019, the Bank of Albania launched the new banknote series, which consists of six denominations: 200 lek, 500 lek, 1000 lek, 2000 lek, 5000 lek and 10000 lek. The theme of the new series of the Albanian banknotes embodies the portraits of the most illustrious national figures, and evokes the most notable moments in the history of our nation in its endeavours for freedom and prosperity. The theme echoes through historical eras, starting from Antiquity, moving through the Middle Ages, the National Awakening, the Independence of Albania, and concluding with the symbols of the national flag and anthem on the largest denomination, the 10.000 lek banknote. Thus, our banknotes promote the historical and cultural heritage of our country and highlight the most powerful achievements of many prominent historical figures through centuries. I feel good when I see that the two first denominations of this series, 200 lek and 5000 lek, put in circulation since September 2019, are welcomed by the public, have met the expectations of the Bank, and already are gradually becoming a sustainable part of currency in circulation, by supporting the continuous strengthening the quality of banknotes in circulation, aimed at preserving their integrity, in relation with the public, and upholding a dignified image of both the Bank of Albania and the Albanian state. Today, nearly two years later following the launching and the successful issuance in circulation of the first two denominations, the Bank of Albania is launching the two other banknotes, part of the new series of the Albanian banknotes, the denominations: 1000 lek and 10000 lek. The latter is a completely new denomination in the series of the Albanian banknotes. The printing and issue into circulation for the first time of the new banknote with the largest value, 10000 lekë, represents in itself, the adoption of the banknotes’ structure to the evolution of the structure of prices and wages, the development the electronic payments, and of the other indicators related to the management of currency. This note with the largest denomination accompanies the economic development of the country, and according to all analysis, meets the market requirements to have it in the structure of our series of banknotes, which are legal tender. The presentation and issue of this note will enable a better and more efficient circulation of cash, by helping the structure of the currency in circulation, reducing the costs of production, storage and distribution, thus enhancing the efficiency of the Bank of Albania in cash management and issuance. In addition, the presence of this new highest-value banknote in the structure of the Albanian banknotes increases also the effectiveness of the Bank of Albania to manage a rather adequate strategic stock to meet the 1/3 BIS central bankers' speeches increased market demand for cash in contingency cases. Despite the development in other means of payments, as electronic ones, currency in circulation is set on an upward trend from years now. This trend reflects the ongoing demand of economy for cash as a payment means. Bank of Albania is attentive while planning to guarantee the fulfilment of this demand of the market, in both normal and atypical situations. The current situation caused by the Covid-19 pandemic, is a real example in this regard. Economy has increased further its demand for cash throughout this period. Thus, over 2020, currency in circulation lifted by ALL 52 billion or three times higher than the growth recorded in 2019. Also, in the first five months of 2021, the growth amounted around ALL 10 billion. Meeting the demand of market for cash is achieved through ensuring and planning the sufficient stock of cash at the Bank of Albania, which guarantees the security for both the present and future. Allow me to detail briefly some of the features of these two denominations: The 1000 lek banknote, part of the new series, has a refreshed design, but it retains the same motives presented in the existing one, embedding changes related to the whole configuration of all added and improved elements. The theme of the 10000 lek banknote are the symbol of flag and national anthem - the main symbols of our national identity - accompanied with the portrait of the distinguished poet of the Albanian National Renaissance, at the same time, author the “National Anthem”, Aleksandër Stavre Drenova - commonly known by the pen name “Asdreni”. The presentation of a new series of banknotes means more than a simple change of its image. The Bank of Albania continuously improves the quality of the banknote in circulation, aiming to preserve its integrity. Both new banknotes, like all the other denominations of the new series, contain advanced security features. They are produced with cutting-edge technologies for banknote printing and personalised by denomination. The 1000 lek banknote integrates the raised print in the portrait of Pjetër Bogdani, numerals, lettering, and in the short lines, which help the visually-impaired people to easily identify and recognise the banknote. The security thread turns into a dark solid line when holding the banknote against the light, and changes colour from green to purple at different angles; the sun symbol with colour-changing image depending on the tilting angle; and on the back, the iridescent stripe at the centre that displays the value 1000 Lekë. The 10000 lek banknote integrates the raised print in the portrait of Asdreni, numerals, lettering and in other areas of the banknote, as well as the element which helps the visually-impaired people to easily identify and recognise the banknote. The watermark image; the hologram accompanied by various optical effects; the security thread which turns into a dark solid against the light and changes colour from green to purple depending on titling angel; and on the back, the iridescent stripe at the centre that displays the value 10000 Lekë. A safe banknote means that we can use cash securely and easily for its identification as a genuine banknote. This is the foundation of a sound financial system: confidence in the core financial operations where currency has its implacable role as an intermediator. From 30 June 2021, the banknotes of the new series 1000 lek and 10000 lek will be legal tender in the Republic of Albania and will be used as means of payment, alongside the existing banknotes. Seeing the beauty and quality of these banknotes, I can absolutely tell you that the work done for their realisation was too valuable. Hence, on behalf of the Bank of Albania, I would like to thank all the experts that have helped and have been actively engaged for their successful realisation. In addition to the precious work of the Bank of Albania's staff, I would like to highlight the rather 2/3 BIS central bankers' speeches precious contribution of many renowned academics, historians, Albanologists, numismatists and experts from the most experienced companies in the field of banknote production. Meanwhile, the Bank of Albania is working on the completion of the new series with two other banknotes, 500 lek and 2000 lek, which are in production process. Concluding, I like to call on the users to handle each banknote with due care, in order to preserve their durability, quality and integrity in circulation. Banknotes are more than a valuable paper. They boost and sustain the economic activity of Albania and similarly tie with visible threads our national identity. I wish the public will welcome both new banknotes we are presenting today, like the previous ones. 3/3 BIS central bankers' speeches | bank of albania | 2,021 | 7 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of awareness campaign: "Neither old nor new, I am simply Lek!", 17 November 2021. | Gent Sejko: Address at the “Neither old nor new, I am simply Lek!” awareness campaign launch Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of awareness campaign: “Neither old nor new, I am simply Lek!”, 17 November 2021. * * * Honourable Professor Civici, Honourable Dr. Treska, Dear participants, colleagues, and media representatives, I have the pleasure to welcome you in this very important day for the Bank of Albania on the occasion of launching the awareness campaign: “Neither old nor new, I am simply Lek!”. This new initiative of our institution in the field of financial education is part of a broad corpus of programmes and projects in the framework of comprehending and taking care of the national currency and banknote. It is the materialisation of the Bank of Albania’s efforts to fulfil the recommendations of the Albanian Parliament embodied in the resolution on the assessment of our institution activity, for eliminating the use of outdated terms “new lek” -“old lek”. We are conscious, that unfortunately, this happens perpetually, not only in day-to-day communication amid citizen, also in their economic and financial interactions, thus becoming either intentionally or not a source of misunderstandings. Before presenting this campaign, allow me to briefly address this phenomenon on the historical perspective, how it has arisen. The monetary reform in 1965 replaced the earliest Lek banknotes with new ones, in a ratio of 10 to 1, by changing at the same degree the value of prices, wages and, of any other financial operation. Since then, most of citizens have not been adopted yet with this change and are used to communicate with the outdated term “old lek”, driving to confusion in both the communication of prices of goods and services and the accurate reading of economic and financial indicators. Even before the launching of this awareness campaign -postponed due to the difficulties caused by the restrictions imposed to tackle the Covid-19 pandemic situation – the Bank of Albania has been attentive in encompassing this message in its educational publications and programmes, such are: Global Money Week, or the campaign on the issue in circulation of the new banknotes. Recently, we have conducted the measurement on the use of terminology “new lek” – “old lek” on a national level, through the inclusion of dedicated questions in the survey on measuring financial literacy of the Albanian population structured pursuant to the model of International Network of Financial Education (INFE, OECD). The analyses of these questions provides information on the degree of wrong use of terminology by: location-residential, age-group, gender, education, employment and average level of income, as well as the settings where it is more frequently used; aimed at adopting the campaign undertaken by the Bank of Albania on the elimination of the outdated terms “new lek”- “old lek”. Results of the survey show that more than half of interviewees (54%), in terms of a 500 Lekë banknote, in an instinctive manner either wrongly identify or read its value, by adding a “0” to turn its value into “old lek”. The situations or sets where the interviewees, more than 80%, responded that habitually speak with the outdated term “old lek”, are mainly informal or family ones: small shops or fruit and vegetables markets; conversations with family members, friends and colleagues; followed by means of public transport. On the other side, data show that the wrong communication of Lek value occurs very rarely across financial institutions (banks, non-banks, etc.), only 28.1%, or in the offices of public administration (39.4%), although it might be expected 1/2 BIS central bankers' speeches these figures would have been even lower In addition to public and financial institutions, another strongminded factor affecting the communication of public is media, the written and audio -visual media. According to 20% of public perception, media always or frequently communicate prices and monetary values in “old lek”. This percentage, though a low one, sheds light on the need for a higher inclusion of media in the efforts to completely eliminate this phenomenon, particularly by bearing into mind its mission to transmit the information truly and accurately to the public, coupled with its educational role. In terms of analysis by socio-demographic groups, the survey results show that the monetary value in “old lek” is more frequently used by: (i) males; (ii) old-aged people; (iii) persons with a low-education level; (iv) unemployed persons in labour market; and (v) individuals with a low level of family income. These groups identified in the survey will be the focus in the projects of this awareness campaign for bringing to an end the use of the wrong term “old lek”. Against this backdrop, the Bank of Albania is launching this awareness campaign, which will extend in time and will aim at being a comprehensive one, affecting various groups of interest. In a medium-term period, and through various channels, we aim at knocking at the doors of every Albanian to uproot the terms “new” or “old”, by avoiding the confusion in the communication of prices and enhancing the correct reading of economic and financial indicators. Lek is the national currency in Albania, and the face value of each coin or banknote is the one written on it. Nevertheless, the fact that this incorrect use is inherited in the day-to-day speaking and has been resistant for more than 55 years, illustrates that the sporadic and isolated efforts of a solely institution to rectify this phenomenon are insufficient. A joint and coordinated commitment among central institutions of the country, media and other relevant actors is crucial in this regard. Particularly, the role of media is vital in this campaign, which through the transmission power to the public, has the skill to affect the mentality and communication pattern of the public at large. School, is another key factor for the establishment and cultivation of a new mentality. School may help for disrupting this 55-year chain and not transmitting it to the young generation. On behalf of the Bank of Albania, I invite all the participating institutions, and more broadly, to join us in this meaningful and demanding commitment to educate the Albanian public, with a view to abandoning forever the use of these outdated terms in the economic and financial interactions, and definitely turning it into a linguistic relict. I warmly thank you for the insofar contribution and allow me to recall once again that our currency is neither “old” nor “new”, but simply Lek! 2/2 BIS central bankers' speeches | bank of albania | 2,021 | 11 |
Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 15th SEE Economic Research Workshop, virtual, 6 December 2021. | Gent Sejko: Welcome remarks -15th SEE Economic Research Workshop Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 15th SEE Economic Research Workshop, virtual, 6 December 2021. * * * Dear professors and researchers from academia, Dear fellow central bank colleagues and researchers, Dear participants, It is a great pleasure to open the proceedings of the 15th SEE Economic Research Workshop, which is being organised virtually this year as well, due to the COVID-19 pandemic restrictions that are still in place. I take this opportunity to express my wish that we would all stay safe and healthy and for the negative effects of the pandemic to come to an end as soon as possible. I hope that the vaccination process, progress in knowledge, cures against COVID-19, and an improvement in the overall situation caused by the pandemic, would enable us to welcome you in Tirana next year. I am glad to note that we have again a full house and a rich agenda this year, with two days in which colleagues and researchers from central banks as well as distinguished universities in Albanian and worldwide will present their works. We really appreciate your interest in participating in this workshop and in the research carried out by the Bank of Albania throughout 2021. I am confident that discussions across this workshop’s panels will be very interesting. The annual organisation of this workshop has served to share experiences with the participating central banks and have enriched research work, becoming in turn an integral contributor to policy formulation. These workshops have made a valuable contribution for confirming and interpreting research results, which enable the compilation, calibration and implementation of policy measures for tackling the pandemic and similar shocks. Your findings, comments and discussions assist our authors to improve their studies, and in turn contribute to the formulation and decision making of policy at the central bank. Evidence, analysis and forecasts based on the research work that you will present in these two days will provide accurate and valuable information for orienting and coordinating decision making in the future. 20 research projects will be presented and discussed this year, which in in spite of covering a broad gamut/range of topics, are directly related to the activity and interests of the central bank. We have discussed almost the same topics a year ago however, you could rightly say: “What a difference, compared to last year?” In 2020, discussions were focused on the modern monetary policy, and the role of the central bank’s balance sheet as a permanent instrument of monetary policy that can and should be broadly used to bolster aggregate demand. The current monetary policy debate is concerned with the size and duration of the recent jump in inflation. The latest inflationary developments have divided academics and central bankers into two camps with diametrically opposed positions. In one camp are those who think that the current inflation is a jeopardising phenomenon which risks leading to an inflationary situation, and consequently calling for an immediate intervention to subdue the balance sheet policies and the increase of interest rates. The other camp holds that current inflationary developments are a temporary phenomenon which has arisen from supply-side problems that reflect the negative effects of the pandemic. These diametrically opposed views among economists show that work to improve inflation models should continue, particularly as, after all these years of studies and research to understand the phenomenon of inflation, we are again going through doubts and 1/2 BIS central bankers' speeches mixed positions. In last year’s workshop we have foreseen the high uncertainty in relation to both production and distribution networks, are two factors that are hampering the recovery momentum. The pandemic appears to have placed burdens on globalisation, and this is expected to have significant effects on the economy. The combination of both factors has yielded an immediate impact on prices, driving inflation up as a result of supply-side effects. Nevertheless, this conclusion is ambiguous. Many voices from the world of academia and central banking consider that inflation may also be an effect of central banks’ expansionary policies. To be sure, these opposing views have arisen as a result of ambiguities related to the effects, geography and degree to which the pandemic has affected the economy. That is why studies on the effects of the pandemic should continue. Meanwhile, it is clear that all models – no matter how good they are – need interpretation from the perspective of the events that the moment poses and in the view of the dominant phenomena of time. Dear participants, COVID-19, coupled with the issues it has caused and the restrictions taken to contain it, continues to dominate both our economic and social life and activity. It has also certainly become an important part of the analysis and research work of the central bank. This is not a surprise. I think that the shock triggered by the pandemic and the related effects will continue to be part of the research agenda for a long time, even after the pandemic is over. However, recent developments show that the research agenda of the central banks have been enriched by the study of other risks, such as those related to climate change and environmental protection, demographic risks, digitalisation and digital currency. These have been identified as big and long-term challenges to both the global economy and the authorities of every country. The Bank of Albania has started to work on to establish the infrastructure for modelling and analysing these phenomena. It is crucial to not think of these topics only for the purpose of testing assumptions or academic discussions, but rather to consider them in the concrete framework of policy making and decision taking. I am confident these topics will become important themes for discussion themes in our Research Workshop in the future. I am hopeful for two-days of productive workshop interactions. I invite you to join the panels of presentations and become part of the fruitful comments and discussions! 2/2 BIS central bankers' speeches | bank of albania | 2,021 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media and the Governor's Award ceremony, Tirana, 20 December 2021. | Gent Sejko: Bank of Albania’s achievements in 2021 and challenges for 2022 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media and the Governor's Award ceremony, Tirana, 20 December 2021. * * * Dear ladies and gentlemen, After a hard period due to the pandemic while we all had to keep the physical distances, this reunion at the Bank of Albania premises to spend some time together as the year end approaches, embodies a special value. Overall, the end-year meetings accompanying the holiday season, serve as a balance to recall the achievements of the year we are preparing to leave behind, coupled with the challenges that lay ahead in the next year. The two past years were challenging to the entire globe, and particularly to Albania, as we before the pandemic had to deal with the devastating earthquake of November 2019. The todaymeeting makes us optimistic and gives hope that in the future we will have the possibility to communicate and collaborate in normal conditions and out of concerns and restrictions triggered by the pandemic. The shocks faced over the last two years affected sharply our way of living, tested the economic, monetary and financial equilibriums of the country and the stability of growth sources. They show that the sustainability of the economic and financial stability depend on the work of monetary institutions coupled with the ability and capacity of the entire society to act swiftly and efficiently in this fight against the pandemic. In this light, first and foremost, in the health context, vaccination, and hopefully, the relevant cures under progress, will turn into powerful instruments in curtailing the effects of the pandemic on both economy and finance. The good news is that the analyses carried out in our institution indicate that the economic rebound, the achievement of prices objective and the preservation of the financial stability are being materialised accordingly to the optimistic forecasts of the Bank of Albania. The continuation of simulating monetary and fiscal policies has: guaranteed both the monetary and financial stability of Albania; bolstered lending at low cost to the economic activity, and eased the burden that the prolongation of pandemic imposed on private sector and households. The crucial role that mas media has played in meticulously detailing and convening the policy message to the audience for enhancing its awareness, has supported and benefited to the prudential policy making. The pandemic and restrictions in place to contain it posed a barrier to public communication by increasing the distance with institutions, and above all, they turned into the most pressing issues of our time. In this view, I take this opportunity to thank all the journalists (particularly those covering economic issues), who through the professional commitment and integrity assisted the public at large to acquire the decision making of monetary and fiscal authorities throughout this unprecedented situation. The professionalism in making and conveying the news and economic analysis were a valuable and indispensable support to marinating price and financial stability. Allow me to thank you once again for the work and devotion you exhibited over the course of this year. I strongly believe that the truthfulness and objectivity in reporting economic and financial news will continue to accompany you in fulfilling your duty in the coming year. I reaffirm that the Bank of Albania will continue be a transparent institution, ready to provide opinions and assessments as necessary in all public debates related to the performance of our economy and financial markets. A certificate of this commitment and achievement of the Bank of Albania in the communication with the public is the ranking first of the Bank of Albania among all the banks of Central, Eastern and South-eastern countries, for very active pubic communication, 1/2 BIS central bankers' speeches in the last report: “Focus on the European Economic Integration” for the second quarter of 2021, published by the National Bank of Austria. Dear guests, The Bank of Albania continues to focus scrupulously on financial education and research considering it a crucial pillar of its activity. They are seen as the foundations for increasing the social-economic development and welfare of the citizens of Albania. From this point of view, I kindly invite you to share together a special moment of this meeting: the traditional ceremony for the Governor’s Award for the Best Diploma. The Bank of Albania for this 15th year ceremony in a raw has selected and valued three scientific works amid all the presented researches by students graduated in Albanian and abroad. Allow me to reiterate and point out that over the years, we delightfully have noticed that the quality in the research work of participants has been on rise, turning the performed analyses and researches increasingly more professional. As in previous years, Albanian students from domestic or foreign universities have applied and presented their best research work. We are happy to notice that participation and interest from students and universities has been significantly edging up, showing appreciation, reliability and reputation of this competition. This year, we received 25 studies, whose common characteristic is the addressing of the reality in the last couple of years. They mainly scrutinise the economic, financial and social effects of the pandemic and the resistance of market and financial institutions to this shock. Thesis on the forward guidance of financial market, focusing on the digital currency effects; exploitation of large detailed databases for evaluating the behaviour of financial market segments which, which have been out of the research attention, are important to the country development; in addition to the study of other important issues to Albania, like fiscal policy, etc. The addressed themes and their findings are based on the application of contemporary research methodologies and make use of granular statistical information, which is both thoughtful and structured one. Above all, this information is employed rigorously pursuant to the academic standards and requirements to research and argue through theoretical and empirical hypothesis on the economic and financial phenomena and events. For this reason, the commission found difficult in making a selection as all topics were coherent, interesting and properly addressed. Nevertheless, we succeeded to identify carefully those minor variations and distinguished nuances which make the difference to the winning theses amid all the presented works. Eventually, we have come to a decision on the “Governor’s Award for the Best Diploma Theses” for 2021. Though, I would like together with the winners to thank and congratulate all the participants in this contest for their engagement, ideas, the applied methods and findings based on the appropriate methodologies. I wish this passion and devotion is part of your commitment as you advance in your careers. Let us now present the winning contestants. Thank you and happy holidays! 