ALBANIA Economy and Banking System by Seyhan PENCAPLIGIL AAB Chairman Budapest, 15 November 2006...
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Transcript of ALBANIA Economy and Banking System by Seyhan PENCAPLIGIL AAB Chairman Budapest, 15 November 2006...
ALBANIAEconomy and
Banking Systemby
Seyhan PENCAPLIGILAAB Chairman
Budapest, 15 November 2006
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
SHOQATA SHQIPTARE E BANKAVE
ALBANIAN ECONOMY
ALBANIA - Located in Southeastern Europe (Western Balkans)
Economic Policy Framework
Open Market Economy,
No restrictions on profit and capital repatriation,
No exchange rate restriction, floating exchange rate regime,
Albania signed its Stabilization & Association Agreement with the European Union, the first formal step to eventual EU membership (12 June 2006).
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAMain Economic Features & Indicators
Macroeconomic performance of the Albanian economy has been good overall, with sustained growth and low inflation.
Annual economic growth has been around 6% during the last 5 years.
Domestic demand mainly driven by migrant remittances (EUR 939 million for 2005, or 14% of GDP) which have significant impact on fiscal revenues and expenditures, as well as by other external current transfers, and rapidly expanding financial intermediation & credit.
Services, agriculture and industry share were 45%, 22.8% and 13.8%.
Investments to GDP ratio reached 24.2 per cent for 2005.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAMain Economic Features & Indicators (2)
EU is the main trading partner: 88% of exports and 60% of imports. SEE is the second trading partner: 9.2% of exports and 14.8% of imports.
Exports and imports reached EUR 530 million and EUR 2 billion – Net importer
…but more than 60% of the current account financed by FDI.
FDI for 2005 reached EUR 213 million.
Foreign reserves were at EUR 1.2 billion, covering 4.6 months of imports of goods and services.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAMain Economic Features & Indicators (3)
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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Key economic figures and forecasts 2003 2004 2005 2006e
Population: 3.2 mn GDP (EUR bn) 6.0 6.0 5.5 6.0 GDP growth (% yoy) 5.8 6.2 5.5 5.0 GDP per capita (EUR at PPP) 4,250 4,640 4,860 5,130 Industrial output (% yoy) 3.0 3.1 3.1 3.5 Unemployment rate (avg, %) 15.0 14.6 14.2 14.1 Inflation rate (% yoy) 3.3 2.2 2.0 3.0 Gen. budget balance (% of GDP) (4.9) (4.9) (3.8) (3.0) C/A balance (% of GDP) (7.0) (4.7) (8.7) (7.3) Public debt (% of GDP) 60.7 55.3 54.9 - Gross external debt (% of GDP) 20.7 17.8 16.8 17.0 Official FX-Reserves (EUR bn) 0.8 1.0 1.2 1.3 ALL/EUR, avg 137.5 127.7 124.2 123.1 ALL/USD, avg 121.9 102.8 99.8 96.1
ALBANIAMacroeconomic Environment
POLICIES
Moderate rise of consumer prices during 2005 was favored by the fruitful coordination of monetary and fiscal policies.
Fiscal PolicyPrudential implementation of fiscal policies, by observing the planned parameters of fiscal indicators, has not transmitted excessive inflationary pressures and has contributed to maintaining price stability.
Monetary PolicyMonetary policy of the Bank of Albania has generally had a neutral stance. Lending to the economy has been the main source of monetary expansion during 2005, unlike in the preceding years, when this function had been realized by government borrowing or foreign currency inflows.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
Albanian economy experienced significantly higher growth than other transition.
With the exception of 1997 (following the collapse of the pyramid schemes), however, Albania has consistently outperformed the CEE countries.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAMacroeconomic Environment
Source: IMF
Source: IMF
Economic GrowthContinuous and sustainable economic growth (~6% annually).
Price Stability Price stability is one the lowest within SEE countries (ranging between 2-4%).
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Economic Growth Rate 2000-2005
5.5
6
64.7
7.7
6.5
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005
Year
in %
I nflation rate 2000-2005
22.2
3.3
1.7
4.2
3.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2000 2001 2002 2003 2004 2005
Year
in %
ALBANIAMacroeconomic Environment
Income & employment
GDP growth has enabled rise of income per capita beyond USD 2,500 per year, which, however, remains among the lowest figures of the region.
