PRESS RELEASE
Questions and answers at the press conference, 3 February 2021

Question: Banking sector held a considerable part of fiscal burden and is quite important to the economic development, citing some of your speeches, there is an initiative of the Bank of Albania, which is joined by the Albanian Association of Banks, related to the reduction of cash use in economy, increase of electronic trade, which are crucial as also shown by pandemic.

My question is, as we are in a new reality, from the moment these campaigns have started, are there any room for additional measures? Is Albania and are Albanians ready for other measures?

Governor: Absolutely, fight against cash, efforts against the use of cash in economy has used to be earlier efforts from the central bank and the other public authorities. Particularly, during the pandemic, special attention have been paid on the efforts to fight cash. Last year, the Bank of Albania compiled and the Parliament adopted the Law “On payment services”, which consists of a set of measures related to both financial inclusion and financial literacy. These measures relate to the fight against cash use - that is the entry of cash into banking system - and in parallel they serve to modernising the payment system. On one side, there should be a good financial education and financial inclusion of population in order money be deposited at banks. Thus, money, not only are more secured, also they serve better and there are also good banking products and offers, which help in mitigating the disparities coupled with other advantages.

On the other hand, this is achieved through modernising the payment system. In this context, we have taken many measures, we have made certain movements, and we plan to take other measures as well. During the pandemic period, forfeiting fees or the regulatory amendments on removing fees of commercial banks on electronic transactions, indirectly provided their impacts.

In this year, we are working on clearing the payments in euro, within Albania, to perform them through the Bank of Albania's systems, and avoiding correspondent banks. This in turn would increase the speed for carrying out payments in foreign currency, equal to that in lek, and in addition reduce the fees to the citizens.

Also, in compliance with the new Law “On payment services”, we have a plan with developments aiming at mobilising the payment system, such as the unified national platform for the whole banking system, to conduct all the electronic payments and those via cards. This is a serious development which will need time, but we have started to think and we are working on this development.

Meanwhile, the new adopted law which is drafted in collaboration with the World Bank has created the premises for developing the market towards the modernisation of the payment system. Absolutely, the entry of cash into the banking system is a challenge that serves also to the formalisation of economy. It is one of our main challenges that we are tackling.

Question: Allow me, to ask a second question? Once again, I refer to one of your campaigns and policies: De-euroisation.  It has started from some years. It has provided its impact. Lending in lek has been increased.  It has given its effect. Although, there are certain sectors of economy, for example the real estate, which prefers to operate in foreign currency, and more concretely, cash, in euro. Can we continue any longer, in a way that both monetary policy is transmitted and also lek is the first in our transactions?  Thank you!

Governor: De-euroization is a projected that has been initiated by the Bank of Albania. We have already discussed it together, and also with other colleagues in media. This policy has two main objectives, as I think that it is a good thing to recall them: 1. De-euroization enhances the monetary policy transmission, as our monetary policy is implemented on the domestic currency, which is lek. The monetary policy aims at bolstering investments, consumption and lending. All these three elements affect the increase of citizens’ welfare.  That is, we aim at enhancing the pass-through of monetary policy, thus economy grows. This is the goal. This is an instrument- the core instrument of the central bank.  Fight against euroization - de-euroization-helps in this regard, meaning it helps the central bank accordingly. 2. In parallel, de-euroisation affects also the preservation of financial stability-that is- the maintaining banking system stability, protection of depositors’ deposits, and banks’ clients. Because, a considerable part of enterprises and households have exposures, they have a loan in euro, while their income is in national currency, which is in lek. Around 1/2 of total credit portfolio, both households and enterprises, is in foreign currency, euro. These clients generate their income in lek, so that are exposed to the exchange rate, by taking into account that we have a free-floating exchange rate regime in the Republic of Albania. In the event the national currency depreciates, all these clients would be exposed to the risk of non-payment of loans. Not only they would bankrupt or encounter serious problems with their business, also the banking system would face a serious risk, the exchange rate risk.

Exactly for these reasons, we have promoted or worked to enhance transparency and financial education of clients, both lenders and depositors. In concrete terms, the borrowers, that in case their income is in a certain currency, or in the national currency, the loan is taken in the national one, to avoid this risk, and in addition, our accommodative monetary policy is at minimum historical levels, meaning there are no differences in interest rates. For as long as there is no loss from the interest rate, on contrary, it may be on same levels with euro, then why this loan should be taken in foreign currency?!.

In this view, we have positive results -since the beginning of de-euroization process (if we can call it in this way) - we have a slight reduction regarding loans, a rather positive effect.  That means, the market has been educated. Also, regarding deposits - both deposits and loans in euro - have been decreasing higher than 1% this year, particularly loans. Of course, the work should continue. What you said is right: there is no need to quote the prices of certain products, particularly products at large value, of auto mobiles, real estate, in euro. These products may by better quoted in the national currency. Also we have products at low value. We have stores that quote in euro. There is no reason for that. As long our national currency is lek, naturally prices of products should be quoted in lek. This is determined by the law.  Hence, this should not be tolerated, or there is no reason to use euro as a payment means unnecessarily. Euro may be converted. There are sufficient banks and foreign exchange bureaus where euro may be converted. If we see all regional countries, and even broader, when having their national currency, they do use their own currencies. They do accept neither the purchase nor sale in foreign currency. Thus, the same may happen here.  I explained the goals and the reasons why. Of course, there is room to work further, but will be discussed in the next meeting of the Financial Stability Advisory Group (FSAG), together with the Ministry of Finance and Economy, and other institutions on how this process will proceed. It is a gradual process. Absolutely, I would like to underline that we do not aim at removing euro “, “disappear” euro from the market. But, to keep it on parameters which we aim at for the reasons I mentioned above.