2/2 BIS central bankers' speeches | bank of albania | 2,021 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Parliamentary Committee on Economy and Finance, Tirana, 23 February 2022. | Gent Sejko: Address to the Parliamentary Committee on Economy and Finance Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Parliamentary Committee on Economy and Finance, Tirana, 23 February 2022. * * * Honourable Chair, Honourable Members of the Committee, Thank you for this public hearing organised in the framework of my nominee for the renovation of the term as the Governor of the Bank of Albania. At the beginning of my address, please allow me to highlight that I am very honoured that the Parliament of Albania re-affirmed the confidence to continue to contribute in the field of Albanian economic and financial area management, as a member of the Bank Albania’s Supervisory Council. In the same spirit, I would like to point out that my nomination for the position as the Governor is motivated by an internal incentive: finalising the thoroughly transformation of the Bank of Albania and turning it in a modern central bank. In my vision, the Bank of Albania should converge towards the conjures of a modern central bank, suitable to be part of the European System of Central Banks; able to deal with the challenges lying ahead in the path of the sustainable economic development, for the comprehensive modernisation of the financial system, for the European integration, and in its function as a reliable partner of Albanian public, civil society and academic world. Dear ladies and gentlemen, In capacity of the Governor of the Bank of Albania, as well as the Chair of its Supervisory Council for the last seven years, I had the privilege to serve in one of the highest public positions of the country. Throughout this period, I have conceptualised and supervised the implementation of a set of important reforms, which have affected the organisation and activity of the institution, and have enhanced the ability and accomplishment level of our legal tasks and our institutional commitments. Due to the limited time to provide a complete overview of the institution’s achievements, which have been maximally assessed in the annual resolutions of the honoured Parliament, allow me to focus on some of the main directions of my work. The main mission of the Bank of Albania is to achieve and maintain price stability. This mission is interpreted as an average inflation rate of 3% in both the medium and long term The Bank of Albania, in fulfilling this mission, conducts exclusively and in independently the monetary policy function. The monetary policy of the Bank of Albania has performed a notably qualitative leap throughout the previous term. In this light, in 2015 we have adopted a clear inflation targeting regime, which represents the golden standard in this field, by: building up the necessary infrastructure of analysis and forecast; improving the operational framework for the monetary policy implementation; strengthening transparency and improving its communication effectiveness to the Parliament, public and various groups of interest. This investment is materialised in tangible results, across all the aspects of our activity. Notwithstanding the fact that the Albanian economy has suffered various negative shocks, amid 1/5 BIS central bankers' speeches more rigid ones, the effects originating from: the global financial crisis; sovereign debt crisis in euro area; and the shocks from both the earthquake and the pandemic; inflation has not displayed any significant deviation from the target, though fluctuating on its down side. The average inflation rate at 1.8%, during the reference period, the minimum historical level of both public and private sector financing costs, the upward lending trend in lek, and the stable exchange rate of the national currency, illustrate the monetary stability of Albania. These factors have provided a vital contribution in absorbing the shocks consequences, preserving the macro and financial equilibriums, and bolstering the economic recovery. The Bank of Albania has carried out a comprehensive and radical transformation in the supervision and banking regulation field. During my previous term as the Governor: First, the Bank of Albania has implemented in a coherent and consistent manner the plan on the reduction of non-performing loans. The complete revision of the legal and regulatory framework has led to the decline of non-performing loans ratio to 5.4%, from its peak of 25% in 2014. In addition, importantly the credit risk has decreased and credit supply has improved. This improvement has been reflected in the 10% growth of credit to private sector in the course of the previous year. This period coincided with the consequences caused by the pandemic. Second, the Bank of Albania has initiated and implemented a plan of measures to increase the use of the national currency, in the financial system. This plan of measures aims at strengthening the financial stability of the banking sector and economy and at the better monetary policy pass through. It has induced positive effects in terms of reducing the share of loans in foreign currency around the level of 50% and increasing the interest for holding savings in our national currency. Third, the Bank of Albania has successfully managed the consolidation process of the banking sector. This process, consisting in a huge investment of time and energy, has aimed at not simply reducing the number of commercial banks (from 16 to 12), but – above all – at the introduction of new and motivated actors in the domestic market and increase of competition in this market. Albania has benefited a more competitive, efficient and safer banking sector. Last, the Bank of Albania has worked for the adoption of the best practices in the banking regulation and supervision field, aiming at the convergence with the euro area standards and focusing on the analyses and address of large risks. In reflection of this work, the Bank of Albania is already a member of the supervisory colleges of central banks. We have also established and approved a complete and functional framework on resolution of banks, thus being the first amid regional countries. These efforts have given their fruits. The Albanian banking sector bore a considerable part of the financial bill of the pandemic and provided a continuous financial support to enterprises and households. In addition, the banking system carried out its function without jeopardising the main parameters of its financial soundness: the level of liquidity; profitability and capitalisation. Nowadays, the public considers our banking system a safe destination to hold their savings; enterprises find a source of funds, services and consultancy, while the economy finds a promoter of development and absorber of shocks. In parallel with these main directions, the Bank of Albania has worked and has achieved successful results in other fields as well, among which I find it appropriate to highlight: The payment system, which is already operating within a legal and regulatory framework in full compliance with the EU standards and with a payment infrastructure in an ongoing modernisation process. Here, I mention the approval of the new Law on the Payment System, which transposes the relevant directive of the European Union and paves the way for increasing the number of actors and strengthening the market effectiveness. Also, in 2/5 BIS central bankers' speeches January 2022, the Bank of Albania has started operating the complete infrastructure for the processing and settlement of euro denominated payments within Albania. This development will result in lower costs and considerable reduction of the time for the realisation of payments, with a considerable benefit to both the Albanian enterprises and households. Successful management of the foreign exchange reserves of Albania, where I would emphasise that the adoption of contemporary methods on evaluating their adequacy and administration, has driven to the increase of this reserves – from EUR 2.2 million in 2014 to almost EUR 5 million in 2021, coupled with the maintaining of its soundness in terms of liquidity and safety. In addition, I would like to note here that the pleasant level of our foreign exchange reserve is one of the main indicators supporting the positive risk assessment of the country in international financial markets. The European integration process, where the direct responsibility fields of the Bank of Albania are evidenced as the closest contact points with the European Union legislations, or Acquis Communutaire. In terms on national currency management, the Bank of Albania has ensured the normal supply of market with cash, even in the presence of considerable operational challenges triggered by the pandemic. Also, we have refreshed the entire series of existing banknotes. This process was finalised at the beginning of this year with the introduction of the last two denominations. In parallel, with the refreshment, in response to both the requirements posed by the time and the economic and financial developments, the series is completed with a new banknote, with a nominal value 10,000 Lekë. The entire series of the banknotes has a contemporary design and meets the highest security standards. Financial education, a crucial investment for the awareness of the management of personal finances and enhancing the welfare of the society. Communication with public, the Bank of Albania is already a more transparent institution and in turns more accessible to the public at large. The regular communication of our decisions and views, the organisation and participation in academic conferences, and the rigorous accomplishment in a timely manner of requests for information, are assessed by our international partners. In more concrete terms, the National Bank of Austria in the last report, ranked the Bank of Albania first among all the banks of Central, Eastern and South-Eastern countries, for the level and quality of public communication. Dear members of the Committee, Notwithstanding the successful results that I listed above, I still do not consider my mission as complete so far. Looking forward, I see that the Bank of Albania has a lot to achieve in all aspects. Allow me to briefly list the priorities in my agenda for the second term. First priority is related to monetary policy and price stability. In capacity of the Governor of the Bank of Albania, I have been heedful and I will make sure that the quantity and cost of money in economy enables: the stability of prices; the sustainable economic growth and the improvement of welfare. In the medium term, addressing inflationary pressures stemming by the upsurge of prices in international market will be the main challenge. In my view, commitment to the legal mandate of price stability is a non-negotiable objective. The drafting of a prudential and forward-guidance monetary is required from the successful accomplishment of this term. At the same time, in parallel with the primary objective, this policy should factorise the need for supporting the economic rebound and be harmonised with the fiscal consolidation process, in view of the sustained fiscal and financial strengthening of Albania. In particular, I am confident that the prudential harmonisation of monetary and fiscal policies yields better economic results, in terms of both growth and stability. In a longer-term context, the operational framework of monetary policy should be completed with contingent instruments, like 3/5 BIS central bankers' speeches those adopted by large central banks. The improvement of legal infrastructure and further development of financial markets is the pre-condition to this objective. Nevertheless, the horizon of the next seven years provides for a sufficient timely dimension to meet it. The second priority is related to banking supervision and regulation; with a view to further strengthen the financial stability of Albania. In this view, the objective of my work will be: The establishment of all premises to bolster sound lending to economy. I deem that bank credit supply should not hamper the resilient and long-term growth of the country, but lending should follow all the required parameters of the management, for the preservation of banks soundness and the value of savings deposited din them. Full adoption of Basel II and Basel II relevant practices and standards. Greater convergence with the EU standards and accomplishment of further certifications by the European Central bank in the supervision field. These certifications will reduce costs and increase efficiency of our banking system operation. Complete re-scanning of our financial system – in collaboration with the World Bank and the IMF – (financial Sector Assessment Program) – to enable the identification and correction of its weak points in a timely manner. I consider that special attention will be paid on: the activity of non-bank financial institutions and convergence of their practices and regulations with those of the banking system. This will boost the effectiveness of financial system and fair competition within and among various segments of this system; fully efficient operation of the supervisory architecture of our financial system, starting from the Financial Stability Advisory Group (FSAG) and continuing with the practices on information share and collaboration amid its regulatory institutions; continuing the work for the reduction of foreign currency use in Albania, aiming at increasing awareness of both public and private actors on the risk it bears, thus by strengthening the response of the Albanian institutions. Third priority relates to encouraging formalisation, and increasing both financial education and inclusion. The relatively high level of informality in the Albanian economy stems serious negative consequences, through putting in threat competition, increasing uncertainty in commercial and financial relationships, and reducing public revenues. In this view, the Bank of Albania will continue to work to strengthen formalisation of the economy. In my view, this process should be supported through: the regulatory approach to in-formalised activities; completion of the financial infrastructure which reduces costs on formal activities; and coordinated initiatives with the public sector. The Bank of Albania should pay a crucial role in the financial education field, in compiling and implementing the national strategies and promoting the increase of financial literacy in Albania. This should be considered vital to the long-term growth of the society’s welfare. In addition, the Bank of Albania will continue the work to increasing financial inclusion of the population. Modernisation of the payment system and the increased level of electronic payment is already a starting point of this process, next the utilizing of this opportunity for providing access to both payment and financial services which in turn affect they economic development of the country. Meanwhile, being aware on the role and importance of structural reforms, the Bank of Albania will continue to contribute – through advises and attention on public interest – in their progress. I believe that these reforms will boost productivity, unlock growth potential and build on the premises for a rather fair distribution of their results to the society. 4/5 BIS central bankers' speeches The forth priority is the support to European integration. Even though the opening and speed of this process will depend, on a large extent by our European partners, our task as an Albanian authority is to proceed with neither delay nor hesitation. In this context, I think that the Bank of Albania should continue to maintain the leading role, in its field of responsibility and competence, related to this process, by providing the good example and its experience to the other authorities. Last, allow me to point out that the Bank of Albania has been and will continue to be an open and transparent institution. The strengthening and observance of this principle will become the fifth priority of my tasks. The Bank of Albania is able and should expand further the range of the economic information it publishes, and increase its presence in the tables where economic issues are discussed. Honourable chairman, Honourable members of commission, By presenting and motivating my request for the term renovation as the Governor of the Bank of Albania, allow me to re-affirm, that my 30-year-work in both the public and private sector of financial industry, the experience in executive positions, and results of my work, are a guarantee in fulfilling this duty. The reliance of this distinguished committee, will serve as a further motivation in giving my contribution to developing the Bank of Albania. Thank you! 5/5 BIS central bankers' speeches | bank of albania | 2,022 | 3 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at an event, organized to discuss on lending issues of the agriculture sector in Albania and launch the initiative on Albania Agribusiness and Tourism Support Facility (AATSP), Tirana, 26 January 2022. | Gent Sejko: Lending to and funding the Albanian agriculture sector Address by Mr Gent Sejko, Governor of the Bank of Albania, at an event, organized to discuss on lending issues of the agriculture sector in Albania and launch the initiative on Albania Agribusiness and Tourism Support Facility (AATSP), Tirana, 26 January 2022. * * * Your Excellency Prime Minister, Honourable Madame Ministers, Honourable Head of Albania for the EBRD, Dear friends and colleagues, Let me first to thank you for the invitation to participate in this event, organized to discuss on lending issues of the agriculture sector in Albania and launch the initiative on Albania Agribusiness and Tourism Support Facility (AATSP) mechanism. The Bank of Albania has continuously welcomed the transparent and constructive dialogue amid public authorities, private sector, banking industry and international partners, to address issues which serve to unclog the potential development and welfare growth of Albania. In particular, allow me to emphasize the fact that – despite the considerable progress in the last years – the Albanian agriculture sector, overall, and branches related with it- agritourism and agribusiness – are still far from the full utilisation of both resources and potentials they have. In figures, almost half of the Albanian population lives in rural areas and around 1/3 of labour force in the country are employed in agriculture sector. Yet, this sector generates less than 20% of value added in the economy, while productivity of labour force employed in agriculture and their income per capital are half of other branches of the economy. In my view, the sustained and balanced development of the country clearly needs a higher attention to agriculture sector, for improving its production capacity coupled with the growing of rural area population’s welfare, and in turn promoting social equity. The agricultural sector faces many and complex problems of development. At a considerable degree, these problems are out the competence and expertise sphere of the Bank of Albania. However, I believe that the topic of our today’s discussion: support with funds and loans to the agricultural sector, deserves a higher attention by the banking system. Currently, agricultural sector benefits only 1.7% of the funding that banks provide to private business. This ratio has not change over the last decade, despite the novelties that banking system has offered to lending market, while it remains far from the real needs of this sector. Specific lending issues to agricultural sector have been identified, from some time now, but a part of them are yet relevant. Nevertheless, I think that some of them are towards addressing, while the other obstacles should become part of a critical assessment and their solution should be an integral part of our next work agenda. In more concrete terms, the first reason on the back of low lending rate is related to the high risk – both real and perceived – that investment in agriculture bears. However, I think this risk is being reduced. On the one hand, the improved support to agricultural production, the improved roots network and the consolidated trade chain for the supply of the inputs in the market, drive to the improvement of this sector’s business. On the other hand, promoting agritourism and supporting agribusiness, grow the value added chain and profitability of investment in agriculture. In this context, I would like to greet the Albania Agribusiness and Tourism Support Facility 1/2 BIS central bankers' speeches (AATSF), which includes the joint contribution of the Albanian Government and the European Bank for Reconstruction and Development (EBRD). This facility provides a significant contribution, around EUR 150 million, in both forms: direct loans and supportive guarantee for lending. To this end, by seeing the positive reaction that banking sector is displaying towards this scheme, with four banks already becoming part of it, I would like to encourage the other banks to adopt a more positive approach towards this sector. Also, I would like to emphasise that global experience suggests the promotion of private insurance schemes to address risk reduction in agricultural. In future these schemes should become an integral part of this equation. The second reason on the back of low lending rate in agriculture is related to the fragmentation of agricultural land. This fragmentation limits the potential of the economy of scale, reduces the productivity of this sector, and turns it less attractive to the banking industry. In figures, referring to the data of the European Commission, a typical Albanian farm owns averagely 1.2 ha land, compared to the average of around 14 ha in Europe. At the same time, according to INSTAT data, around 99.6% of agricultural businesses hire one to four employees. This ratio is notably higher than the average of other economy sectors. In this context, detaching from the negative emotions that may stem from the memory of the inefficient cooperatives during the communism period, I think that there is a need for higher awareness of the Albanian farmer about building on partnerships and collective-risk sharing scheme, based on the free initiative and common interests. These partnerships improve access of farmers to funds and loans, and in turn their possibilities to succeed. The third reason for the low lending rate to agriculture is related to the lack of sound collateral. In many cases, the title of ownership is absent, or its value is low against the needs for funding. The sovereign guarantee schemes provide an adequate solution – in both short and medium term – to mitigating this problem. Nevertheless, local authorities should increase their attention on this issue in the long run. Dear banking system executives, The Bank of Albania deems that it is time for banking sector to pay a higher attention to agriculture sector. Albania owns around 24% of its territory as agriculture land, and offers still fully unexploited possibilities in the fields of agritourism and agribusiness. This potential should be considered a joint growth possibility to both agriculture and banking industry, as well as a possibility to diversify credit risk sources in your balance sheets. The continuous structural improvements, modernisation of agriculture and productivity growth, the enhanced support with funds and public attention, provide a new reality in agriculture sector. In this framework, the convergence process with the European Union provides for additional opportunities. In this light, without affecting its soundness’ indicators, I am confident that banking system will know to position itself as a supporting-development agent. This sector ought to increase its attention and the financing, analysing and advisory capacities, by fulfilling its mission for the sustainable growth of the country. Thank You! 2/2 BIS central bankers' speeches | bank of albania | 2,022 | 3 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2022 "Build your future, be smart about money", Pristina, 24 March 2022. | Gent Sejko: Build your future, be smart about money Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2022 "Build your future, be smart about money", Pristina, 24 March 2022. * * * Honourable Minister of Education and Sports, Dear Chairman of the Albanian Association of Banks, Dear students, teachers, friends and banker colleagues, I have the pleasure to welcome you to the launching ceremony of the Global Money Week 2022. For more than a decade this global awareness-raising campaign brings together pupils, students, teachers and bankers. Each March, the Bank of Albania in cooperation with the Albanian Association of Banks, and the outstanding support of the Ministry of Education and Sports, organises educational and awareness-raising activities tailored to different age groups of pupils and students. Last year, due to the difficult situation caused from the COVID-19 pandemic, the launching ceremony and all the programmed activities in the framework of the Global Money Week, took place virtually, in compliance with the social distancing protocol. Notwithstanding these circumstances, the programme was successfully accomplished. Meanwhile, this year, the physical presence of participants, makes our educational activities more productive. For this reason, I am very happy we are back to normality, and welcoming you, as traditionally, in our historic hall, the Bank of Albania’s Museum premises. The Albanian public and particularly, young people are familiar with the Global Money Week. It is an international initiative organised by the OECD International Network on Financial Education (OECD/INFE) which aims at awareness-raising of the young generation, becoming responsible and financially capable citizens in the future. In this framework, central banks, public agencies, financial institutions and civil society organisations across the world held each year their own GMW events in the last week of March. Since its start, with an ever increasing participation, the Global Money Week is held in 176 countries across the world, and has involved over 53 million children and young people in various activities. The international theme for this year, selected by the organisers is: “Build your future, be smart about money.” The theme highlights the importance of a prudential and pro-active thinking about money, as a premise for a safe and prosperous future, empowering children and youth with the adequate know-how and skills for an evolving digitalised and innovative financial market. The Bank of Albania, through its commitment in the field of financial education, over this decade, has shown to consider financial education of public, an integral part of its duties. Financial education enables the resilient welfare and safeguards the financial soundness of everyone, even in critical situations. The unprecedented events in recent years have driven to the need for cultivating financial literacy, as part of the overall formation of everyone. The COVID-19 pandemic and recent developments in Ukraine, events that successively hit sharply the equilibrium state in each field of life worldwide, including economy and finances, trigger challenges to: managers of public finances; families and personal finances; as well, to everybody. This “New reality” for the 21st century has shocked financial markets and the increasing geopolitical tensions are continuing to generate consequences that may vary from relatively contained to very serious ones. Nowadays, almost the