Notwithstanding the ongoing GDP growth in years, employment performance reflects a moderate behavior.
Unemployment rate reduction continues to be insignificant, either in absolute value or in relative terms.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAMacroeconomic Environment
Remittances
Albania’s receipts from workers’ remittances are, relative to GDP, among the highest in the world.
Remittances are considerably largerthan exports (1.8 times), foreign aid (7.3 times), and FDI (4.7 times).
Remittances have significantly lowered the current account deficit and helped Albania build a comfortable level of external reserves.
Although the bulk of remittances is still sent through informal channels, the importance of the formal channel has increased significantly in recent years.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAMacroeconomic Environment
ALBANIAN BANKING SYSTEM
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAN BANKING SYSTEM
Brief History
GenesisThe establishment of Imperial Ottoman Bank (1863) in Albanian territories.
Central bankingEstablishment of the National Bank of Albania, jointly with Italian and Austrian banking groups, 4 October 1913.
Mixed Central & Commercial BankingEstablishment of National Bank of Albania (NBoA), 02 September 1925.
Communist eraNBoA was nationalized in 13 January 1945 and the Albanian State Bank (ASB) was established, with both functions as central & commercial bank. ALBANIAN ASSOCIATION OF BANKS
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Market EconomyTwo-tier banking system introduced and Bank of Albania established as the central bank of the Republic of Albania (1992).
To dateAlbanian banking system has 17 commercial banks.
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ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Brief History
Universal banking system,
The dominant sector within Albanianfinancial system, managing more than 95.5% of total financial assets,
Mainly foreign-owned (14 out of 17 banks are foreign-owned),
Almost privately-owned (some minor state shareholdings),
A highly concentrated banking system, where top four banks have a share of ~ 73% of total assets.
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ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Main Features
Continuous institutional expansion and development…
Other non-bank financial institutions
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No Subjects[1] 2000 2001 2002 2003 2004 2005
1Banks and branches of foreign
banks13 13 14 15 16 17
2 Non-bank financial institutions 2 4 5 7 7 7
3 Foreign exchange bureaus 19 38 58 58 54 58
4 Save & loan associations 113 131 130 131
5 Unions of save & loan associations 2 2 2 2[1] Subjects licensed by Bank of Albania.
2/ Subjects licensed by Financial Supervision Authority, except for Leasing Companies.
No Subjects2 2000 2001 2002 2003 2004 2005
1 Insurance Companies 5 5 5 5 10 10
2 Pension Funds 1 1 1 1 1 3
3 Leasing Companies 1 1 1 1 1 2
ALBANIAN BANKING SYSTEM
Main Features
More coverage with banking services…
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ALBANIAN BANKING SYSTEM
Main Features
2003 2004 2005
Number of employees 2,236 2,816 3,479 Number of outlets 161 188 250 Number of employees per:
- bank 149 176 217 - bank unit 14 14 13
Number of residents per: - bank 206,851 194,971 184,410 - bank unit 20,815 16,593 12,539 - bank employee 1,388 1,108 901
Performance of total assets
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ALBANIAN BANKING SYSTEM
Main Indicators
Indicator Dec. ‘01 Dec ‘02 Dec ‘03 Dec ‘04 Dec ‘05
Total assets (mln EUR) 2,638.8 2,420.1 2,486.2 3,375.1 4,050.9 In % of GDP 53.5 51.6 50.2 51.9 59.5
Asset structure (in %) 2004 2005
Interbank & Treasury Operations 74 60
Credit Outstanding 17 26
Securities Operations 7 12
Fixed Assets 2 2
0
1000
2000
3000
4000
5000
6000
7000
8000
mln
EU
R
2001 2002 2003 2004 2005Year
Banking system assets vs. GDP 2000-2005
Banking assets GDP
Steady growth of banking assets…
Deposits’ growth
Continuous deposit growth – among the highest in SEE countries.
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ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Main Indicators
2001 2002 2003 2004 2005 Total Deposits (mln EUR) 2,164.0 2,061.3 2,124.0 2,974.6 3,569.5
in % of GDP 44.3 45.8 44.1 48.4 51.2 Retail Deposits (mln EUR) 1,229.5 1,137.7 1,106.5 2,581.0 3,069.3 in % of GDP 25.1 25.3 23.0 42.0 44.0
Deposits' Composition 2001-2005
8.7
7.7
6
9.4
18.2
59
60.2
63.4
59.2
46.3
32.3
32.2
30.6
31.4
35.5
0 10 20 30 40 50 60 70 80 90 100
2001
2002
2003
2004
2005
in %
Demand Deposits in AL L Time Deposits in AL L FX Deposits
Credit performance
Experiencing a credit boom recently, but credit ratios still low compared to EU and SEE standards.