Question: What is the forecast about the increase in the number of non-performing loans?

Governor: We have emphasised that non-performing loans are projected to be increasing due to pandemic. Fortunately, their ratio did not increase in 2020.  As I have already stated in the statement, their ratio stood at 8.1%. It is a positive indicator as the one on the increase of credit. Non-performing loans are a percentage expressed as ratio to total loans, and credit grew at 7.7%. Hence, the financial sector, overall, recorded positive results, good indicators of capitalisation, profitability and lending, notwithstanding the crisis.

Of course, 2021 may bring about a worsening of this situation. We have taken various measures during 2020, as: the extension with two months of credit repayments; regulatory amendments for credit restructuring for six month to enable banks pro-actively carry out structuring of loans. Recently, this regulatory amendment was extended for an additional quarter, up to the end of the first quarter 2021, to help banks and enterprises to face the pandemic situation, establishing facilities to enterprises make restructuring, extend terms in all possible ways that banks deem for those affected clients. This drives non-performing loans to not increase for the moment, but with the termination of these terms, we foresee that non-performing loans will increase. We do not have a figure, so I cannot say exactly how much this increase would be. We do have some forecasts, but they change. Every forecast, not only those for non-performing loans, also for the economic growth, lending increase, and for all the other macro indicators, depend on the pandemic situation, how long it will take, what will be the restrictive measures, and how will economy react depending on the duration of pandemic. In this view, there may not be a correct figure regarding non-performing loans, but of course we expect it will increase. Nevertheless, our analyses, the stress-tests we have carried out, the various scenarios we have analysed for the banking system, even in the worst case of non-performing loans’ increase, show that the banking system is sound, has sufficient capitalisation and liquidity to face the situation arising from the increase of non-performing loans. That means, we do not foresee to need to raise capital or certain turbulences in the banking system from the increase of non-performing loans. Fortunately we stand at a low level, it has not been increased and we hope to have a lower growth of non-performing loans. Yet we have to expect how pandemic will evolve.

Question: Notwithstanding what is so far declared, Mr Governor, regarding financial stability and its resilience, there is a reality from large enterprises, in the form of a complaint, or better, a request. As ensuring liquidity is carried out in different way, or more correctly in non-banking ways, that is in the form of debts with interest rates out of banks. Are you concerned about this phenomenon, or do you have a preliminary analysis to deal with this situation?

Governor: Informal market or lending has been existed and does exist. It is not a big problem as it comes out from the analyses. Analyses are always reviewed. Referring to the previous years, we have analysed the informal market as it has always been a concern. There is an informal market which has not competed with the banking market, but it has caused certain deformations in the market. Of course, as a regulatory institution, we have undertaken measures; we have made maximal efforts through regulatory acts and through financial education to avoid informal market.

The bank should be the most serious partner to each household and enterprise, as informal market is accompanied with higher interest rates. Of course, there may be lower requests regarding procedures, it may by a quicker processing, but it is “a killer” regarding the price, it has higher interest rates than the formal market, which are the banks.

Serious clients, who think to repay the loan, that is to receive a debt for a certain need or a purpose, aiming to repay it, are more prudential financially. Since they take it, they have performed calculations on how to repay the loan, to close the debt story and to not remain “hostage” to courts, bailiffs, or executions. The bank to these clients is the most serious partner in following the terms and conditions of the contract and at a better price. Meanwhile, the informal market prefers those clients with a non-good education, who have an immediate need, and then they will face difficulties at the end. Absolutely we do not have only appealed, but we have undertaken measures to avoid this informal market. Anyway, this market does not stand at those levels. We always speak in general regarding households, as there may be agreements between businesses, which may have certain historical problems with banks and have a business opportunity they receive and take a debt from each other.

Both borrowing and lending are permitted by law.  If businesses deem that may credit each-other, or households may credit or lend to each other through a notary statement, according to the law they may do it. The problem is on the phenomenon, the concern, if there are non-licensed institutions, unregulated ones, which operate in this field by abusing, with interest rate outside the market. This phenomenon is not a comprehensive one, nevertheless we do supervise it. This phenomenon exists, but it does not compete with the banking market. However, it is rather complex. On one hand, we want to protect banks as they are the main holder of citizens’ deposits. This is rightly what financial stability aims at. We aim at ensuring savings, first, and also the role of banks for the development of economy, that is by crediting. Financial intermediation is accomplished only by having sound banks with good indicators. Absolutely, we do not want banks sacrifice risk criteria, to lend with no limits, ease credit terms and conditions, and tomorrow have higher non-performing loans, as I mentioned previously. This, in tum, would harm the economy, become they would not lend any more. Hence, the factors are intertwined; they have “chain effects”. We wish to have a serious lending, formalisation, a stable banking system, and avoid the informal market. All these are challenges, and we are working on them.