entire global economy is facing unexpected shocks, which have driven to hard and complex crisis. After a two-year pandemic period and the extraordinary measures undertaken by governments and financial authorities, the war in Ukraine has caused a new shock. These events, coupled with the implemented sanctions, have hit the global production, supply chain and public confidence, driving to an immediate effect in the upsurge of commodities 1/3 BIS central bankers' speeches prices, like oil, petrol and food. It caused a chain of consequences, leading to an immediate and strong increase of inflation in worldwide economies, including the Albanian economy as well. To this end, they will impact the direct and indirect economic and financial equilibriums which demand for time and crucial interventions from authorities. In response, policy makers, governments and central banks across the world have already activated a set of measures for mitigating the impact of these successive and robust shocks on the economy. The supportive packages, controls over prices, and the interventions of monetary policy have enabled and alleviated these shocks, and have kept the negative expectations of public under control. In the same spirit, Albania has remained neither affected not indifferent. The undertaken measures to control prices and the interventions of the Bank of Albania have calmed the energy and foreign exchange markets. Naturally, the above-stated events do affect both the present and future, by increasing uncertainty and the negative expectations. Education is the best response to fight against uncertainty. Today, more than yesterday we should properly understand the importance of financial literacy, which helps us in our everyday life, not only for well-informed decision making, also to properly comprehend and react to policy makers’ messages. Thus, the supportive polices undertaken will become more effective and support more strongly the mitigation of negative shocks. Being aware and making the right financial selections, everyone – banks, institutions, enterprises, households and individuals – may play an important role in dealing with the consequences of extraordinary situations that the world is suffering. This educational campaign of Global Money Week is an excellent event to recall certain messages that the Bank of Albania has addressed extensively, turning them into an important part of its efforts for meeting the objectives and preserving the economic and financial stability. I would like to point out three main messages, which nowadays, due to the geopolitical and financial situation become more meaningful. First, I would like to emphasise the importance of using the national currency against foreign currencies. Lek plays a crucial and direct role in transmitting the positive effects of monetary policy to our economy. The higher the use of Lek, the bigger is the part of economy which feels the effects of the central bank’s policies. Furthermore, the use of the national currency helps to amortise the shocks that steam from external sector through minimising the shocks on income, consumption and investments. The broad use of foreign currencies alongside the national one has important negative impacts, on both the effectiveness of economic policies and financial stability. Particularly, in this period, while global developments, ambiguity and the change in monetary policy stance may give rise to additional risks to the exchange rate. These risks destabilise and expose the balance sheets of private sector against the fluctuations of the exchange rate. In simple words, the less you use the foreign currency; the lower is the exposure to the exchange rate risk, which nowadays is even higher. The stability of financial institutions, enterprises and households contributes in the monetary policy pass through and macroeconomic stability. Second, I would like to re-emphasise the importance of growing and promoting financial literacy as a counter-response to informality. This objective belongs to the central banks, and to all economic agents, educational institutions and media, to enhancing financial awareness and ability of public. These joint efforts, in addition to strengthening the monetary policy effectiveness, directly affect the financial inclusions of population. It means that: an increase in the number of users of safer financial products and services and at low cost drives to an increased access in financial sources, and consequently the growth of possibilities, income, and the quality of life. Formal markets are the sole possibility that public and economic agents directly benefit and in real time from the policies undertaken by governments and central bank. The effects of these policies are materialised in the financial instruments and products of formal market. The successful measures taken by both the Bank of Albania and the Government throughout the 2/3 BIS central bankers' speeches pandemic situation are a recent example of benefits from participation in formal markets. Also, the increase of formalisation and financial inclusion makes it easier and more efficient the effort of the Government to implement the helping policies over the crisis. Third, I would like to draw attention on social inequality and the effect that the current situation has on its deepening. The crisis, particularly pandemics and wars, mostly and more rapidly affect the population in need, which are at the same time, the part of population with the lowest level of both financial education and inclusion. For these reasons, the Bank of Albania has turned the financial literacy and inclusion in one of the important objectives of its mandate. We are proactive in developing the market and infrastructure of financial products, as well as in enhancing knowledges on these products and the overall financial literacy. It is indispensable that households with minimum income to access and benefit the basic banking products, such as current accounts. The Bank of Albania, through legal and institutional changes has provided the possibility that households benefit these basic financial products at a low or no cost at all. As a result, cheaper and swifter alternatives, which compete with the existing financial products, will be available. At the same time, companies that will enter into these new markets will have better possibilities of profit. Education is the sole costs to know and benefit from these products. In this regard, the Bank of Albania remains the main actor for the spread and implementation of the national financial education and inclusion strategies. In this framework, the Bank of Albania is working with national and international important partners, the World Bank and EBRD. Their long experience shows that the correction and reduction of social and economic disparities is a difficult commitment, which takes time. Nevertheless, enhancing financial literacy, by spreading knowledges such are: budget drafting; its effective management; knowing risks and avoiding wrong investments; may affect the mitigation of wounds that these turbulences brings into the life of poor people, and of course to everyone; to the whole society and population and the financial situation that the moment brings about. Turning back to the launching of the Global Money Week 2022, I am glad to see the ever increasing interest of youths, their teachers and professors in our educational activities. We are surprised with the particular interest of universities related to the current issues and their impact on the Albanian economy, and the large number of projects, videos and drawings that pupils and high school students have presented at the Bank of Albania. Today, we will see and award some of them. Nevertheless, I would like to point out that the participation and engagement of all participants was impressive. Concluding, I would like to thank all participants and the collaborators of the Bank of Albania in its educational initiatives and programmes, particularly for the Global Money Week. We are grateful that in this week, as participants, you have become partner of the central bank, joining us in the work to face important challenges to the society. Also, we are aware that these themes, like prudential and proactive approach to the world of finances, are a precondition for a safe and prosperous future, and the ever increasing participation in such annual activities makes as optimistic for this new generation being aware and interested for acquiring a better education. The Bank of Albania, as the central institution in these fields as well, is ready and committed to collaborate with every institution aiming at bolstering the financial literacy and financial inclusion of the public. I avail this opportunity to extend may heartiest thank you for your contribution, wishing all participants success in everything they do! 3/3 BIS central bankers' speeches | bank of albania | 2,022 | 3 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Albanian Association of Banks (AAB) Forum on "Digitalisation vs cash", Pristina, 14 June 2022. | Gent Sejko: Digitalisation vs cash Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Albanian Association of Banks (AAB) Forum on “Digitalisation vs cash”, Pristina, 14 June 2022. * * * Honourable Deputy Prime Minister Ahmetaj, Honourable Minister of Finance and Economy Ibrahimaj, Dear Chairman of the Albanian Association of Banks, Dear guests, It is a pleasure to attend this Forum, which comes naturally as a further step and logical consequence of the joint discussions and round tables on digitalisation of financial services. I would like to highlight that the support and promotion of electronic payments, both in international experiences and the Albanian context, are seen as one of the most effective and powerful mechanisms for bolstering financial inclusion and further formalizing the economy. In this context, despite the discussions and needs for interaction and developments from the actors, it appears like the objectives and targets are increasingly converging, and in turn the created synergy, absolutely, will drive to an acceleration towards the meeting of the stated objectives. In this framework, there should be underscored that the Bank of Albania has already established the effective premises for the foundation of a digital revolution in the payment market, through the legal and regulatory framework in force. This framework may be considered avant-garde in the context of the European Union. Meanwhile, at regional level, Albania is the first country that has approved the legal and regulatory framework coupled with the promotion of “open banking” in the market. Here, I would like to draw the attention and explain that the concept “open banking” implies the creation of technological developments, with a view that the information of banks’ clients be open to third parties. In this regard, we should keep in mind that – though digitalisation is so far desired by all of us here – this development needs rather complex investments and regulations, which promote innovation in an environment that will guarantee a maximum security. Taking into account that the need for establishing a highly prudent environment turns more meaningful in case of Albania – where both financial education and inclusion are relatively low – the demand for market’s actors to make safe steps is quite important. Beyond “open banking” and the re-dimensioning of market through the introduction of new actors and services, I would like to mention the set of the undertaken regulatory measures and infrastructural developments, which have been focused exactly on the promotion of electronic payments in the framework of the National Retail Payments Strategy (NRPS). It is worthy emphasising that the so far implemented measures have driven to the successful accomplishment of the objectives defined in the Strategy since 2021. This success is a contribution of a broad gamma of actors, where banks in particular, and institutions, have played a key role. In this regard, I would like to point out that market is more aware and conscious that digitalisation is the future, as a consequence of the technological revolution taking place in each field of life, in the perspective of their strategic development, in the context of minimizing the costs and risks borne by traditional practices, and at the same time for increasing the effective productivity. Without wishing to repeat the previous statements, I consider it worthily to point out that all market actors should be seen as our strategic partners, who in their own way have always 1/3 BIS central bankers' speeches contributed to the financial inclusion and promotion of electronic payment services. Until a few years ago, paying utility bills, fines, tax payments, customs and social security via the internet and mobile seemed a utopia. Nowadays, the general public is increasingly employing and benefiting from these services. Allow me to provide some significant figures which best converge to the materialisation of this development. In 2012, about 96% of transfers were initiated in paper form at banks’ windows, while today about 50% of transfers are processed remotely. If we include in the calculations the card payments, it turns out that 79% of payments and transfers are made remotely and only 21% in bank branches. From this point of view, I deem that banks remain committed to accommodate the needs of the e-Albania platform, both in the existing conditions and after the creation of “open banking". Harmonization and coordination of this platform with those of the banking system, as well as giving priority to the necessary developments required in relation to them, will stem a facilitation coupled with a more efficient interaction, and in turn a strengthened synergy amongst all parties involved in these processes. However, all these developments absolutely could not have happened if a number of public institutions and companies had not carried out technological developments, which enable their interaction with banks. The fiscalization process is considered a very important progress, in the light of the economy formalization, and in the context of creating the necessary preconditions for businesses to provide electronic means of payments. This starts with the possibility of using the QR code in the payment of bills or any other electronic instrument that can use the established technological infrastructure, to the flexibility created by the legislation for making large value transfers through banking channels. On the other hand, the creation of a “central depository” of biometric data of the population, which can be used as security elements in communication and remote authentication, is a very positive step forwards the digitalization of banking services. Furthermore, the development of electronic signature and the improvement of legislation on signing distance contracts is also a supportive measure in this regard. Despite these positive developments, we need to be aware that there is still work to be done. First, I consider that, banks and non-bank institutions should be committed for the implementation in practice of all the innovations set forth in the Law “On payment services". It is also necessary to consider and assess the possibilities of infrastructural developments endorsed in the strategy, which will enhance efficiency in the processing of payments and transfers, such as Instant Payments or the national SWITCH. The Bank of Albania – for supporting all these developments – is working to improve and upgrade the systems it operates, in order to accommodate the market’s demands. We have also paid attention to the drafting of the legal framework for the creation of the basic account. This framework aims at further promoting the financial inclusion of the population. We consider that the adoption of this Law and its implementation by the market is very important in terms of digitalization of financial services, also of the Government. In addition to promoting financial inclusion and digitalization of services, financial education is a very important element for the materialization of measures and the achievement of intended objectives. To this end, I see our coordinated actions and intensified cooperation at the heart of our joint efforts and work to promoting financial education as a national reform. In addition to the above, it remains important to overcome any issue identified during all these years by implementing the aforementioned innovations. Particular emphasis should be placed on the problems encountered by opening accounts and signing distance contracts, which are a necessary precondition for the digitalization of services. Despite the legal and regulatory provisions regarding these issues, the implementation in practice has proven to carry technical issues. To this end, we should encourage the cooperation across all institutions and market actors to overcome the problems that may arise in relation to: 2/3 BIS central bankers' speeches prevention of money laundering; electronic signature; concluding distance contracts; promoting the use of electronic documents and necessary information during citizens’ applications to banks. All this would further facilitate the digitalization, in terms of payments and other services, such as lending and investments, contributing significantly to the common objective for a formalised and sustainable economic growth. I also assess that by exploring the experiences of our neighbours and beyond, we can identify additional measures that will promote the formalization of the economy and reduce the use of cash in the economy. I would like to end my speech by expressing once again the full commitment of the Bank of Albania to support any necessary development, in order to achieve the intended objectives. I take this opportunity to congratulate the Albanian Association of Banks for its huge and longstanding work, in boosting and supporting every project, initiative or need identified by the market and more broadly. Your dedication and professionalism has contributed very effectively, in fully accomplishing the intermediation role between the parties, while also serving as a catalyst to promote the achievement of objectives. I am convinced that the discussions of this forum will be very fruitful in these areas and in addressing rather important issues. Thank you! 3/3 BIS central bankers' speeches | bank of albania | 2,022 | 6 |
Statement by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the International Monetary Fund (IMF) Mission Chief for Albania and the Minister of Finance and Economy, Tirana, 10 October 2022. | Gent Sejko: Statement - press conference with IMF Mission Chief Statement by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the International Monetary Fund (IMF) Mission Chief for Albania Minister of Finance and Economy, Tirana, 10 October 2022. *** Dear media representatives, In the last two weeks, the Bank of Albania and the Albanian government have been engaged in intensive discussions with the IMF Mission, which visited Albania in the framework of the regular Article IV consultations. Discussion focused on current challenges for the Albanian economy, as well as structural reforms that would enable a faster and more sustainable development of the country in the long term. Allow me - first and foremost - to extend my thanks to the IMF Mission for the open share of views in addition to the fruitful and transparent discussions. Overall, the Bank of Albania and the IMF share similar opinions on the developmental challenges that lie ahead. The swift upsurge of prices in the global markets following the unprovoked military aggression of Russia over Ukraine, have triggered serious economic and social challenges for the economies and citizens of all countries around the world, including Albania. Inflation hit 8% in August, increasing at a rapid pace and having a broad base. Based on our judgement, we have previously stressed out that the high inflation is the main threat on the macroeconomic stability and both the stable and long-term growth of Albania. This inflation corrodes the households' purchasing power, increases the uncertainty for the future in every cell of the economy, heightens the volatility of financial markets, and damages the long-term perspective of development. Therefore, the primary focus of economic policies should be the undertaking of coordinated measures to mitigate the cost borne by inflation, and control and return it to its target, in the shortest time period and with the lowest cost possible. Against this backdrop, the Bank of Albania has embarked on the gradual normalisation of the monetary policy. This normalisation is undertaken in parallel with all the other central banks, across the region and around the world, which are facing the same high inflation phenomenon. It engenders a progressive raise of the key interest rate, by slowly changing the nature of the monetary policy stance from the current position, which has been stimulating, towards a more neutral position, which provides a more sustainable support for the long-term growth of Albania. During the discussions of the past two weeks, we have gladly observed that our viewpoint is also shared by the IMF Mission and the Ministry of Finance and Economy. 1/2 BIS - Central bankers' speeches Our future projections suggest that inflation will continue to remain high in the two next quarters as well. Furthermore, the stabilisation of prices in foreign markets and the normalisation of the monetary policy stance will induce a progressive reduction of inflation, until its return to the target in 2024 H1. In the same vein, our projections suggest that the Albanian economy will continue to grow in the medium-term horizon. Although the economic activity will suffer from the negative consequences of inflation, the economic growth of Albania is expected to remain in the positive territory. Economic growth will continue to benefit from the overall financial and economic stability in Albania, the sound balance sheets of enterprises and households, as well as the continuing support of the banking sector with credit and payment instruments. In this context, it should be emphasized that the banking sector appears sound, liquid, and well-capitalised. The continuing reforms undertaken in the past years have borne their fruits. The consolidation of the banking sector, the improvement of the lending environment, the multifaceted development of financial markets and payment systems, as well as the initiatives carried out that encourage the use of national currency, have brought about notable qualitative improvements in the stability and efficiency of the banking sector. The growth rate of credit to the private sector recorded a progressive improvement, peaking to 13.7% in August. Also, it shows a good coverage of the need of enterprises and households for long-term financing and liquid tools. The stable growth of credit and the increase in the quality of its portfolio, are crucial indicators which demonstrate the sector's support to the economic recovery of Albania. To this end, the Bank of Albania will continue to work diligently for: the prudent regulation and supervision of the banking activity; the financial market and payment system development; the promotion of the financial stability of the country, as well as for bolstering the financial education and inclusion of the public. Although the challenges facing ahead are not few and far in between, I am convinced that the banking industry will continue to remain a trusted partner to Albanian enterprises and households. In conclusion, I would like to stress out that the Bank of Albania supports and encourages the structural reforms. This agenda of reforms has now found a stable anchor in the process of negotiations undertaken in the framework of the European Union membership. The continuous investment on reforms, which boost and encourage the macroeconomic stability of the country, the improvement of the business climate, the increase of efficiency and competitiveness, the improvement of human and institutional capacities, as well as the comprehensive development of infrastructure, is the one and only path toward a faster economic and social progress. 2/2 BIS - Central bankers' speeches | bank of albania | 2,022 | 10 |