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ALBANIAN BANKING SYSTEM
Main Indicators
2001 2002 2003 2004 2005 Credit to Economy (mln EUR) 227.0 275.5 340.9 552.4 1,042.2
in % to GDP 4.6 5.7 6.8 8.4 14.6 in % to total assets 9.2 11.5 13.7 16.9 25.1 Credit/ deposit ratio 10.6 13.5 15.7 19.0 28.5
Credit/ Deposit ratio 2001 - 2005
0
500
1000
1500
2000
2500
3000
3500
4000
2001 2002 2003 2004 2005
in m
ln E
UR
0
5
10
15
20
25
30
in %
Credit to Economy (mln EUR) Deposits Credit/ deposit ratio
Credit to economy 2001-2005
0
200
400
600
800
1000
1200
2001 2002 2003 2004 2005
mln
EU
R
0
2
4
6
8
10
12
14
16
in %
Credit to Economy (mln EUR) in % to GDP
Private Sector Loan Structure
Credit Quality
Credit quality improving despite credit boom; retail loans in expansion
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ALBANIAN BANKING SYSTEM
Main Indicators
2001 2002 2003 2004 2005 Corporate loans (mln EUR) 182 238 279 375 666
Retail loans (mln EUR) 31 54 89 168 309
2001 2002 2003 2004 2005 Standard Loans 88.74 89.89 92.35 92.70 93.86 Classified Loans 11.26 10.11 7.65 7.30 6.14
15% 85%
18% 82%
24% 76%
31% 69%
32% 68%
0% 20% 40% 60% 80% 100%
2001
2002
2003
2004
2005
Loan structure 2001-2005
retail corporate
Credit quality 2001-2005
1
3
5
7
9
11
13
15
2001 2002 2003 2004 2005
in %
classified loans
ALBANIAN BANKING SYSTEM
Main Indicators
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Average ALL Interest Rates 2001-2005
0
2
4
6
8
10
12
14
16
18
2001 2002 2003 2004 2005
mln
EU
R
Treasury Bills rate 12-M (in%) Lending rate 12-M (in%) Deposit Rate 12-M (in%)
Average Interest Rates
Still high interest rate spreads in ALL, despite declining trends in deposit interest rates.
in ALL 2001 2002 2003 2004 2005
Treasury Bills rate 12-M (in%) 10.5 12.62 9.56 8.11 6.91 Deposit Rate 12-M (in%) 7.80 9.30 7.62 5.99 5.57 Lending rate 12-M (in%) 11.9 16.00 10.52 13.73 12.6
ALBANIAN BANKING SYSTEM
Performance Indicators
Liquidity A highly liquid and solvent banking system
Capital adequacy
Capital adequacy at satisfactory levels
Shareholders’ Equity
Well –capitalized banks
in mln EUR 2003 2004 2005
1. Short-term Assets 1,101 1,212 1,339
2. Short-term Liabilities 1,027 1,253 1,674
1/ 2 in % 107 97 80
2003 2004 2005
Capital Adequacy Ratio in % 28.5 21.6 18.6
in mln EUR 2003 2004 2005
Shareholders’ Equity 160 203 266
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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Profitability A highly profitable banking system
Return on main operations Banks moving towards more profitable assets within the structure of earning assets.
in % 2003 2004 2005
RoAA 1.20 1.30 1.40
RoAE 19.5 21.10 22.4
in % 2003 2004 2005
Interest income/ interest bearing average assets (1)
6.81 6.78 6.96
Interest expenses/ interest bearing average assets (2)
3.08 3.23 3.88
Net interest margin (NIM) [(1)-(2)] 3.73 3.55 3.08
ALBANIAN BANKING SYSTEM
Performance Indicators
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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Average Exchange Rates 2001-2005
90
95
100
105
110
115
120
125
130
135
140
145
150
2001 2002 2003 2004 2005
in A
LL/F
X u
nit
EUR/ALL US$/ALL
Average Exchange Rates
LEK (ALL) has been appreciated significantly during last years.