Presentation by Mr Gent Sejko, Governor of the Bank of Albania, of Bank of Albania's opinion on the Draft Budget 2023 to the Parliamentary Committee on Economy and Finance, Tirana, 4 November 2022. | Gent Sejko: Presentation to the Parliamentary Committee on Economy and Finance Presentation by Mr Gent Sejko, Governor of the Bank of Albania, of Bank of Albania's opinion on the Draft Budget 2023 to the Parliamentary Committee on Economy and Finance, Tirana, 4 November 2022. *** Honourable Chair, Honourable Members of the Committee, First, I would like to thank you for the invitation to present to this Committee the opinion of the Bank of Albania on the 2023 Draft Budget. The Bank of Albania has continuously valued the open discussion on budget approval, as it includes both institutional stakeholders and other relevant actors. This process serves as an important instrument in drafting the most optimal budget and getting the broadcast consensus on its regard. In this context, as an institution mandated to safeguard the domestic monetary and financial stability, and in its role as the financial advisor of the government, I will put forth the viewpoint of the Bank of Albania on the main issues regarding the 2023 draft-budget. In compliance with the legal mandate and within the scope of our competence and expertise, the following opinion will focus on three main issues: First, I will present the Bank of Albania's opinion on fiscal policy stance which affects the main draft-budget indicators related to budget deficit, revenues and public spending. Second, I will address the structural aspects of the budget and taxation policy, which affect the efficiency of fiscal policy and the flexibility of public finances to withstand shocks. Third, I will provide some suggestions of the Bank of Albania, which aim to enhance the long-term sustainability of public finances. Before going into further details, allow me to emphasize that the 2023 Draft Budget and its accompanying report mark a step forward toward increasing transparency, as well as strengthening the analytical framework in order to identify the structural weaknesses of the Albanian economy and assess the risk related to public finances. Against this backdrop, we encourage to continue the work conducted on this regard, with a view to integrate to the best of our abilities the analysis on the available financial resources and the main developmental goals, so that we can enable the most optimal allocation of public funds to the economy. I will lay out the assessment of the fiscal policy stance presented in the draft budget. 1. The macroeconomic context and fiscal policy The 2023 draft budget is compiled while taking into account some major challenges, which have affected both the global and Albanian economy. 1/6 BIS - Central bankers' speeches As we are well aware, the Russian armed conflict against Ukraine and the imposed sanctions, triggered an unprecedented supply-side shock. The upsurge in the prices of food, oil, energy and commodities in global markets, were reflected by a progressive rise of inflation in Albania, as it reached at 8.1% in September. Our analysis suggests that the initial external shock has started to spillover on the production cost structure and future expectations of market operators, risking to become a persistent inflationary period. The Bank of Albania deems that the main risk to the stable and long-term growth, in Albania, is the expansion and strength of inflationary pressures. A high and persistent level of inflation threatens the domestic economic and financial stability, which remains a necessary precondition to the economic and social development. In the same vein, this type of inflation reduces long-term investments, disproportionally hits the lowest income earners, increases uncertainty among households and enterprises, and damages social cohesion. As a result, undertaking measures that guarantee price stability in the shortest time and at the most reasonable cost possible, should be the current priority of economic policies. Consequently, the Bank of Albania has started the normalisation of the monetary policy stance, by gradually raising the policy rate and by expressing our willingness to continue this process until the monetary and financial conditions become adequate to maintain our inflation target. However, global theory and practice show that economic policies have greater efficiency when they are consistent and coherent. Under these circumstances, the Bank of Albania commends the fiscal consolidation engagement, which is also the main message of the 2023 draft budget. Overall, fiscal consolidation looks like a reduced budget deficit - from 3.3% of GDP expected in 2022, to 2.6% of GDP in 2023; and an improved primary balance - from a deficit of 1.3% of GDP expected in 2022, to a surplus of 0.2% of GDP in 2023. The Bank of Albania deems that this consolidation will impact positively the domestic economy and its financial markets. First, it signals the willingness of the Albanian government to safeguard the longterm soundness of public finances, by increasing their credibility for domestic and foreign investors and controlling the long-term costs of public debt financing. Second, fiscal consolidation reduces the need of the public sector to borrow in the domestic financial market, by easing the private sector's financing costs. Third, it reduces the need for a rapid and strong normalisation of the monetary policy stance, by cushioning the burden of adjusting to the new reality, between the public and private sector. To this end, given the challenges ahead of us, the Bank of Albania deems that the fiscal consolidation and the normalisation of the monetary policy stance are the best possible economic policy mix. This combination enables inflation to return to target within the first half of 2024, and it doesn't hinder economic growth premises. Our projections suggest that economic growth in Albania will remain in the positive territory in the upcoming years as well. Although the external environment remains 2/6 BIS - Central bankers' speeches challenging and economic growth in Albania is expected to slow down in the short run, in the medium and long term, the reduction of inflation, fewer uncertainties and the stabilisation of financial conditions, will drive to an accelerated growth pace. The growth of the Albanian economy is expected to be underpinned by: the domestic demand for goods and services; sound balance sheets of the private sector; maintaining the positive credit growth; as well as the continuation of the upward trend of tourism revenues. Based on the above, the Bank of Albania judges that the macroeconomic framework forecasted in the draft budget is real and consistent, regarding both the current domestic trends of development and the expected monetary and fiscal policy stance. However, given the importance of the fiscal consolidation and the additional uncertainties predicted, the Bank of Albania deems that this process should be monitored on ongoing basis and should be protected from risk scenarios. In more details, the Bank of Albania notes that the fiscal consolidation in 2023 is based on: the increase in the share of tax revenues to GDP; the moderate increase of the share of staff expenses, for special funds and local budget, to GDP; the allocation of additional funds to cover interest expenses; maintaining the share of public investments to GDP unchanged; and reducing subsidies to the energy sector. On the revenue side, the Draft Budget for 2023 predicts budget revenues at the level of ALL 632 billion, or 29% of GDP, up by 9% compared to the level expected for 2022. This prediction takes into account the expected growth of economic activity in Albania, the new fiscal measures, and the benefits expected from the improved efficiency of the taxation and customs administration. In more concrete terms, the growth in the nominal volume of the economic activity is expected to bring around ALL 22 billion additional budget revenues, the new fiscal measures are expected to bring around ALL 15 billion, whereas the improved efficiency around ALL 8 billion. The Bank of Albania judges that the central projection on total revenues is acceptable, although remaining on the upside of our expectations. In the expenses side, the 2023 draft budget forecasts public expenses at the level of ALL 687 billion, or 31.6% of GDP. This prediction factors in the increase of wages and pensions, the rising costs of debt servicing, maintaining a high rate of capital expenses, and the significant reduction of subsidies to the energy sector, underpinned seemingly by the expected improvement of domestic production and the reduction of prices in international markets. In principle, the Bank of Albania supports a consolidation process led by the growth in budget revenues. This action, which is based on the continuous elimination of informality and tax evasion, boosts competition and efficiency in the economy. It also preserves the space necessary for public spending, particularly for emerging countries, 3/6 BIS - Central bankers' speeches which are in the process of converging to the EU standards as well, such as Albania. Simultaneously, we support a controlled growth of current expenses in the short term, to address - in a targeted manner - the shock of inflation to the people most in needs. However, the Bank of Albania estimates that the balance of risk in the Budget is on the side of deficit expansion. These risks stem from the downside risks on economic growth and the realisation of forecasted revenues, as well as the uncertainties of predictions related to the degree of improvement of taxation efficiency and the balances of the energy sector. To address these risks, the Bank of Albania suggests: to provide a higher level of contingency funds in the budget, in order to increase operational efficiency and implement the spending plan, as a priority; to continuously monitor the performance of the financial balance of the Albanian energy sector, and to intervene in a timely manner in order to avoid potential costs springing from rising prices in foreign markets or production issues in the domestic market; to regularly monitor the performance of revenues and the public investments plan, in order to take the measures that keep the budget deficit within the planned parameters. 2. Strengthening the effectiveness and sustainability of public finances The efficiency and flexibility of the fiscal policy are the two most desirable features of public finances. The efficiency of fiscal policy means to establish a direct balance between its redistribution function - the fiscal instruments which mitigate social inequality and protect the vulnerable members of society - and its function as an instigator of economic development. The flexibility of public finances implies their ability to withstand unprecedented shocks, without engendering a steep increase in taxes or massive spending cuts. In this light, both the tax framework and the spending structure of the budget and their rate of realisation throughout the year, are of primary importance. As regards the tax framework, the Bank of Albania has continuously emphasized that it needs to increase its sustainability and predictability. In parallel, designing a simple and standardized tax framework, as well as eliminating informality, would benefit the overall efficiency of public finances. In this regard, we support the government's effort to enhance formality, assessing that the long-term benefits of this process surpass the short-term costs. At the same time, we encourage to accelerate the steps toward adopting the medium-term strategy of public revenues. This strategy should serve as an anchor and guide to our tax system, by re-assessing the priorities and instruments of this system and by enhancing the predictability in the medium and long run. 4/6 BIS - Central bankers' speeches More specifically, the Bank of Albania demands the revision of an amendment proposed in the Draft Budget "On Revenue taxation," which aims to revoke the amendment enacted in the tax legislation regarding the accounting treatment for loan losses and their inclusion in the list of expense deductions. These improvements were an essential element in the National Strategy for the Reduction of Non-performing Loans, which was approved by the Albanian government and the Bank of Albania in 2015. This strategy was crucial for significantly decreasing the non-performing loans in the banking sector and for maintaining a low ratio of these loans in the future. As regards the spending structure, the Bank of Albania deems that maintaining a direct relation between current and capital expenses is crucial to the efficiency and flexibility of public finances. In more concrete terms, the need for capital investments is apparent for emerging economies like Albania, in order to improve the physical capital stock that underpins the development of the country and the process of convergence with the EU standards. Moreover, maintaining a positive current balance enhances the flexibility needed to withstand shocks, so long as pubic investments have a higher discretionary degree in the realisation compared with current expenses. To this end, we deem that one of the positive aspects of the Albanian public finances is the high level of investments and their positive current balance structure. More specifically, capital expenses for the past five years have remained at an average of 5.5% of GDP, accounting for 18% of overall public expenses, on average. Also, these expenses were on average 50% higher than budget deficit, showing a relatively high level of fiscal responsibility in this regard. In this context, the Bank of Albania considers it necessary to emphasise the importance of maintaining the current space for public investments in the Budget's structure. This requires attentiveness to current expenses in both the medium and long term, by increasing them in line with the structural improvements on the basis of public revenues and the war against informality. While remaining on the issue of efficiency, the Bank of Albania continues to recall that, throughout the year, expenses should be better distributed in time and their concentration should diminish in the fourth quarter. This phenomenon - repeated and dictated to a larger extent by the uneven realisation of investments- creates unnecessary fluctuations in the domestic financial market and reduces the efficiency of public spending. Dear members of the Committee, allow me to present the third and final point. 3. Enhancing the long-term sustainability of public finances If we were to assume a more scrutinized standpoint, we would realise that the long-term sustainability of public finances is the main feature for the assessment of fiscal policy. This sustainability serves as a final guarantee to the economic and financial stability of Albania. It drives the economic risk premia and affects the financing costs of the private and public sector. In this context, the Bank of Albania assesses that the forecasted reduction of public debt in the 2023 draft budget, from 68.8% of GDP expected in 2022, to 65.7% of GDP 5/6 BIS - Central bankers' speeches in 2023, is positive. We assess that adopting an additional provision in the Organic Budget Law is also positive. This provision requires that a positive primary balance is maintained in every fiscal year, as a guarantee for the sustainable reduction of public debt. In the same vein, in order to maintain and consolidate the sustainability of public finances, the Bank of Albania finds it appropriate to reiterate the following suggestions and recommendations. On deficits in health and social insurance schemes The draft budget 2023 projects that expenses for social and health insurance consists of 1/3 of budget expenses. Also, the deficit of these schemes are expected to be around 4.2% of GDP, around 60% higher than the overall budget deficit. The social and health insurance schemes will continue to be a heavy burden to the state budget. In this context, by considering also the unfavourable geographical trends, the Bank of Albania suggests the periodic review lending activity pension scheme, health insurance scheme and other social insurance schemes, with the aim to maintain these schemes on a stable trajectory and affordable for the state budget. On the management of Public - Private Partnership programmes The Public - Private Partnership programmes (PPP) present potential risks to public finances. In this context, the Bank of Albania welcomes the heightened attentiveness in the draft budget toward potential PPP risks. We also welcome the strengthening of the role of the Ministry of Finance and Economy in conducting a preliminary analysis of these projects and continuously monitoring them. However, in line with our previous position, the Bank of Albania suggests: Including an overall upper limit on the PPPs total value. This regulation would supplement the control of the level of potential risk that PPPs would have on the soundness of public finances. The integration of contracting and selecting of PPPs process with strategic program of investments, as identified in the long-term development programs of the country. Finally, continuously improving the professional capacities of units that manage the assessment, contraction and monitoring of these projects, particularly regarding legal and financial obligations that they pose to the budget. *** Honourable Chair, Dear Ladies and Gentlemen, Thank you for your attention! 6/6 BIS - Central bankers' speeches | bank of albania | 2,022 | 10 |
Greeting speech by Mr Gent Sejko, Governor of the Bank of Albania, to the General Assembly of the American Chamber of Commerce, Tirana, 17 November 2022. | Gent Sejko: Current situation and prospective of the Albanian economic development Greeting speech by Mr Gent Sejko, Governor of the Bank of Albania, to the General Assembly of the American Chamber of Commerce, Tirana, 17 November 2022. *** Mr President of the American Chamber of Commerce, Honourable Minister Ibrahimaj, Your Excellency Ambassador Kim, Dear Ladies and Gentlemen, It is a real pleasure to join all of you in the General Assembly of American Chamber of Commerce (AMCHAM). Also, it is an honour to address to this Assembly and share with you opinions on the current situation and prospective of the Albanian economic development. At the beginning, I would like to extend my consideration for the American Chamber of Commerce. This Chamber - encompassing more than 200 member companies - is one of the most important business communities in Albania. Through training activities, promotion of Albania as a business destination and participation in discussions on the development policies, it contributes in: improving the business climate and model; attracting foreign investments; and strengthening the economic relationships between the United States of America and Albania. Nowadays, this collaboration becomes even more important, when businesses, in both sides of the ocean, are tackling complex and unprecedented challenges. After two years of the pandemic lingering, the military aggression in Ukraine triggered a new economic reality we are facing with. In addition to substantial loss of human life, this conflict caused headwinds in global markets of goods and in global supply chains. As a result, inflation and uncertainty picked up sharply across the globe, weighing heavily on those in needs, and brought about negative consequences on global growth. Albania, as a small and open economy, is also experiencing this new created environment and in turn becoming part of it. The soaring prices in global markets drove up progressively inflation in Albania, which peaked at 8.3% in October. We deem, that this high inflation is the main challenge for economic policies and operators in the private sector. We all are aware about the harmful consequences the high inflation has on households, businesses and on the overall economy. It decreases the purchasing power of our income, deflates savings, heightens uncertainty for the future, and reduces the informing role of prices in the economy. It increases the financial cost and curtails the ability of businesses and households to take well-informed decisions on consumption, savings and investments in the future. 1/3 BIS - Central bankers' speeches In this view, the priority of the Bank of Albania is the return of inflation to the target at a shorter time. For that reason, we are engaged in a normalising cycle of the monetary policy stance, by increasing the policy rate to 2.75% from 0.5% during 2022. This normalisation aims at establishing a better supply-demand equilibrium for goods and services, by inducing the adequate stimuli for both the monetary and financial stability of Albania. This stability - as we have continuously emphasised - remains the crucial precondition for the sustainable and long-term growth of the economy and for the social welfare and equality. Forward looking, projections in our baseline scenario suggest inflation will reduce in the course of the next year, and return in our 3% target in 2024. Also, these forecasts show the Albanian economy will continue to grow in the coming years. Despite the growth will somewhat slow down the momentum in the short run, the stabilisation of monetary environment and the reduction of uncertainty will pave the way for a faster economic growth in both medium term and long term. Last, but not least, our forecasts suggest that financial markets will continue to be calm, the foreign exchange rate relatively stable, and the soundness of financial intermediaries, including the banking sector, will not be jeopardised. Allow me to highlight that this economic prognoses, first reflects the health of the private sector in the Albanian economy. In recent years, this sector has marked a distinguished progress, in terms of finding new markets, strengthening operational efficiency, improving financial soundness, and enhancing its strategic vision. The rapid rebound of the Albanian economy after the pandemic shock bests certifies this progress. I think that the qualities that helped private sector in that period: care for the employees; collaboration among businesses, both in horizontal and vertical plans; the right share of costs in all the production chain; and the operational and financial flexibility will be important elements for tackling high inflation. In parallel, I believe that the banking sector will continue to financially support the businesses, by orienting funds towards profitable projects and most productive sectors. Last, our prior task, as public decision makers, is to take the adequate measures to restrain the supply-side shock in causing long-term consequences in the soundness of the Albanian economy. In this context, I assure you that the Bank of Albania will continue to be entirely devoted to guarantee the price stability and financial stability of Albania. Dear ladies and gentlemen, While, we have paid the right attention and in a timely manner to the consecutive shocks we have suffered recently, I would like to conclude this speech by pointing out that policy-makers and private sector's operators should keep in mind that structural reforms are an indispensable instrument to strengthen the producing potential of the country and to increase the competitiveness of products "Made in Albania". These reforms turn even more important while we advance in our integration path to the European Union. I wish good proceeds to the Assembly! 2/3 BIS - Central bankers' speeches Thank You! 3/3 BIS - Central bankers' speeches | bank of albania | 2,022 | 11 |
Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 16th SEE Economic Research Workshop, Tirana, 5 December 2022. | Gent Sejko: Welcome remarks - 16th SEE Economic Research Workshop Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 16th SEE Economic Research Workshop, Tirana, 5 December 2022. *** Your Excellency Ambassador Huber, Dear guests and speakers from central banks, academia and research institutions, Dear colleagues, Welcome in the 16th South-Eastern European Economic Research Workshop. It is a great pleasure hosting this event in-person this year, as we hoped in the last workshop, even though only partially, after two years of holding its proceeds virtually. One lesson learned and adopted from the pandemic, in a broader dimension, was how to operate in a virtual environment and ensure that all our participants can be fully engaged in these proceedings-whether you're here in person or joining us virtually. I take this opportunity to extend my appreciation to all of you for your continuous dedication and precious contribution. I'm really grateful that this initiative, which has started 16 years ago, has grown and has taken such dimensions, by enforcing and extending over the years the cooperation between central bankers, academics and policymakers not only within the SEE region, but from all over the world. As in many prestigious central banks, even at the Bank of Albania, the economic research has an important role in its overall activity, by providing continuous support to both policy design and implementation processes through the novel and sophisticated empirical tools adopted for policy analysis and forecasting. High-quality research boosts the central bank's credibility and improves the quality of its policies. The remit of this activity is the presentation and discussions of the current research projects conducted at the Bank of Albania over this year, along with the researches performed in other central banks, prestigious international and Albanian universities, as well as in financial institutions. It is an excellent opportunity to get feedback and new insights from colleagues in homologue institutions working on the same topics and dealing with similar challenges to ours. I am pretty sure that this workshop will be worthwhile to better understand the origin and complexity of challenges we are facing, and design the right policies to address them accordingly. Over these years, the workshop did change and grew in many different ways, in turn so did the challenges and opportunities faced by us. This event takes place at a particularly difficult time: while we are still facing the complexities of the gradual phasing out of the policies implemented during the pandemic, new risks have dramatically taken center stage. 1/4 BIS - Central bankers' speeches Despite the limited direct exposure of Albania to Russia or Ukraine, the macroeconomic scenario changed almost overnight following the Russia's war in Ukraine. Albania is now facing the challenges arising from the surge in international prices of energy, tighter global financial conditions, which are likely to persist and the economic slowdown in Europe. Inflation reached at 8.3% in October, continuing to remain the main threat to the macroeconomic stability and to both the stable and long-term growth of Albania. Given these circumstances, the Bank of Albania has undertaken a gradual monetary policy normalization process, ensuring that the speed of this normalization will return inflation to target within a reasonable period of time and with the lowest cost possible to the economic activity. Our efforts to control and contain inflation have also been helped by the appreciation of our currency vis-Ã -vis the euro. During 2022, our currency, the lek, has appreciated by 2.5% on average against the euro, due to significant revenues generated by tourism, high FDIs, and stable risk premia in our domestic financial markets. This was further strengthened by the convergence of our monetary policy cycle with that of the euro area. In parallel, the regulated energy price for Albanian households has helped in absorbing the foreign pressures. This conclusion is well documented by previous and recent research conducted by our staff at the research and policy departments and by the econometric models that support our monetary policy. Foreign price pressures helped by persistent domestic demand are already feeding to inflation of domestically produced goods and services, thus driving to the increase of production costs, and most importantly, of inflation expectations. This is evident in the labor market, capacity utilization rate and the capital markets, which seem to have already internalized these expectations in their decision making. The vast body of research conducted in the area of monetary policy has documented the real risk of high and persistent inflation and inflationary expectations. It also shows that without a strong and committed monetary policy response, inflation expectations become self-fulfilling, leading to increased uncertainty, disrupted price signals, inefficient distribution of resources, reduction of economic growth and increased long term volatility. Our experience, research and current analysis, show that under current conditions, the only responsible policy for the central bank is to respond by increasing the policy rate and reinforcing its commitment to price stability. This course of action will create the necessary monetary conditions to control inflation and inflation expectations, and will eventually help return inflation to the target within a reasonable time horizon. Our commitment to price stability aims to preserve the purchasing power of the family incomes and the value of household savings; preserve financial stability and create optimal credit conditions; as well as help the private sector to make reliable business and sustainable investment plans. Most importantly, our projections, which benefit from the same models and research analysis, suggest that the current round of policy rate hikes will not be recessionary. The Albanian economy will continue to grow in the medium-term horizon. In this respect, the recent increase of policy rate which aims to preserve price stability and anchor inflation expectations, is simultaneously a measure for protecting the economy; 2/4 BIS - Central bankers' speeches the private sector; and the households, from the negative effects of inflation. This is especially supportive and important for the low income groups, which are hit harder by the negative effects of high and persistent inflation. However, the general public must understand that the outlook is subject to considerable uncertainty, and amidst such profound uncertainty, amplification mechanisms may arise from multiple channels, due to the close interconnections within the global financial system. I am happy to see that all these issues will be discussed in depth during this workshop. In fact, the agenda is quite rich and covers a vast variety of research topics related to monetary and fiscal policy, financial stability, policy coordination, risk assessment and management through macro-prudential policies, with a special focus on price dynamics and soaring inflationary pressures witnessed worldwide, and the associated challenges they poses to policymakers, at both macro and microeconomic perspectives. We are all waiting impatiently to hearing what the respective speakers have to say about the duration and the intensity of such pressures and any potential implications for monetary policy. I am sure it will provide an excellent opportunity to gain new insights from academic research. Looking forward, beyond the dramatic events we are currently witnessing, technology coupled with the transition to an economy with net-zero carbon emissions will continue to shape the evolution of markets and of both traditional and new financial service providers. Therefore, additionally to the traditional issues of monetary policy and central banking, an exceptional attention during the workshop will be given to climate change related risks and green finance - which have turned into the "leitmotiv" in the communications of many central banks, and European and international institutions, - digitalization of financial services and technological improvements, and their implications for central bank objectives. I am confident that the research papers on these "hot" topics will provide some guidance on how to approach these issues, arising from the recent economic developments. Strong cooperation would be extremely useful on this regard, also because such areas are still under-researched. In these brief opening comments, allow me to point out that the coming months will be challenging for our societies, and the following years may see substantial structural transformations. Addressing the main challenges faced by the Albanian economy, such as, inflation, energy crisis, etc., triggers many obligations to be taken and many policy paths to be considered by the authorities. Our experience in the implementation of existing old and new policy tools and policies in such harsh and changing conditions is growing, but new risks are also emerging. Research and discussion fora like this workshop, in which fresh ideas and experiences are exchanged among academics and policymakers, will be ever more important. It is the application of research findings and conclusions in the practical policy making that gives research its true value and meaning, for the benefit of the central bank and the society. 3/4 BIS - Central bankers' speeches Before concluding, I would like to thank the Swiss Government and the State Secretariat for Economic Affairs (SECO) for their continuous support of research activity at the Bank of Albania. We have been cooperating together for 10 years to build and improve research activity to the best international standards and make it practical and useful in the context of the central bank. Our models and a significant part of research projects have been developed in cooperation or under the technical assistance of the State Secretariat for Economic Affairs as part of the Bilateral Assistance and Capacity Building Program for Central Banks. This project led, reviewed and commented research projects undertaken by our staff, and made substantial contribution to the credibility, reputation and prestige of our Research Workshop. Our cooperation has been truly productive and very useful not only for the development of research activity and state of the art forecast and policy analysis modes but most importantly, for their implementation in the mainstream policy of the Bank of Albania in the areas of monetary policy, financial stability, and the analysis of demographic and climate change issues. Beyond and above these, our successful collaboration with the State secretariat for Economic Affairs extends to the areas of payment systems and financial education. Your Excellency Ambassador Huber, we are grateful for your support and look forward to the successful implementation of our current projects. I hope we will have many other opportunities to continue our fruitful cooperation in the future. Finally, I would like to close my remarks by thanking our speakers, discussants, the chairpersons, as well as the Bank of Albania's staff for dedicating your time and efforts to this important activity. I kindly invite you to actively participate in and conduct a very lively and fruitful debate. I truly believe that the productive discussions which will certainly take place during these two-day workshop, will contribute to strengthening further cooperation among researchers, and between the institutions. Thank you! 4/4 BIS - Central bankers' speeches | bank of albania | 2,022 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Year-end event organised by the Albanian Association of Banks, Tirana, 15 December 2022. | Gent Sejko: Achievements in 2022 and setting the milestones for 2023 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Year-end event organised by the Albanian Association of Banks, Tirana, 15 December 2022. *** Honourable AAB Chairman, Dear ladies and gentlemen, As every year, it is a pleasure for me to joint this special meeting with banking industry, sharing our achievements and efforts made throughout the past year, the most meaningful experiences, and setting the milestones for 2023. Let me first focus on the overall performance of the Albanian economy. The sharp upsurge of prices and inflation in international markets in the wake of Russia's war against Ukraine shaped the performance of the Albanian economy over the course of 2022. This supply-side shock caused another steep challenge for the Albanian economy, driving to the need for a review of public economic policies and business-plans in both private sector and banking industry. In this context, I would like to highlight that the Albanian economy was in sound positions when this shock hit, following the rapid rebound from the pandemic-related shocks in 2021. Also, the monetary and financial stability was consolidated. The sound financial balance sheets of Albania, the strengthened confidence in banking system, and the reduced risk premia reflect this stability. Also, the latter is anchored in the positive experience that we both, public institutions and you, as financial sector, have gained in tackling such shocks. In addition, the monetary policy normalisation we have embarked on has established the premises for controlling inflation and safeguarding the economic and financial stability of Albania. In this view, I would like to welcome the positive role played by the banking industry over 2022, by maintaining a positive approach towards lending to private sector and taking the necessary measures to manage added risks in your balance sheets. I am confident that these measures, and others we may take in this regard, will pave the way for a rapid return to normality. Though risks remain present, our projections suggest inflation will return to target within the first half of 2024 and the Albanian economy will continue to maintain a positive growth pace throughout this period. As important actors in the economic and financial life of Albania, I would like to reemphasise that our decision making should be forward-looking, decisive and courageous. Albania has a solid economic growth prospects in both medium and long term. They have enabled the continuous expansion of economy and of the banking and financial system in the recent years, and should feed your confidence in the Albanian economy in the future. These prospects will further benefit in the framework of Albania's membership process in the European Union and from the agenda of structural reforms. 1/4 BIS - Central bankers' speeches For this reason, I kindly invite you to stand up for these processes. Also, I invite you to maintain your positive approach to expand financing to the Albanian economy in addition to qualitatively increasing the banking products in a quantitative manner. *** Dear ladies and gentlemen, Year 2022 as well triggered some unexpected shocks for the banking sector (the war in Ukraine, fluctuations in markets of financial instruments and recently the increase in interest rates). The banking sector, despite the lingering effect of these shocks on the profitability rate, re-affirmed once more the stability and the security this sector provides to depositors and investors. Throughout 2022, the activity of banking sector recorded a prudential increase across all indicators, above 6% growth of total assets and similar expansion rates in main items. The funds of individual depositors, who preferred the foreign currency as the main instrument of their savings, largely underpinned this upturn. The financing manner of credit portfolio and the upsurge in the foreign currency investments in securities reflected the ample supply in foreign currency. The amount of non-performing loans reduced again this year, by around ALL 2 billion, thus strengthening the stability of this multi-year trend, further down to 5%, from 5.68%. In 2022, the portfolio of financial instruments - unlike the previous years - provided a negative contribution to the overall level of banking system profitability. The interest rate hikes and the uncertainties caused by the war in Ukraine yielded subsequent shocks to the market values of these portfolios. Banks succeeded in withstanding the first wave of these shocks, remaining at positive territory, in terms of both system level and individual level. Meanwhile, measures are gradually being taken to adequately manage investment portfolio, in line with the established conditions. Capitalisation of the banking system has continued to grow this year as well, to 19.26%, from 18.53%, reflecting also the enhancement in the regulatory requirements on macroprudential reserves and the minimum requirements for own funds and eligible liabilities (MREL). Both elements have strengthened the resilience and security of the banking system. The purchasing and then the merger of the OTP Bank with Alpha Bank drove to the further materialised consolidation of the banking system in 2022. This development introduced another important player in the group of large banks, which share above 70% of market, and it is expected to contribute positively towards a more competitive and expanded market. The segment of payments and the supportive infrastructure have also marked rather positive developments in terms of their processing during 2022, on the back of measures undertaken in the framework of the Albania National Retail Payments Strategy. The AIPS EURO system is already a reality, while your clients, consumers and businesses are experiencing its benefits, together with you. Based on available 2/4 BIS - Central bankers' speeches statistics, we see that the euro-denominated interbank transactions within Albania have considerably picked up. The implementation of this system reduces costs and the necessary time in managing cash in banks' windows, unlike the payments previously conducted in cash desks with high commissions applied on the processing between corresponding banks. Also, the use of electronic payments have recorded a positive increase. Based on the preliminary calculations by the Bank of Albania, in 2022, the Albanian citizens have conducted averagely 16 electronic payments in a year, thus considerably exceeding the 12 payments target. Absolutely, these achievements reflect the measures taken by the banking system through significantly expanding the necessary infrastructure and services in this regard. In view of these developments, the same intensity is needed for the realisation of projects, as: open banking; instant payment, and the transition to ISO 20022 communication standards, which will digitalise and modernise the overall market and will create potentials in the framework of the integration process with the European Union markets. Last but not least, we should further intensify and enhance collaboration in the framework of the National Financial Education Strategy, which is a crucial mechanism for maximising the expected effects and the implemented measures so far in view of financial digitalisation and inclusion. *** Dear banking system executives, Notwithstanding the challenges and hardships caused by the soaring inflation during this year, forecasts for the Albanian economic growth remain positive. Nevertheless, tackling this challenges needs a coordinated and carefully parametrised response, by the monetary policy instruments coupled with an effective and visionary collaboration of all market actors. Let my brief some challenges foreseen for 2023. First, the increase of inflation and rise of interest rates to balance its impact, as well as the respective effects passed through in the economic and financial sector from this interaction, have been the remit in all recent meetings and forums with national and international partners and homologue. The structure of re-pricing credit portfolios, which are dominant in our banking system, has enabled banks to begin to transfer this effect to borrowers, while the relatively high share of non-interest bearing accounts on the liability side has provided for the increase of interest margins, at least temporary. But the increase of credit cost bears the risk of non-performing loans growing in the future, so far as borrowers' solvency has not proportionally increased with the price upsurge. The development of abilities to foresee and assess in an objective manner the solvency of the existing clients – without being inclined to fast and short-term profits, which may harm an already established long-term relationship - will be one of the main challenges in the next year. Second, requirements on capital (macro-prudential buffers and requirements on regulatory capital instruments and eligible liabilities) will continue to increase in 3/4 BIS - Central bankers' speeches compliance with the regulatory provisions and the respective gradual application programme in 2023. The implementation of these measures, beyond the approximation of our regulatory framework with the EU Acquis, ensures a stronger resilience of banking system against the above-stated shocks, and the continuation of the provided financial services, already being integrated in the daily life of citizens and businesses. The consolidation of banking system and the increase in the number of banks with a high share in the banking system impose differentiated addressing of the latter for mitigating systemic risks and the effects on the taxpayers' money in case of possible crisis in the future. Concluding, I take the opportunity to re-assure that the Bank of Albania, in carrying out its function as supervisor and regulator, will continue to support you and be your partner both in good and rainy days, by providing transparency, cooperation and objective assessment of your requests and proposals in every decision making. I wish you a successful and prosperous new year! 4/4 BIS - Central bankers' speeches | bank of albania | 2,022 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with journalists, analysts and media representatives and the Governor's Award ceremony, Tirana, 20 December 2022. | Gent Sejko: Bank of Albania's achievements in 2022 and challenges for 2023 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with journalists, analysts and media representatives and the Governor's Award ceremony, Tirana, 20 December 2022. *** Dear ladies and gentlemen, I feel honoured and privileged to welcome in the historical hall of the Bank of Albania, media representatives and talented students who are brave in competing for "Governor's Award for the Best Diploma Theses". In the last year event, I emphasised that we experienced an unusual 3-year period, with the hope that 2022 would be different, more vivid and more optimistic. Nevertheless, the end of 2022 is proving a really challenging one, mainly due to the huge shock on commodity prices of energy, oil and gas, in particular. The increased prices - mainly engendered from the outbreak of the Russia's war in Ukraine - has generated strong inflationary pressures worldwide, triggering a difficult time for consumption and economic growth globally. Albania is facing the same challenges as well. In November, inflation stood at 7.9%, somewhat lower than in the previous month, though a high level which is the main threat to both the macroeconomic stability and to the sustainable and long-term growth of Albania. In this context, I would like to point out that the latest forecasts at the Bank of Albania show that inflation is expected to progressively reduce during 2023, and return to target in the middle of 2024. In view of an increased inflationary pressures environment, we have embarked on a gradual process of monetary policy normalisation, aimed at timely returning inflation to the target and at a rather low costs to the economic activity. Nevertheless, the sound balance sheets of households and enterprises, the further expanded Albanian exports, and the decreased uncertainty in response to the expected reduced inflation will continue to feed the economic growth, in turn the latter is expected to remain in positive territory. The sound position of banking system is an added guarantee for the expansion of the economic activity. The healthy and liquid financial balance sheets of the banking sector guarantee that the latter will continue to funding the Albanian households and enterprises, by supporting the expansion of both consumption and investments as well as meeting the temporary needs for liquidity. The coverage and transmission in an objective manner of news to public is an important factor in meeting our objectives for a stable economic and financial environment. In this light, I am pleased to see that the media coverage of the economic and financial developments in Albania and abroad has been fully in compliance with our 1/4 BIS - Central bankers' speeches expectations. For this purpose, I would like to thank you for the professionalism and integrity you have demonstrated throughout 2022. In addition, I reaffirm that the Bank of Albania is completely open to listen to your opinions and suggestions for further heightening our collaboration. The dynamic of current developments in the global economy coerces both, the Bank of Albania in one side and the media on the other one, to be more responsible and more devoted in informing the public in a prompt, transparent and open manner. I wish that our cooperation, which is at the service of best public interest, will continue to follow the same model in 2023 as well. You will find that our institution remains a loyal and transparent partner, which is available to share the necessary information and clarifications. Our policies and decisions and their impact, as well as the situation regarding the financial soundness of the banking system and the financial sector, overall, will be at the heart of our ongoing communications. Honourable participants, Financial literacy and research are at the focus of the Bank of Albania's undertakings. They help us to successfully draft, implement, and convey policies and decisions in order to safeguard price and financial stability in Albania. Education and scientific research are conducted to understand economic events, as well as to enhance Bank of Albania's trustworthiness and expand communication with the economy, financial market, and the public. In a broader sense, researching, comprehending and interpreting the economic and financial events are a precondition to ensure the socioeconomic prosperity of Albania and increase the well-being of its citizens. The universities and academia play a key role in both these fields. As a result, the Bank of Albania supports the scientific research and the activity of Albanian students, studying at university and other academic institutions, in Albania and abroad. In this framework, I would like to continue a cherished tradition of the Bank of Albania, the ceremony of Governor's Award for the Best Diploma Thesis. For 16 years, the Bank of Albania selects and awards research studies conducted by Albanian students, graduating in Albania or abroad. Over the years, the focus of the presented research materials is on recent economic issues. The research follows how the needs and the economic, financial and social events affect the authorities, businesses and the society. Simultaneously, the process of setting the hypothesis, selecting and implementing the applied methodologies, is conducted in congruence with the best up-to-date research practices. This renders analysis and research investigation valid and professional. During this year's competition, there were a series of applications received, mainly focusing on topics that deal with recent phenomena taking place in the fields of economics and finance. The studies are directly or indirectly connected with the activities of the central bank. Some of the most interesting topics of these studies were the following: the impact of policies on the central bank's balance sheet in the corporate bond markets; 2/4 BIS - Central bankers' speeches the impact of credit and the expansion of banking products; the effect of prices on the real estate market; the multiplier of government expenses and consumption, and their effect on the economy. We gladly assess that the topics presented fulfil the standards of a true scientific research, correctly addressing the hypothesis, and their validation is based on the application of contemporary research methodologies, while employing the statistical data in a correct and structured manner. As a result, reaching conclusions and the implications to decision-makers are analysed based on a diligent investigation work on various economic and financial events. After analysing the topics presented, the Assessment Commission has reached a unanimous decision on the winners of the first three prizes of "Governor's Award for the Best Diploma Thesis, 2022". Before awarding the prizes, I would like to congratulate and commend all the participants in competition for their interest, ideas, methods and conclusions, which were based on correct methodologies. The submitted materials are of a high level and the Assessment Commission was hard-pressed when selecting the winners. However, the three topics that will be presented stand out from the rest because of their importance and coherence, as well as for having fully employed the methodology, and diligently having applied and described the assessment methods, and the interesting findings. I encourage the winners and all the contestants in the competition to preserve and nurture the same passion and commitment further in their professional careers as shown in the submitted research works. Let's go ahead and present this turn winners. First prize The first prize was awarded to PEGI MYSHQERRI, a student at the Goethe University, Germany, for the study on the Master's theme: The effects of ECB Asset Purchases on European Corporate Bond Markets)". In her work, Pegi has assessed the impact and channels of the European Central Bank's quantitative easing policies on the interest rate of corporate bonds. The author has also analysed the behaviour of firms toward these programs of the European Central Bank, and whether they have affected or not in the issuance of an acceptable (adequate) debt. More specifically, Pegi has employed the econometrics methods to assess that both programs - the purchasing program in the corporation sector (CSPP) as well as the emergency purchasing program during the pandemic (PEPP) - have had an effect on the interest rate of corporate bonds, but the scale of the impact of each program has been different. Furthermore, results show that quantitative easing programs have had a considerable role in mitigating the lending conditions to corporation in the Euro area, affecting thus the increase of both the number and volume of corporate bonds issued. First, I would like to commend the winner of the first prize for choosing this theme; a rather interesting and relevant theme for banks in advanced economies, but which has been gaining traction in emerging countries. Undoubtedly, the Bank of Albania has also paid attention to its research analysis and materials, emphasizing the role of balance sheet policies on supporting the economy with liquidity, particularly during the 3/4 BIS - Central bankers' speeches pandemic, without ignoring the risks that these policies may pose, not least, to the emerging economies. On the other hand, Pegi has meticulously analysed the theoretical and empirical literature and the methodological approach, laying out a discussion and presenting results that deserve the first prize in this competition. I congratulate her for being part of this competition, and I take the opportunity to wish all participants and winners' great successes in their professional career endeavours! 4/4 BIS - Central bankers' speeches | bank of albania | 2,022 | 12 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the ceremony of signing the Inter-institutional Cooperation Agreement on currency protection against counterfeiting, Tirana, 17 January 2023. | Gent Sejko: Signing the Inter-institutional Cooperation Agreement on currency protection against counterfeiting Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the ceremony of signing the Inter-institutional Cooperation Agreement on currency protection against counterfeiting, Tirana, 17 January 2023. *** Honourable Minister Çuçi, Honourable Prosecutor General Çela, Dear participants and media representatives, It is a great pleasure to welcome you on behalf of the Bank of Albania in the today ceremony of signing the Inter-institutional Cooperation Agreement between the Ministry of Interior, the Prosecutor General's Office and the Bank of Albania. This agreement marks the completion of a voluminous work started five years ago, with the intensive contribution of the representatives from our three institutions. Though citizens are increasingly using e-payments, cash remains indispensable and plays a crucial role in the life of everyone. Banknotes and metal coins are the only form of cash that may be owned and used directly by everyone, without the need of infrastructure, intermediate institutions or systems. The Bank of Albania is the sole authority vested with the exclusive constitutional right to issue banknotes and coins of legal tender in the Republic of Albania. One of the main functions and institutional responsibilities stipulated by the Law on the Bank of Albania, is to maintain the integrity and public confidence in the national currency as a payment instrument. The prevention and protection of currency against counterfeiting is a common challenge for all relevant national authorities. Thus, this agreement, which aims at achieving the joint commitment and coordinated activity amid them, is considered the appropriate and more effective way to prevent, detect and respond in a timely manner to the counterfeiting phenomenon of currency in Albania. The central bank, as the sole authority to issue the national currency, has undertaken concrete steps to prevent counterfeiting and maintain public confidence in our national currency, lek. In 2019 – 2022, the Bank of Albania issued and put in circulation the new series of Albanian banknotes, produced with cutting-edge technologies for banknote printing, with new security features, making them safer against counterfeiting. Recent data show a considerable drop in the quantity of counterfeit banknotes in circulation. In 2022, the total amount was only 343 counterfeit banknotes, from the average quantity of banknotes in circulation amounting 157.7 million banknotes, or 2.2 counterfeit banknotes per 1 million banknotes in circulation, from 5.4 in 2021. With regard to coins, the 50 Lekë denomination continues to be the most counterfeit money, though in insignificant amounts compared with the genuine coins. In 2022, only 79 counterfeit coins from 250 million coins in circulation. Albania is ranked amongst the 1/3 BIS - Central bankers' speeches first countries with the lowest indicators of counterfeit banknotes due to the rather low indicator for Albanian counterfeit banknotes and coins. Notwithstanding the low figures, we are aware to be mindful and proactive, as counterfeiters try to advance alongside the new technologies regarding their criminal activities. In this view, the Bank of Albania, the Ministry of Interior of Albania and the Prosecution General's Office today sign this cooperation agreement as a further effort to strengthen the institutional framework and to define the operational protocols of cooperation in the protection field of banknotes and coins against counterfeiting. This agreement includes both the national currency, the lek, and the European Union currency, the euro. At the same time, the Bank of Albania has signed a cooperation agreement with the European Central Bank on the exchange of information for the protection of euro banknotes from counterfeiting. In our view, as a central bank, the today document is particularly important. It defines the main pillars of our joint activity, and it commends the independent work conducted by each of our institutions, pursuant to the law. Cooperation and the spirit of understanding showed throughout the drafting of this document has also accompanied the content of each embodied paragraph. The Bank of Albania, under this agreement, makes available to the legal institutions all its experience, expertise, integrity and professional ability, coupled with the needed technical basis in the field of analysing, identifying and classifying any doubted currency as counterfeit. Throughout the years, the role of the Bank of Albania in analysing the counterfeit banknotes and coins in circulation has also enabled the establishment of a database with historical data, which are continuously updated, and all the signing institutions may generate them in their daily work to fight the phenomenon of counterfeiting. The signing parties in this agreement agree to transmit/transfer samples of banknotes and coins suspected as counterfeit. Whereas, the Bank of Albania engages to centralise the expertise and the classification of samples of national or foreign currencies discovered in circulation and those during a penal proceeding, making this the best process for knowing and monitoring the counterfeiting phenomenon in Albania in real terms. In addition, the Bank of Albania is committed to inform in real time the relevant institutions in case of discovered counterfeit currencies in circulation, in the territory of Albania. Another institutional commitment of the Bank of Albania is the training and experience exchanging with the other two institutions, which are signing parties to this cooperation agreement. Dear ladies and gentlemen, This cooperation agreement demonstrates the continuing commitment of the Bank of Albania in further strengthening the quality and security of the banknotes in circulation. 