in ALL 2001 2002 2003 2004 2005
EUR/ ALL 128.5 132.4 137.5 127.7 124.2 US$/ ALL 143.5 140.1 121.9 102.8 99.8
ALBANIAN BANKING SYSTEM
Exchange Rates
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
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ALBANIAN BANKING SYSTEM
Electronic Cards
Type 2003 2004 2005
Cashtronic 26,736 173,161 220,657
Debit Cards 6,552 50,066 70,176
Credit Cards 806 2,550 4,245
Prepaid Cards 136 169
Total 34,094 225,913 295,247
ATM 93 205 266
POS 155 779 1,073
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Regulatory FrameworkLaw no.8365, dt.02.07.1998 “On Banks in the Republic of Albania”.
Main Licensing Requirements for Credit Institutions Banks shall be founded as joint stock companies. No discriminatory restrictions in terms of capital participation and formation.
The minimum amount of initial capital required, paid in cash, in respect of a bank, is not less than ALL 700 million (to be raised up to ALL 1 billion);
Administrators having a business or professional history for the past 7 years,
General executive directors of the bank shall be more than two,
Licensing Requirements for bank’s branch office Similar requirements as those required for Albanian banks.
Licensing
Preliminary approval or deny, within 3 months from the date of its receipt of the application for a license at Bank of Albania.
A bank or branch of foreign bank, which has been granted preliminary approval shall, within one year starting from the day of the preliminary approval, request in writing from the Bank of Albania granting of the final license.
Scope of activity
The range of allowed banking & financial activities a bank may offer differs in relation to the level of paid up capital. A bank with a paid-up capital of more than three times of minimum initial capital is eligible to offer the full range of banking services. ALBANIAN ASSOCIATION OF BANKS
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ALBANIAN BANKING SYSTEM
Regulatory Framework
Prudential Banking Supervision
The supervision process is carrying out through the following instruments:
Periodic data reporting regarding banking financial indicators, through unified reporting system (reporting various balance and off-balance sheet items, as well as other indicators, as the supervision regulatory framework requires);
Ad hoc (special) reporting of various data;
On-site (full scale or targeted) examinations;
Off-site analysis.
CAMELS system is employed during on-site examinations (CAMELS rankings range from “1” – top performance- to “5” – poor performance).
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Banking Supervision
Bank of Albania has already approved a set of all necessary and well-detailed rules and regulations, whose implementation help to ensure prudential banking supervision, as follows:
Regulation “On Capital Adequacy”,, Regulation “On the amount and fulfillment of minimum
initial capital of the allowed activities of banks and branches of foreign banks”,
Guideline “On Bank’s Regulatory Capital”, Regulation “On Market Risks”, Guideline “On the Liquidity of the Bank”, Regulation “On Significant Risk Management”, Regulation “On Open Foreign Positions”, Regulation “On Bank Relations with persons related to
bank”.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Banking Supervision (2)
The Albanian payment system is run and regulated by Bank of Albania.
Postal service network, part of payment system also, mainly for money transfer ordered by individuals.
Bank of Albania is the operator of two payment systems:
AIPS (Albanian Interbank Payment System), a real-time gross settlement system (RTGS), which processes all interbank big value (equal to or exceeding ALL 1,000,000 (~USD 10,000)) payments (a SWIFT-based Y-copy service, “live” from January 2004).
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ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Payment System
AECH (Albanian Electronic Clearing House) System, an automated clearing system, for processing banks’ payments to their clients (small value payments; “live” from 2005). The system is fully integrated with AIPS and the net clearing position is settled daily in AIPS.
Both systems are owned by Bank of Albania.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
ALBANIAN BANKING SYSTEM
Payment System (2)
ALBANIAN BANKING SYSTEM Future Developments & Challenges
Reduction of informal economy,
Expansion of banking retail chains and products, more banking service coverage,
Introduction of new technology: e-banking,
New banking law – February 2006,
Full implementation of IAS/IFRS, by January 2008,
Increasing the beneficial effects of remittances, by channeling most of them through the financial system.
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS
Contacting AAB
URL: www.aab.alE-mail: [email protected]
ALBANIAN ASSOCIATION OF BANKSSHOQATA SHQIPTARE E BANKAVE
ALBANIAN ASSOCIATION OF BANKS