2/3 BIS - Central bankers' speeches National currency is one of the dimensions representing the Albanian state, hence the Bank of Albania woks scrupulously to guarantee the impeccable integrity of our currency. In addition, the Bank of Albania through the signing of this agreement, fulfils one of the priorities for the implementation of the recommendations arising from the Stabilisation and Association Committee, between Albania and the European Union for the protection of currencies from counterfeiting in compliance with the European standards. In this view, I would like to emphasize that the Bank of Albania remains committed in providing its contribution in the European integration process, as a modern central bank to be part of the European System of Central Banks (ESCBs). The regular exchange of information and periodic communications and meetings will improve the analysing of this phenomenon, enabling each party to fulfil its legal mandates in the field of prevention and protection of currency against counterfeiting. The new framework lays down a more structured and effective cooperation among institutions involved in response to developments in the field of currency protection against counterfeiting. The signing of this agreement will help the Bank of Albania to exercise its role for guaranteeing the financial system stability in Albania and the quality of national currency in circulation. I take this opportunity, to thank the Ministry of Interior of Albania, the Prosecutor General's Office and their representatives for their precious contribution in finalising this agreement and I iterate our readiness and commitment for a rather concrete collaboration in its framework. Allow me to call on the public that everyone, alongside with the responsible institutions, may give their own contribution for safeguarding the confidence in our national currency, by checking the banknotes in circulation through the method: "Feel, Look and Tilt". This method has been part of our informing campaign undertaken in the framework of launching the new series of lek banknotes and continues to be part of our attention and daily work. A population that knows the security features of genuine banknotes is a contribution added to our institutional efforts to prevent the introduction of counterfeit money in our financial system and to minimise individual economic losses. Thank You! 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 1 |
Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the EBRD Transition Report 2022-23, Tirana, 30 January 2023. | Gent Sejko: Launch of the EBRD Transition Report 2022-23 Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the EBRD Transition Report 2022-23, Tirana, 30 January 2023. *** Dear representatives of the EBRD, Dear friends, colleagues and media representatives, First, I would like to thank you for participating in the presentation of the Transition Report 2022-23 by the European Bank for Reconstruction and Development. As always, this Report remains a professional and authoritarian analysis about the performance of transition economies in convergence process, fully reflecting the short and medium-term challenges they face, as well as a precious guideline of stabilisation and development policies needed to support a sustainable economic and social progress. In this context, it is a special pleasure for the Bank of Albania to host again this event, which brings together researchers of this field, important actors of public and private sectors, and representatives from the financial industry. I am confident that this discussion forum will facilitate the exchange of the ideas in addition to the identification of the necessary measures to address the challenges that lie ahead. Before leaving the floor to the EBRD representatives to present the Report, allow me to share with you the opinion of the Bank of Albania on some of the main issues addressed in it. The remit of this year's Report are the economic headwinds arising from the war in Ukraine, considered in both short- and-medium term as well as in long-term perspectives. This tragic war has caused huge losses of human lives, mutilations and long-term social consequences, while it has shaken the global geopolitical order. Rightfully, this Transition Report highlights that we are experiencing an unusual time, and for most part of society, unimaginable till some time before. In economic perspective, this conflict was a strong supply- side shock across all the European continent. This shock was reflected in surged inflation rate and heightened uncertainty, worsened trading terms, expanded current account deficits, and tightened financial conditions. Against this backdrop, within a short time of period, after the end of the pandemic emergency, the regional economies had to face another major challenge, which jeopardised the economic and financial stability and harmed the economic growth prospects for the future. Naturally, the Albanian economy was not an exemption of this reality. After a rapid and thoroughly economic rebound in 2021, the external supply shock was directly transmitted in the production costs and consumer prices. Thus, inflation accelerated and has reached unprecedented rates unseen for some decades. 1/3 BIS - Central bankers' speeches These developments triggered substantial challenges to decision makers in both public and private sectors. The increased costs and disrupted global chains of production and trade drove operators of private sector to re-assess the adequacy of business plans and take operational and financial measures to preserve the stability of their balance sheets. The insofar developments are encouraging. The Albanian private sector has continued to mark an increase in both consumption and investments, in turn generating a rise of employment and wages, growth of productivity and sound financial balance sheets. The rapid and comprehensive mounting of prices, imposed to public sector decision makers the two-fold challenge to mitigating the economic and social consequences in the short term and safeguarding the monetary and financial stability of Albania in the medium and long-term. To achieve these objectives, as the Report points out, the harmonisation of monetary policy with fiscal policy has been and remains a crucial feature of the successful economic policies. The medium- and long-term price stability has been and is a constant priority of the Bank of Albania's work. For this reason, we have early started and firmly implemented a normalisation process of monetary policy stance. This process was materialised in a progressive increase of the policy rate, in view of an open communication of our expectations for the future, as a continuous reaffirmation of the Bank of Albania's willingness to take all the necessary measures for the return of inflation to target, within a reasonable time horizon, and at rather lower costs on the economic activity. Prudent analyses and forecasts, based on the latest information and oriented in view of safeguarding the proper balances of risks in the Albanian economy, have guided these decisions. At the same time, the reduction of budged deficit, appearing in the form of decelerated public investments, has supported the control of inflationary pressures and has provided more space for the reaction of fiscal policy in the future. In parallel, the subsidy of electricity retail price to households and the implementation of social packages these measures are estimated at around 2% of GDP - helped to mitigate the shock impact on vulnerable groups of the Albanian society. Our economic policies helped in maintaining a relatively low inflation level compared with regional countries, reducing uncertainty and safeguarding financial stability. Our projections suggest inflation will continue on a downward trajectory during 2023, and will return to target within the first half of 2024. Furthermore, the Albanian economy is expected to continue to grow during this period, while balance sheets of enterprises and households are expected to remain - overall - sound. Notwithstanding this overview, challenges to transition economies are still present. The Transition Report accurately emphasises that the geopolitical conflicts and tensions bring inevitable crucial structural changes. First, these conflicts are accompanied by increased migration with long-term consequences in both home and host countries. Albania, a country with a rich migration history, has experienced the positive and negative sides of this 2/3 BIS - Central bankers' speeches phenomenon. In one side, this phenomenon has generated foreign exchange inflows and an overall increase of know-how and expertise, which are indispensable for the country's development. On the other side, it dampens the labour force - particularly in its most qualified segments - and harms the long-term growth prospect. For this reason, I think a better coordination at national level is needed, to take care that benefits originating from migration and the free movement of persons are divided at a fair manner between countries. Second, the geopolitical tensions are reflected in an increased protectionism, production chain fragmentation and re-orientated foreign direct investment flows towards friendly countries, as well as a decelerated globalisation process. Third, the geopolitical tensions reduce attention on structural reforms, which have been and remain the sole instrument for a more rapid and sustainable economic growth. In view of the above, the task of policy-makers, in both national and international level, is to know these challenges and take care for minimising their consequences. In particular, the conduction of structural reforms, which has slowed down since the outbreak of the pandemic across all regional countries, should be restored as a national strategic priority across all transition countries. The implementation of this policy would enable cancelling out the possible negative effects and achieving certain economic benefits. Dear ladies and gentlemen, Thank you again for your participation and I invite you to contribute in further elaborating and analysing the messages provided in this Report. 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 2 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2023 in Albania, Tirana, 20 March 2023. | Gent Sejko: Global Money Week 2023 in Albania Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2023 in Albania, Tirana, 20 March 2023. *** Honourable Minister of Education and Sports, Dear Chairman of the Albanian Association of Banks, Dear students and teachers, friends and banker colleagues, Again this end of March, I have the pleasure to welcome you to the opening ceremony of the Global Money Week, which from a decade now brings us together: bankers, teachers, students and pupils. Alongside our efforts and work for enhancing financial literacy and inclusion of public throughout the year, the Money Week focuses entirely on the new generation, both in Albania and globally. The OECD recommendation on financial literacy encourages governments and other policymakers "- to take measures for the development of financial literacy at an early stage" on themes and through channels adequate for the beneficiary. In compliance with this recommendation, the objective of Money Week, coordinated by the OECD-INFE1, is to encourage children, to actively think since an early age, about money and finances, and gradually acquire the necessary knowledge, skills, positions and behaviours to take sound financial decisions which lead to the final goal: the welfare and financial sustainability. I am proud to say that Money Week is already globally known, particularly to young people. Since its first edition in 2012, it has been involving an increasing number of central and local organisations, across more than 175 countries. In our country, the Bank of Albania, in collaboration with the Albanian Association of Banks and with the precious support of the Ministry of Education and Sports and other partners, has for many years organised educational and awareness-raising activities tailored for pre-university and university students. In this week, our goals, more than ever, converge with those of educational institutions and civil organisation, to enhance financial knowledge and awareness of the young generation to become financially responsible citizens in the future. "Plan your money, plant your future" is the official theme of Global Money Week 2023. This motto once more weighs the importance of a prudential approach towards money, to ensure the future well-being, by having the adequate knowledge on an increasingly innovative financial market. Together with our partners, we have prepared a calendar of various educational and entertaining activities related to this theme, to teach children and young people how to generate profits from entrepreneurship, how to save and take care of money, with the aim of establishing sustainable foundations for their future. The Bank of Albania, through the ongoing engagements in the field of financial education, has shown its commitment to the financial education of the public, which is an indispensable premise for the sustainable welfare and the protection of financial 1/3 BIS - Central bankers' speeches soundness, particularly of individuals and in general of our society. The unprecedented events we have suffered in the last years - the earthquake of 2019, the COVID-19 pandemic, and the war in Ukraine - have sharply hit the sustainability of: public health, the geopolitical balances, the economy and finances. The turmoil of these fragile equilibriums created the need for the further cultivation and increase of financial literacy, as part of the overall development of individuals, to better deal with either family or personal financial difficulties. Notwithstanding the considerable interventions from governments and central banks, in response to these successive and strong shocks on the economy - including the assistance packages, controls over prices and monetary policy interventions - we deem that their effectiveness is inevitably linked to an environment with a high level of financial literacy and inclusion. A financially literal person - who has the knowledge, demonstrates the right financial behaviour and positions - takes well-informed decisions in the daily financial relationships, in addition to properly understanding and reacting towards the policy-making authorities, thus making the latter's measures more effective. Also, a financially involved person benefits more from the available innovative products and services, and thanks to financial literacy can navigate safely in a rapidly evolving financial market. For these reasons, the Bank of Albania has turned the financial literacy and inclusion in one of the important objectives of its mandate, making it an integral part of its institutional duties. However, we are aware that we are not alone in the efforts in this field. There are a lot of institutions working in parallel with us to increase financial literacy and inclusion of the public. Hence, we deem that it is time to join and coordinate these efforts in a genuine national strategy. In this framework, in collaboration with the World Bank and all the other national partners we have been working for the drafting of the National Strategy of Financial Education and Inclusion (NSFEI), which delineates the general principles and objectives of financial education and inclusion. This strategy is based on the manyyears' work of the Bank of Albania in measuring and studying financial literacy in Albania, the successful experiences in developing educational programs and in the best international practices, based on the INFE/OECD and the World Bank recommendations. The purpose of the national strategy is to join all the national interested institutions within an inter-institutional structure with a coordinated objective and program, for enhancing financial literacy and inclusion in their respective fields. We are confident that such a strategic document, adopted to the need of the country for financial education, would help through the comprehensive and coordinated actions and sources of various stakeholders, in increasing effectiveness to achieve our joint goals. The strategy will determine the objectives, instruments, action plans, financing sources, monitoring and assessment, in addition to the achieved progress for each of institutions. I am confident that it will be a qualitative step, which will make all our programs and initiatives more successful in the field of financial education, including the Money Week. The increasing interest of children, young people, their teachers and professors on the educational activities of this Week, expressed in the considerable number of competitive projects, videos, drawings and essays, makes us proud for our insofar work, and optimistic for our future projects. 2/3 BIS - Central bankers' speeches I am proud to say that in these 10 years, you have been worthy partners in our path towards a more aware, cultured and more financially involved society. There are a lot of cases when students have competed from one year to another with their works across all contests organised for the respective age groups. Pupils in third grade of elementary schools, who ten years ago have participated in our contest on the best drawings, today are competing with their essays in the contest targeted to students. I would like to thank you for making us part of your school and academic life, and I kindly invite you to consider the Bank of Albania as a partner in the future. I sincerely thank you for your contribution and I wish a successful performance to all participants! 1 OECD International Network on Financial Education (INFE). 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 3 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2022 to the Parliamentary Committee on Economy and Finance, Tirana, 31 May 2023. | Gent Sejko: Albania's economic and financial developments in 2022 Address by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2022 to the Parliamentary Committee on Economy and Finance, Tirana, 31 May 2023. *** Honourable Chair, Honourable Members of the Committee, I am pleased to be back before the EF Committee to present the Annual Report of the Bank of Albania for 2022. I consider the presentation of this Report, as well as the today's hearing, fundamental for the Bank of Albania's accountability relationship with the Parliament. Dear ladies and gentlemen, Meeting our mission and legal duties, realising the commitments in view of the mediumterm development strategy, and complying with the recommendations left by the Parliament of Albania for 2022, have been important objectives guiding the activity of the Bank of Albania throughout 2022. The Albanian economy has faced a wave of complex and unprecedented shocks in recent years. These shocks have tested the sustainability of the economic and financial balances of Albania, triggering serious challenges to Albanian businesses and households, in turn requiring fast and coordinated reaction from public authorities. Though it is still early to provide a final analysis of consequences from the war in Ukraine, I am pleased to see that the Albanian economy has displayed a high resilience against these shocks. This resilience has been shown, first, in the maintenance of a positive economic growth rate, and second, but no less important, in the preservation of overall economic and financial stability in the country. In particular, the rapid surge in prices over the last year, has been brought under control and inflation has been declining in recent months, through easing the pressures on household' budgets and reducing uncertainties for enterprises. At the same time, the banking sector appears sound, indicators on the stability of both public and external debt have been improving, the financial environment is calm, and enterprises and households' balance sheets remain solid. These achievements are not a result of chance. They reflect, among other things, adequate and coordinated monetary, financial and fiscal policies and the results of continuous structural reforms which we have undertaken in the financial sector. The proportional and timely reaction of these policies has minimised the immediate consequences of shocks and has safeguarded the production capacity of Albania. In parallel, continuous structural reforms have strengthened the flexibility and resilience of the Albanian economy, by helping both the monetary and financial stability of Albania. 1/8 BIS - Central bankers' speeches In my remarks today, I will provide an overview on the main directions of the Bank of Albania's work throughout 2022 and its results. I would then like to share a brief summary of our expectations and highlight some of our primary objectives for 2023. *** 1. The outlook for the economy, price stability and the Bank of Albania's monetary policy The global geopolitical and economic environment experienced upheaval in a radical and unexpected manner at the outset of 2022, due to the Russian unjustified invasion of Ukraine. This attack led to a rapid spike in food, energy, and commodity prices, and in inflation, jeopardising monetary and financial stability on global and national levels. At the same time, prevailing uncertainty, erosion of purchasing power and tighter financing conditions worsened the world economic outlook. Albania, as a small and open economy, is also experiencing these trends. The external shock was reflected in heightened uncertainty, higher costs of production for enterprises, increased cost of living for households, and an overall rise in interest rates. The external shock had a considerable impact on prices. Average inflation jumped to 6.7% in 2022 from an average of 2.0% in 2021. First, foreign prices fuelled this upsurge, coupled then increasingly by a rise in production costs and inflationary expectations in Albania. Thus, overall inflationary pressures started to appear more broadly and with increasing persistence. These features were reflected in a rapid upsurge in core inflation during 2022. This indicator is the best barometer of more persistent inflationary pressures. In this new economic environment, within our legal mandate of price stability, the Bank of Albania has embarked on the process of normalising our monetary policy stance. The increase in the interest rate to 2.75% as at end of 2022, from 0.5% at the beginning of 2022, led to the realisation of this normalisation. In parallel, given the elevated uncertainties across financial markets - which faced an increase in interest rates for the first time in more than a decade – we have intensified communication with markets and the public, to clarify our strategy of monetary policy. This strategy is based on three important principles: First, normalisation of monetary policy stance was and remains necessary for inflation to return to the target in a steady manner. The purpose of this normalisation was to curb the pass-through of rising international prices to the general, steady surge in prices in the Albanian economy. In this context, this normalisation was in line with the reaction undertaken by all other central banks in the course of 2022, and in the current year. Second, the speed and intensity of normalisation has followed a gradual and prudential process, led by new information and in harmony with the direction of fiscal policy, as well as with developments in the financial market. In this view, I would like to highlight that our monetary policy stance has been - on the one hand 2/8 BIS - Central bankers' speeches - consistent with the return of inflation to the target, and - on the other hand – prudential, in order to have the least possible effect on both economic activity and financial stability. I would also like to emphasise, that the normalisation speed in Albania has been lower than that implemented by our trading partners, due to the fact that fiscal policy has followed a consolidating trend throughout 2022, while a strengthening of the exchange rate has restrained transmission of imported inflationary pressures to the domestic market. The increase in key interest rates throughout 2022 and going forward, in the absence of these factors, would have been faster and more aggressive. Third, even with the presence of normalisation, the overall stance of monetary policy continued to remain accommodative for boosting both consumption and investments, as it provides better financial conditions for a more balanced performance of aggregate demand and supply in economy. The monetary policy has been transmitted smoothly across financial markets. Its transmission to the interbank market has been immediate and complete. It has been rapid to the government securities market, and it still continues to the deposits and credit market. Nevertheless, despite increasing interest rates, credit flows continue to remain positive and the Albanian banking sector continues to provide necessary funds to the economy for expanding activity and for meeting liquidity needs. The volume of credit to the private sector grew by 12.3%, on average in 2022, while credit portfolio quality remained at good levels, and the non-performing loans ratio stood at the lowest levels in the last decade. The financial sustainability of the banking sector and its positive approach towards lending was conducive to the continued support of the economy with funding. In a more general view, the first effects of our reaction are notable in curbing the increase of inflation. The latter, after increasing progressively up to October 2022, declined to 7.4% at the end of 2022, and stood at 4.6% in March 2023. In parallel, expectations of economic agents on inflation in the future has been declining, standing close to our target. Our assessments show that in the absence of our actions, inflation would have averaged 4.5 percentage points higher throughout the 2022-2024 horizon, having a considerable impact on the purchasing power of households and on the nonperforming loans ratio. On the other hand, despite the presence of external shocks coupled with tighter financing conditions, the Albanian economy maintained a growing trend, in terms of production, employment and wages. Thus, economic growth in 2022 was relatively high, around 4.8%, continuing recovery after the pandemic. Economic growth continued to have good allocation by sector, and was underpinned by expansion in consumption, investments and Albanian exports. In addition, the labour market has improved notably. Employment grew by 4.2%, the unemployment rate declined to 10.8%. In addition, the increase in labour force participation showed an ever higher number of employed Albanian citizens. Our confidence surveys show that enterprises have a high demand for employment, while a lack of labour force continues to restrain increases in their 3/8 BIS - Central bankers' speeches businesses. All these components of the labour market have been reflected in the dynamic growth of wages. In particular, wages in the private sector rose by an average rate of 12.2% in 2022. Lastly, allow me to point out that progress was also recorded in 2022 in terms of improvement in the stability of both foreign and public sector's balance sheets. In more concrete terms, Albanian exports grew by 42% in 2022, driven by a growth in tourism income, which opened the way for the reduction in both the trade deficit and the current account deficit of the country. The latter dropped to 6% of GDP in 2022 from 7.8% of GDP in 2021. Along with the rapid increase in foreign direct investments and the stability of domestic financial markets, they paved the way for a strengthening of the lek exchange rate over the year. Also, the budget deficit of Albania, according to fiscal data, dropped to 3.7% of GDP in 2022 from 4.6% of GDP in 2021. Public debt was reduced to 64.6% of GDP in 2022 from 74.5% in 2021, while public debt was reduced to 64.6% of GDP from 74.5%. This improvement reflected both an increased effect of the nominal base of revenues and the fiscal consolidating stance implemented throughout 2022. Honourable Members of Parliament, The Bank of Albania is confident that the normalisation of monetary policy is the right monetary policy stance, in compliance with our legal obligations and for the purposes of safeguarding the macroeconomic balances of Albania and for the sustainable and longterm growth of society's welfare. In parallel, the Bank of Albania has also paid attention to the strengthening of the financial stability of the country, throughout 2022. Let me now explain in greater detail. *** 2. Banking supervision and financial stability Geopolitical tensions and volatilities in international markets have found our financial system relatively prepared in general and the banking sector in particular. The improvement of risk management systems by banks themselves and the Bank of Albania's continuous monitoring and supervision have played a crucial role in this regard. In this context, I would like to make evident that the activity of the Bank of Albania throughout 2022 was focused in three directions: First, at the outset of the war in Ukraine, we carried out a complete assessment of the risks jeopardising the banking system from exposures stemming from markets related to the war. Ultimately, these exposures were minor. Nevertheless, in collaboration with commercial banks we conducted some stress test exercises to determine the capacity of banks to face the possible financial costs from this shock. The results from these tests showed that the banking sector was liquid and well-capitalised, able to withstand the assumed shock. Second, the rising trend of interest rates in international markets spurred banks to frequently assess their balance sheets in a considerable manner, which had 4/8 BIS - Central bankers' speeches potentially unfavourable affects on the intermediating activity of banks. In this context, we conducted an intensive process of dialogue with banks to monitor and manage this risk, which so far remains contained. Third, 2022 was characterised by an intensive wave of cyber-attacks against the most critical sectors in Albania, including the banking sector. The focus of our analyses and examination was cyber risk. We increased the requirements for banks to invest in optimum management of this risk. The banking sector has intensified its diligence towards protective systems and preventive measures and has strengthened its capacities for monitoring and neutralisation of cybernetic attacks. In spite of these challenges, developments in 2022 were positive for the banking system. Financial intermediation has continued to expand, financial results have been positive and at comparable values with the previous year, the capital adequacy ratio stood at 18% showing a considerable ability of the banking sector to withstand risks; while the non-performing loans ratio dropped close to 5.0%. Our regular analyses on systemic risks to the banking system, show these risks remain contained. Further consolidation of banking activity was also an important development in 2022. OTP bank purchased the shares of Alpha Bank in Albania, bringing the number of banks in the Albanian banking system to 11. Beyond monitoring the soundness of the banking system, we have oriented our work towards the further strengthening of banking supervision and consolidating resolution plans. Some of the priorities in the work of the Bank of Albania in this regard have been the following: First, the Bank of Albania continued improvement of its supervisory and regulatory framework aiming at its approximation with EU acquis and Basel principles. Revision of regulations has been aimed at implementing the requirements on strengthening the capitalisation standards for banking activity; Second, in the same line, we have further progressed towards assessment of the equivalence of our supervisory and regulatory framework with the EU acquis. This equivalence is quite important to reduce the operation costs of the banking industry in Albania and to further prompt expansion of the banking sector and development of financial markets. In this context, we carried out an independent assessment of equivalence, pursuant to the new methodology published by EBA. This re-assessment concluded that both our regulatory framework and supervisory practices have a high convergence with the European Union standards. Based on this conclusion, we submitted our request to EBA to include Albania in their official assessment process. Third, we completed the regulatory framework on payment services. Upon the approval of the Law "On payment services", the sub-legal acts regulating the activity, supervision and management of risks for entities which provide payment services were approved in 2022. Completion of the regulatory framework enables the safe and effective functioning of electronic money institutions, by creating the premises for increasing payment services, strengthening competition in the market, and enhancing both transparency and protection of Albanian consumers. Fourth, the recommendations from the Committee of Experts of CoE on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism – 5/8 BIS - Central bankers' speeches MONEYVAL were implemented. As an integral part of the national plan in relation to Anti-Money Laundering Measures and the Financing of Terrorism, the Bank of Albania has fulfilled its responsibilities, improving the regulatory framework and strengthening the effectiveness of the oversight process. In addition, we have continued with on-site examinations on issues related to the prevention of money laundering, with a particular focus on issues related to the financing of terrorism and the implementation of international sanctions. Administrative measures have been taken on breaches which have been discovered. Fifth, the banking sector was rigorously monitored through on-site examinations and off-site analyses. Assessment of credit portfolio quality, assessment of operational risk, information technology risk, liquidity risk, governance systems risks as well as assessment of transparency with clients have been the focus of examinations. Entities which have been under monitoring - banks and non-bank financial institutions - follow a prudential approach related to risk management, and overall their activity is in compliance with the regulatory framework. Last, resolvability has been strengthened. In the capacity of Resolution Authority, the Bank of Albania has completed and communicated the resolution plans for all banks, including the resolution strategies of specific banks, the minimum requirements on financial assets needed for loss absorption and recapitalisation, as well as requirements for increasing resolvability. Banks have progressed in terms of increasing financial capacities and the ability to provide operational continuity in resolution, while we have submitted a set of recommendations to minimise the potential impediments for implementation of the resolution plan. Along with the primary objective of preserving price stability and its role in supporting the financial stability of the country, the Bank of Albania is responsible for other activities as well, which are considerably important for the development and growth of society's welfare. I will provide a brief summary on some of these. 3. Other activities The payment systems managed by the Bank of Albania have guaranteed maximum availability and have functioned safely and effectively throughout 2022. Along with the existing payment systems in lek, in January 2022, the AIPS EURO for the settlement of the domestic euro-denominated transfers started operation for the first time, with significantly lower costs and with shorter delivery times than the previous process. It has been assessed that Albanian businesses and consumers saved around EUR 10 million from the use of this system throughout 2022. In parallel, the development of payment services infrastructure has supported the expanded use of e-payment instruments and the financial inclusion of the population. Our statistics display a growth of 18% in card payments, e-money payments and home banking payments. The use of electronic payments per capita reached 17 payments, though the objective for 2023 was 10 payments, as outlined in the Albania National Retail Payment Strategy (2018 -2023). Currently, the Bank of Albania is working on the implementation of an instant payment infrastructure. This novelty in the field of payments aims at reaching those market segments which do not use electronic instruments. In the field of currency issue, in 2022 circulation of the new series of Albanian banknotes was completed with the denomination of 10.000 Lekë. The new series bears 6/8 BIS - Central bankers' speeches contemporary and sophisticated security features. An educational campaign on the use of the national currency accompanied the entire process. The Bank of Albania has scrupulously managed the international reserve, by observing the main objectives of liquidity and security. Despite the problems faced by international markets in the last year, the level of our foreign reserves is in compliance with our adequacy criteria and with the best international practices. The Bank of Albania has fulfilled its institutional obligations in the framework of the National Plan for European Integration. Since the opening of negotiations in July 2022, the Bank of Albania has intensified its participation and contribution in bilateral meetings with the European Commission, while it has continued economic and financial dialogue through the participation in joint committees with the authorities of the euro area market. Enhancing transparency and accountability through open communication has guided our relationships with the general public and with interest groups. Though, our decisions cannot be adequately conveyed in an economic environment, which is characterized by a limited degree of financial education. For this reason, in 2022, work has been done on drafting and implementing the "National Strategy of Financial Education and Inclusion", which aims to improve financial literacy and inclusion of the public at large. Finally, significant improvements have taken place in terms of improving the governance of the institution, through updating risk management systems and ensuring business continuity with the best international practices. In particular, due to the organized cyber-attacks that the country faced last year, the Bank of Albania paid special attention to the enhancement of stability in: the banking sector; in markets; and in the payment systems which the Bank of Albania operates. In more concrete terms, the Bank of Albania reviewed continuity plans for the recovery of the institution's activity in the event of a cyber-attack, intensified the controls and monitoring it performs on the systems and services it provides, and strengthened cooperation with local institutions, such as the National Electronic Certification Agency and Cyber Security (AKCESK) and the Albanian Association of Banks, as well as with international institutions, such as the International Monetary Fund and the World Bank. *** Honourable Members of the Committee, Concluding, allow me to re-emphasise that price stability has been and remains the main mission of the Bank of Albania. Preserving the purchasing power of our national currency, guaranteeing the value of Albanian households' savings, supporting financial stability and establishing the most optimum crediting conditions for a long-term period, are the best service we can do for the Albanian economy. Our projections suggest inflation will reach the target in 2024, driven by the stability of prices in global markets and the effects of monetary policy stance normalisation. A gradual increase in the key interest rate towards a neutral level will drive both demand and supply in the economy to a more sound balance. In parallel, economic growth is expected to maintain stable growth rates in the medium term, despite the short-term volatilities which are expected in the current year and in the next one. From its side, the 7/8 BIS - Central bankers' speeches Bank of Albania will continue to adapt its monetary policy stance to the new economic reality. We will make sure that this stance is prudential, – on the one hand - consistent with the price stability target and, on the other hand, - coordinated with the fiscal policy direction and development in financial markets. In parallel, the latest episodes of stress in the US and Swiss banking systems have returned focus to the importance of a regulated and well-supervised financial system. In this view, allow me to point out again that the Albanian banking system appears liquid, profitable, well capitalised, and able to carry out its primary function of financial intermediation and of preserving the value of Albanian households' savings. Nevertheless, the Bank of Albania will carefully monitor the situation, and will continue attentive supervision and regulation of this system, in addition to taking care of regulatory and supervisory framework alignment with the acquis communautaire. Lastly, I will re-call the importance of continuing with structural reforms as an indispensable instrument for growing the potential of the economy, enhancing its resilience against adverse shocks, and increasing the welfare of society. Thank you for your attention! 8/8 BIS - Central bankers' speeches | bank of albania | 2,023 | 6 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching ceremony of the first corporate security listing on the stock exchange, Tirana, 7 July 2023. | Gent Sejko: Address - launching ceremony of the first corporate security listing on the stock exchange Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching ceremony of the first corporate security listing on the stock exchange, Tirana, 7 July 2023. *** Honourable Minister Ibrahimaj, Dear Ms Vokshi, Ms Spahiu Dear Mr Mete, Dear shareholders of the Albanian Securities Exchange, Colleagues and guests, I would like to extend my sincere appreciation to the Albanian Securities Exchange (ALSE) for the invitation in this event, which aims to address the listing for the first time of a debt security with public offering of a private-owned capital company. First and foremost, I would like to express my enthusiasm as this first-ever public listing in the securities markets is step number one in the completion of a process which extended for several decades and required efforts from regulatory institutions, such as: the Ministry of Finance and Economy, the Albania Financial Supervisory Authority and the Bank of Albania. Against this backdrop, the listing would not have been possible without the consistent perseverance and the monetary and professional backing of those who wanted to build the Albanian securities market, its shareholders: Credins Bank, American Investments Bank and AK-Invest. They recognised the unexplored potential of the Albanian market and its opportunities for developing and supporting our economy. Allow me to emphasize that the central bank considers the development of a functional capital market in Albania as crucial. A well-developed capital market is beneficial in several aspects, some of which I will list below: First, it improves the long-term financing of companies and efficiently directs public savings toward investments in the economy; Second, it lowers the country's exposure toward the unexpected interruption of foreign capital; Third, it reinforces the financial market and enhances the efficiency of capital distribution in the economy; Fourth, investments from non-residents ensure liquidity as well as a geographical distribution of risk; 1/3 BIS - Central bankers' speeches Fifth, it further improves the financial stability of the country by distributing risk beyond financial institutions, and by diversifying the range of financial products available; Last but not least, if business is oriented toward the capital market, the degree of formalisation in the economy, the financial transparency of businesses and their image are improved as they respond to the demands of the market. On the other hand, the listing increases the degree of market supervision and improves the well-governance practices of companies listed on the stock exchange. And for all of the above the Bank of Albania, over the years, has undertaken a series of measures in the form of legal acts that regulate the well-functioning of the capital market, approximating them to the European directives. Also, the necessary infrastructure for trading and electronically recording exchange of securities has been established, thus improving the payment system and creating deposit institutions, including private ones. Currently, we have also worked to push forward the secondary government securities market, in order to increase its liquidity and its capability to cushion the impact from the shock of the liquidity risk premia. Dear Ladies and Gentlemen, The Stock Exchange is an important capital market institution, which coordinates the demand and supply of securities issued openly, freely and continuously. The trade of securities on the stock exchange always represents an exceptionally sensitive indicator of the financial soundness of a certain company as well as the economy, overall. Another important aspect is transparency to the general public, in regards to both the price of the quoted stock or debt and the financial information of listed companies, derived in real time. Therefore, signing and launching the first public offering, as the one conducted by the non-bank financial institutions, NOA, marks a success not solely to the issuer, who will fund its expansion through this medium-term financing, but also to the institutional and individual investors, who will use this investment to diversify their portfolios. The agreement was reached fully and before the assigned deadline, which show that investors trust the entire preparatory process and the transparency of the issuer regarding the financial soundness and integrity of its financial statements. The listing of this product on the stock market will provide an opportunity to investors to exchange ownership early on, depending on personal expectations on issuer's performance and as well as liquidity preferences. Whereas for the central depositor, ALREG, the listing is expected to facilitate keeping the registry and exchanging securities between various investors. Thus, the first public issuance of a private debt instrument opens the door for domestic banks to provide the service of signing securities in the domestic market. In this aspect, I would like to express, once more, my support for all the regulatory actors and, particularly, the AFSA for its long-lasting and valuable contribution in drafting and reviewing a series of legal and regulatory acts over the past years, where the Bank of Albania has also played its part in providing opinions and recommendations, thus showing the close cooperation between our institutions. Dear Ladies and Gentlemen, 2/3 BIS - Central bankers' speeches In conclusion, I would like to emphasise that this is not the time to rest in our laurels, but we need to reflect on future challenges in order to render the local capital market as vital and as functional as possible. The approval of the latest Policy Paper "On creating an environment which facilitates the development of capital markets in Albania, 20232027" is a qualitative step toward the identification of problems and obstacles and of relevant suggestions to improve the main components for the development of capital markets. They aim to further complete the legal and regulatory framework, the market infrastructure, financial education and the development of various capital market segments. In this framework, the Bank of Albania in cooperation with the AFSA and the Ministry of Finances and Economy is undertaking the necessary steps to start an important project with the EBRD, which will identify the need to amend the legal acts that regulate financial market activity, aiming to render the trading environment safer, for both international and national investors. Given the characteristics of the Albanian financial market, the Bank of Albania deems that the development of capital market must be stable and gradual. It should give priority to opportunities that attract more non-resident investors, strengthen investing capacities of non-bank financial institutions and increase liquidity in their secondary markets. Furthermore, the expansion of both stock and derivative products will be driven by strengthening the harmonising capacities of supervision and reporting to lawabiding institutions. On the other hand, the policy-making should also allow fiscal facilitations, primarily in regards to investors, which would translate in low financing costs for the issuer. Also, creating a special room in the Administrative Court to resolve financial market disputes will help improve the investing climate. In the same vein, the establishment of the Financial Ombudsman will ensure legal support to investors that are engaged in or benefit from financial services. Last but not least, the banking system should support the capital market development through the diversification of investments toward corporate products. This market should be considered complementary rather than as a competition to the economy, where banks would profit in regards to both investment portfolio diversification, as well as better risk management. I wish the best of luck to the financial stakeholders present here! Thank you for your attention. 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 7 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Assembly of the Republic of Albania presenting the Annual Report of the Bank of Albania for 2022, Tirana, 6 July 2023. | Gent Sejko: Address - Assembly of the Republic of Albania Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Assembly of the Republic of Albania presenting the Annual Report of the Bank of Albania for 2022, Tirana, 6 July 2023. *** Honourable Speaker, Honourable Members of Parliament, Allow me to start this communication by stating that the Bank of Albania adheres to an open and transparent communication with the Parliament of the Republic of Albania. This communication is important as it ensures the BoA's accountability and responsibility as well as the improvement of the process for compiling and implementing the economic policies through the establishment of a common vision on the challenges ahead and the best ways and instruments for addressing them. Dear ladies and gentlemen, A series of frequent, complex and unprecedented shocks have battered the Albania economy in recent years. After the 2019 earthquake and the pandemic in 2020 and 2021, we faced the economic and financial lingering consequences triggered by the Russia's invasion of Ukraine over 2022. This aggression caused a sharp surge in food, oil and energy prices across global markets, heightened uncertainty amid economic and financial agents, as well as an increase in the overall financing costs both in Albania and globally. The new economic and geopolitical reality tested the sustainability of the economic and financial equilibriums of Albania, posed serious challenges to the Albanian enterprises and households, and called for the fast and coordinated reactions from public authorities. Nevertheless, as it is concluded through the pages of our Annual Report, the Albanian economy was highly resilient against this shock. Our economy has: maintained the positive growth trend; recorded one of the lowest inflation rates across the region and Europe; further consolidated the indicators of fiscal stability and external position of the country. In addition, the Albanian economy has preserved the overall soundness of the private sector's financial balance sheets. In more concrete terms, the Albanian economy - despite facing more expensive imports and tighter financial conditions – expanded by 4.8% in 2022. Economic growth showed a good sectoral allocation and was underpinned by the increase in household consumption, business investments and in exports. On the other hand, the higher demand for goods and services in 2022 was reflected in notable improvements in labour market. Hence, employment grew by 4.2%, unemployment rate declined to the historically minimum level of 10.8%, while average wage in private rose by 12.2%. These developments supported the growth in the Albanian households' income, by 1/5 BIS - Central bankers' speeches offsetting the increase in the cost of living for most of them. However, the observed shortages in the labour market are turning into an increasingly large obstacle to the expansion of activity and are fuelling domestic inflationary pressures. In line with these developments, consumer prices have risen sharply in 2022, recording an average inflation rate of 6.7%. In 2022, inflation rose initially on the back of the rapid surge in prices of import items, in addition to an ever increasingly strong aggregate demand and an overall upswing in costs of production. However, inflation trend recorded a turning point in October 2022, declining progressively onwards at 4.7% in May 2023. This performance reflected the dynamics of prices in global markets, the first effects of our monetary policy's reaction, - which I will elaborate on in more detail below, - and the appreciation of the exchange rate. Also, the relatively low inflation rate in Albania was also backed by the contained electricity prices for households and some businesses, thus transferring the increased cost in energy imports to the public sector's balance sheets. Year 2022 marked progress in terms of improving the external position of Albania as well. More specifically, the Albanian exports grew by 42% over the past year, driven by the rapid growth in tourism income. This growth led to the reduction in both the trade deficit and the current account deficit. In parallel, external debt of Albania declined while its sustainability indicators improved. The improvement in the balance of external trade, the high levels of foreign direct investments coupled with the stability of the domestic financial markets, drove to the strengthening of the lek exchange rate during the past year. These trends seem to have continued in 2023 as well. At the same time, the Albania's budget deficit declined to 3.7% of GDP in 2022 from 4.6% of GDP in 2021, while public debt reduced to 64.6% of GDP from 74.5%. This improvement reflected the fast growth of public revenues, the reduction of the budget deficit in response to the fiscal consolidation policy, as well as the strengthening of the exchange rate. Last, but not least, financial markets have been relatively calm and the banking sector has performed positively, despite the elevated trend of interest rates and the higher uncertainty that has characterized the market actors. In particular, the banking sector appears robust, with good indicators of liquidity, profitability and capitalization. This sector has already turned into a stable business partner for Albanian households, supplying them with the necessary funds for the expansion of activity, providing reliable instruments for maintaining their savings, as well as by constantly expanding the range of financial products and payment instruments. Our analyses suggest that systemic risks remain contained, while the high level of capitalization and liquidity provides a significant buffer to withstand shocks. Dear ladies and gentlemen, The good resilience of the Albanian economy in the face of the ongoing crises of recent years is an evidence, first of all, of the dynamism, flexibility and sound balance sheets of Albanian businesses and households. However, in parallel with them, it also reflects the appropriate reaction of monetary, financial and fiscal policies, as well as the fruits of the continuous structural reforms that we have undertaken in the real and financial sector of the economy. 2/5 BIS - Central bankers' speeches In this context, allow me to elaborate on the main directions and results of the work of the Bank of Albania throughout 2022. The augmented intensity and the expanded base of inflationary pressures during the past year dictated a change in the monetary policy stance. In fulfilment of our legal mandate of price stability, the Bank of Albania undertook a normalization of the monetary policy stance. The rise in the interest rate to 2.75% as at end of 2022 from 0.5% at the beginning of 2022, led to the realisation of this normalisation. In parallel, we have intensified communication with markets and public, re-affirming our will to take all the necessary measures for inflation return to the target and to clarify our monetary policy strategy. This strategy is based on three important principles: First, the normalisation of monetary policy stance was and remains necessary for inflation to return to the target in a steady manner. The purpose of this normalisation was to curb the pass-through of rising international prices to the overall and steady surge in prices in the Albanian economy. In this context, it remains in line with the reaction of the other central banks. Second, the speed and intensity of normalisation has been a prudential process, guided by the new information and harmonised with the fiscal policy direction, as well as with developments in the financial market. In this view, I would like to highlight that the reaction of our monetary policy has been - on one hand sufficiently strong to guarantee the return of inflation to the target, within a reasonable time horizon, and - on the other hand – sufficiently gradual, in order to have the least possible impact on both economic activity and financial stability. In addition, I would also like to emphasise, that the normalisation speed in Albania has been lower than that implemented by our trading partners, due to the fact that fiscal policy has followed a consolidating trend throughout 2022, while the strengthening of the exchange rate has restrained the imported inflationary pressures pass-through to the domestic market. In absence of these factors, the increase in interest rate would have been faster and more aggressive, with negative consequences on both consumption and investments of private sector. Third, the monetary policy, even in presence of normalisation, continues to retain the overall accommodative stance for the growth of consumption and investments. Nevertheless, it provides better financial conditions for a more balanced performance of demand and aggregate supply in economy in the future. The monetary policy has been transmitted smoothly across financial markets. On a more general view, the first effects of our reaction are evident in curbing the increase of inflation and settling it on a declining trajectory. Our assessments show that in the absence of this reaction, inflation would have averaged 4.5 percentage points higher throughout the 2022 – 2024 horizon, having significant negative consequences on both the purchasing power of households and non-performing loans ratio. At the same time, our activity in the field of supervision, regulation and licensing of the banking sector, in 2022, focused on three main directions: (i) guaranteeing the soundness of the banking sector, in presence of real and financial shocks triggered by the war in Ukraine; (ii) monitoring the impact that the upward trend of interest rates had on the balance sheets of the banking sector; and, (iii) dealing with the intense and 3/5 BIS - Central bankers' speeches organised cyber-attacks on the country's financial industry and infrastructure. The results of our work in these directions have been positive, helping the banking sector to successfully tackle the challenges of 2022. In parallel with them, we have aimed to further improve our regulatory base and our macroprudential policies and instruments, to further strengthen banking supervision, as well as to promote the development of the payment system, through upgrading the legal, regulatory and infrastructural base. In more concrete terms: First, the Bank of Albania has continued to complete and improve the supervisory regulatory framework, aiming at its approximation with the EU acquis and Basel Committee principles. The review of regulations has aimed at strengthening the capitalisation standards of banking activity. Based on the results of our work over the years, as well as the positive conclusions of the self-assessment process we have conducted in collaboration with specialised international institutions, in 2022 we have submitted a request to the European Banking Authority to receive the official equivalence status with the EU standards. Second, we have implemented the recommendations from the MONEYVAL Committee of Experts of CoE in the framework of strengthening the Anti-Money Laundering Measures and counter Terrorist Financing. In this regard, we have exercised our responsibilities for improving the regulatory framework and strengthening of the supervisory process effectiveness. The latest evaluations by the MONEYVAL committee show that the Albanian financial industry has a substantial alignment rate with the international requirements of this field. Third, we have continued to rigorously monitor the banking sector, through on-site examinations and off-site analyses. Assessment of credit portfolio quality, assessment of operational risk, information technology risk, liquidity risk, governance systems risks as well as assessment of transparency with clients have been the focus of examinations. Entities which have been under monitoring banks and non-bank financial institutions - follow a prudential approach related to risk management, and overall their activity is in compliance with the regulatory framework. Fourth, we have further enhanced our resolution capacity. This result has been archived following the completion and communication of resolution plans, and taking the relevant measures to guarantee their implementation. Fifth, we have promoted the development of payment system in Albania. In this regard, we have adopted the necessary by-laws which regulate the activity, supervision and management of risks for entities which provide the payment services. In addition, we have maintained a safe and efficient lek-denominated payment infrastructure, and we have expanded the latter with AIPS EURO for the settlement of the domestic euro-denominated transfers in 2022. The operation of AIPS Euro is less costly and time consuming than the previous process. Our estimations show that this system has saved around EUR 10 million to the Albanian enterprises and households in the past year. In response to these developments, the use of electronic payments has considerably increased over 2022, by exceeding the objectives laid down in the Albanian National Retail Payments Strategy. In parallel, I would like to point out that - over 2022 - the Bank of Albania has exercised its legal duties and has fulfilled its institutional engagements throughout the spectrum of 4/5 BIS - Central bankers' speeches its activity. We have supported the European integration process of Albania through the continuous dialogue process with our European partners and by continuing the alignment of the banking legislation with Acquis Communautaire; the Bank of Albania has supplied the Albanian economy with qualitative coins and banknotes; we have intensified the efforts for the financial education of public and expansion of financial inclusion; we have managed the international reserves in compliance with the best principles of the field; the Bank of Albania has contributed in the economic dialogue through advises, publications and scientific conferences; and we have further developed and expanded the gamma of the financial statistics. Last, further progress has been achieved for the improvement of the institution governance, through the update of risk management systems and for ensuring the business continuity. In view of the organised cyber-attacks the country faced with in 2022, the Bank of Albania has paid special attention to enhancing the sustainability of banking system, financial markets and payment systems operated by the Bank of Albania, by collaborating with specialised national agencies and international partners. Honourable Members of Parliament, Meeting our mission and legal duties, realising the commitments in view of the mediumterm development strategy, and complying with the recommendations left by the Parliament of Albania for 2022, have been important objectives guiding the activity of the Bank of Albania throughout 2022. This philosophy will continue to lead our work in 2023 onwards. Concluding, allow me to re-emphasise that price stability has been and remains the main mission of the Bank of Albania. Safeguarding monetary and financial stability of Albania is the best service we provide to the Albanian economy. On the other hand, the growth of production potential of the economy, the strengthening of its resilience against shocks, and the increase of society's welfare requires to further continuing and strengthening the structural reforms. Thank you for your attention! 5/5 BIS - Central bankers' speeches | bank of albania | 2,023 | 7 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the High-level conference on "Green Finance in South East Europe: Developing capacities and a Taxonomy", Tirana, 22 June 2023. | Gent Sejko: Green finance in South East Europe - developing capacities and a taxonomy Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the High-level conference on "Green Finance in South East Europe: Developing capacities and a Taxonomy", Tirana, 22 June 2023. *** Dear ladies and gentlemen, Honourable Minister Ibrahimaj, Dear Colleagues, Welcome to the High-level Conference on "Green Finance in South East Europe: Developing Capacities and a Taxonomy". First, I would like to extend my sincere gratitude to the CEF (Centre of Excellence in Finance) for the organisation of this Conference and for providing the possibility to share our opinions on a rather important issue for the future of our countries and planet. The CEF is a strong and reliable partner for us, with which we will continue to cooperate to build up policies for guaranteeing the macroeconomic and financial stability. Through its events, the CEF contributes in achieving the goals set forth in the 2030 Agenda for Sustainable Development, by promoting effective, responsible and comprehensive institutions across all levels. We are aware that climate change is a threat to human well-being and planetary health. These risks, either of physical nature - due to the extreme weather events - or transitional ones, are complex to be both understood and assessed. This complexity becomes more pronounced in the absence of a common language or a taxonomy, as well as due to the lack of sufficient data, empirical models and methods to asses these risks, whose nature is known, but their extension and impact on the financial sector are neither defined nor evaluated properly. Global awareness related to the actions to face the increasing risks is edging up. In 2015, countries signing the Paris Agreement were committed to cut greenhouse gas emissions; subsequently, the EU established the ambitious goal to become the first climate-neutral continent by 2050. The financial sector plays an important role in reaching this goal, through selecting and financing green projects as well as by preserving the demand-supply balance in markets. At the same time, financial sector is especially exposed to climate change-related risks. Public institutions in the EU and the European System of Central Banks are frontrunners in shaping the global regulatory environment, and have adopted some of the best evolving practices available so far. Their examples have inspired the other institutions and central banks across both advanced and emerged economies. 1/3 BIS - Central bankers' speeches Understanding the issue of climate change from the perspective of central banks and other supervisory authorities includes also structural changes which will impact the financial system and the whole economy. These changes will challenge us in carrying out our fundamental missions, in terms of financial stability, price stability or financial inclusion. In South East Europe, our financial institutions are at early stages of developing a strategic perspective and in the first steps of implementing green finance. While capacities and the taxonomy in green finance are developing quickly, still there are many gaps which call for a prudential coordination, iterative adoption and continuous learning. Ladies and gentlemen, Climate change is an undeniable reality, and despite the fact that Albania contributes in a limited way to the global greenhouse emissions, these latter's consequences have started to provide their effects in our country as well. Climate change is challenging our economy at all levels, from large businesses to simple households, by affecting all economic actors, across all sectors and throughout the territory of Albania. This great challenge requires a joint and coordinated response from all stakeholders of the economy, including the Bank of Albania. The financial sector plays a key role in relation to climate change, which has a high cost and a complex nature. Climate change a source of risk to financial institutions, though on the other hand, there is no sustainable development without a sustainable financing. In this context, banking sector may take a leading role for companies operating in Albania. It means both "channelling of funds" and "education of clients" to develop business and investment models, which are more friendly towards the environment and more resilient to environmental and climate risks. The Bank of Albania, as a public institution, is devoted to understand and address the economic and financial consequences of climate change and the transition to a net-zero emissions economy. We are working on the adaption of our regulatory framework and policies to these changes. Sharing of knowledge, practices, discussions, staff training and public education are crucial in this process, and the Bank of Albania will continue provide sufficient sources to the study and modelling of climate effects on both price and financial stability. In the last years, we have undertaken concrete steps to address various climate change-related issues and to promote green finance. Since 2018, we have started a comprehensive process for the modernisation and digitalisation of payment market, aimed at bolstering financial inclusion and using electronic payments in the Albanian economy, in turn contributing in green finance. In the field of climate change we have expanded our analytical capacities. In addition, we have contributed in providing analyses and researches on climate-related risks. In our Medium-Term Development Strategy 2022-2024 we have decided to monitor climate risks to the economic and financial environment, where Bank of Albania conducts its activity. Also, we have cooperated with FinSAC (of the World Bank) in drafting a multi-year green strategy, which was approved in May 2023 by the Supervisory Council of the Bank of Albania. 2/3 BIS - Central bankers' speeches As the Governor of the Bank of Albania, I appreciate the importance of discussion, cooperation and support at international level to address the challenges triggered by climate change and the transition to a sustainable economy. For this reason, we have developed various national, regional and international partnerships to assess and manage the economic and financial impact of climate change. In this context, I appreciate our cooperation with the CEF, our membership since 2020 in the NGFS (Network for Greening the Financial System), as well as the various collaborations with the State Secretariat for Economic Affairs of the Swiss Government (SECO), Vienna Initiative, the World Bank (FinSAC), and many others. Ladies and gentlemen, Recently, the challenges we have dealt with are numerous, complex and multidimensional, often interconnected with each other. I know that the change will not happen overnight, but let us be optimistic. Today, starting this High Level Conference, I want to emphasise the importance of green finance as a response to the global challenge of climate change, in turn as an instrument for guaranteeing both the macroeconomic and financial stability. One thing is certain: the costs or damage of inaction will be far greater than the costs that will come from taking measures to minimize future risks. In this view, we need strong policies, cooperation and innovation. Working together, we can share experiences and build a better and sustainable future for all. Financial system has a key role to play in this process. With a responsibility to future generations, let's commit today to have a positive impact on the future of our countries and planet. Keep in mind that what we choose to finance today will shape the future of our planet. Thank you for your attention! 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 7 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the High-Level Forum 2023 on "Climate, Macroeconomy, and Finance: Navigating Risks and Driving Impacts", Tirana, 8 November 2023. | Gent Sejko: Climate, macroeconomy, and finance - navigating risks and driving impacts Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, to the HighLevel Forum 2023 on "Climate, Macroeconomy, and Finance: Navigating Risks and Driving Impacts", Tirana, 8 November 2023. *** Dear Mr Salinas, Dear panellists and guests, Good morning! It is a great pleasure to welcome you to Bank of Albania's premises for this High-Level Forum on: "Climate, Macroeconomy and Finance: Navigating risks and driving impacts", a joint initiative with the World Bank. At the beginning of my greeting, allow me to extend our profound appreciation to the World Bank for its continuous support in establishing and enhancing our partnership from some years now, and particularly in progressing towards green finance. I would like also to thank all our distinguished guests, representatives of the most important national and international institutions, who have joined us in this crucial effort. Your presence today shows the importance of the topics we are going to address and the grand challenges that lie ahead. Today, we are going to discuss on a comprehensive challenge that goes beyond political boundaries, industries and times: the challenge of climate change. Needless to say, its impact affects every aspect of our lives, from the food we eat to the air we breathe. The effects of climate change cast a shadow over our ambitions for development, even though Albania's contribution to global greenhouse gas emissions is very limited. Climate change is no longer a distant threat. On the contrary, it is our present reality that we experience every day, through unpredictable weather events, increased and intensified probabilities of natural disasters, and even enhanced negative impacts on agriculture, tourism and infrastructure. As a result, climate change exerts considerable pressures on the stability of our financial systems as well. It is more than clear that our financial sector cannot function in isolation from these challenges. As we strive to make our activities sustainable and safeguard financial stability, we must not and cannot neglect the presence of risks from climate change. The banking sector, as a cornerstone of our economy, should increasingly enhance its resilience against traditional financial turmoil, as well as against the unpredictable force of climate phenomena. Sustainable finances are not a choice, but an obligation. Our banking system - well capitalised, profitable and liquid - has shown extraordinary resilient in recent years, despite strong shocks on the real economy, from the earthquake of November 2019, 1/3 BIS - Central bankers' speeches the lingering effects of COVID-19 and the armed conflict in Ukraine. Good management of the banking system must also remain cautious regarding the risks and uncertainties of the future, such as the challenges related to climate change. To continue on the path of sustainable growth, our banks should continuously deal with climate-related risks and make investments that are consistent with environmental responsibility to preserve ecosystems, microclimates and other vital resources at the country level. They should be better equipped to adapt quickly and effectively to a new situation, benefiting from the opportunities created by the transition to a more sustainable and environmentally responsible economy. The Bank of Albania encourages the banking system to address this not as a challenge, but as a strategic opportunity. We should be aware that supporting sustainable finance is a cushion for your investments, in turn, an added value to increasing and preserving our common welfare. The commitment to a transforming change starts within our institutions, with a view to collaboration, for fulfilling the promise of great common achievements. As a central bank, we are devoted to setting the standard and giving the example for market players. Today is an important moment, as we launch the "Strategy for the Management and Supervision of Climate-Related Financial Risks to the Financial Sector, 2023-2025", which is already published on the website of the Bank of Albania. This strategy - the result of the fruitful partnership between the Bank of Albania and the World Bank (FinSAC) - constitutes an important step in our unwavering commitment to address the economic and financial consequences of climate change. It is essential to underline that this strategy does not exist in a vacuum; it forms an integral component of our overall mission and is carefully synchronized with our policies and operations, including all aspects of climate challenge. This strategic document also embodies concrete measures related to our preparation for challenges and the use of opportunities created by the management of climate risks. The Strategy we are launching today provides an action plan to identify, monitor and manage climate-related risks, thereby ensuring the stability and resilience of our financial system. The actions to be undertaken in the framework of this strategy will affect the entire spectrum and various responsibilities of the Bank of Albania, from monetary policy to financial stability and daily operations. Further, the Bank of Albania remains steadfast in its commitment to facilitate the dialogue and to collaborate, thus ensuring the sustainability of our financial system, challenged by climate change and the transition towards a sustainable economy. In addition to implementation of the climate strategy, we will continue on the path towards modernization and digitalization of the market and payment systems, aimed at promoting financial inclusion and the use of electronic payments in the Albanian economy, in turn contributing to green finance. These initiatives will also simultaneously serve as an impetus in our efforts towards collecting sufficient data and building empirical models, as well as enhancing the awareness on climate-related risks within our financial ecosystem. 2/3 BIS - Central bankers' speeches The Bank of Albania is determined to fulfil its mission to guide advancement towards green finance, increase public awareness and contribute to sustainable development. Our effort includes integration of the latest innovations and best practices, accompanied by harmonization of our regulatory framework with the EU legislation (acquis) on sustainable finance. Dear participants, Central banks, international and national institutions are continuously improving their analytical and empirical expertise in these key areas. Supporting green finance policies is a fundamental principle of our commitment to a more sustainable and prosperous future. This is not a journey that an institution or even a nation can make alone. It requires cooperation and coordination on a global scale. I thank each of you for joining us in this vital effort. Also, on behalf of the Bank of Albania, I would like to express my gratitude to the Albanian Government for its continuous support and commitment in addressing these critical issues. Our actions today shape the world for generations to come and strengthen the resilience of our economic and financial systems. I hope that during the proceedings of this forum, the most productive and fruitful discussions will take place, which stimulate the most creative thoughts and solutions to the climate challenges that our system faces. Thank you! 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 11 |
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