PRESS RELEASE
Questions and Answers at the Press Conference, 1 February 2017

Question: Yesterday the government launched the "1 billion project" inviting firms and banks in a public private partnership for the realisation of a series of projects. Do you think the government will use the citizens savings in banks for this project? Also, will to rest of the firms, meaning those that will not be part of this project run the risk of less crediting?

Governor: The savings of the population are surely safe. Savings are in the form of deposits in commercial banks, destined to be invested by these banks, which are, after all, business entities. Crediting is based on the liquidity the banks have from savings, but we do not see any problem for them to be used in a particular direction.

It is important to highlight that crediting will continue to grow through successful and healthy projects, big projects. We have noticed that crediting in the domestic currency has grown as a result of our accommodative monetary policy transmission and banks policies on the diversification of credit risk in several particular segments, mainly for households and for small and medium-sized enterprises. The lack of projects, as a consequence of internal and external factors, and the crisis in the euro area and in the region, has had an impact on crediting in Albania.

We believe that this project of the government will be based on major projects and that these projects will also attract investments from commercial banks and financial institutions. So, they offer not only a contribution to economic development, but also opportunities for banks to invest. Certainly, these projects will be studied for their feasibility based on the banks risk criteria. Overall, this is a positive sign that shows the prospective for further development and growth of crediting, through the presentation of projects to commercial banks.

Question: Which are the tangible effects on the economy from the accommodative monetary policy undertaken until now by the Bank of Albania?

Governor: We have been very happy to see that the decisions of the Supervisory Council of the Bank of Albania related to monetary policy have been transmitted to the financial markets. The growth of credit in the domestic currency by 10.4% testifies to the transmission of this policy.

The purpose of our accommodative monetary policy, through lowering the policy rate, is to boost investments, consumption and crediting. Credit in the domestic currency has grown vis-à-vis credit in foreign currency. At the same time, economic growth has come as a consequence of the growth of domestic consumption and the development of tourism. Thus, in these terms, we may say that so far it is proven that the transmission of the monetary policy and its effects on the financial system and beyond are positive. Our expectations are that inflation will reach our 3% target in 2018, and the economy will return to equilibrium during this year.

Question: You just mentioned that the level of non-performing loans has dropped to 18.2%, a substantial fall; however, it would be interesting to see the underlying factors. NPLs have dropped earlier, but those were attributed to the write off of non-performing loans from banks? balance sheets. Are we in the same situation or are there other factors that contribute to this improved situation?

Governor: The fall in NPLs is a combination of several factors:

• First, as a consequence of the growth of the loans portfolio, in total at 3.4%, at the end of November, since we do not have the definitive figures for 2016;
• Second, as a consequence of an early restructuring of some loans by banks , since the effect of the restructuring is reflected in the financial balance sheets of the banks with a six months lag;
• Third, as a consequence of the writing off of NPLs in the relevant period.

The combination of these three factors has brought down the level of non-performing loans at 18.2%. This is a significant decrease compared with the previous reports. We managed to decrease the rate of non-performing loans from 25% two years ago, to 21% and now we have the 18.2% ratio, which is a positive ratio, a downward trend. Of course this is a very difficult challenge; we have seen fluctuations in the non-performing loans ratio before. At the end of last year, we had a similar decrease at this level and later, they grew again by 2 p.p., at 21%.

The Bank of Albania, in coordination with the Albanian government and other actors, has implemented a plan of measures, which will continue during 2017. The elements I mention before are part of this plan. We will try, in cooperation with the commercial banks, to make a clear separation of those customers who have the option of restructuring. We will also coordinate the work with the banks, to be more proactive in restructuring the portfolio of loans and supporting businesses that have difficulties, but have positive prospect, and to have efficient processes for the execution of loans that have no future. So, the management of these portfolios with clarity and an accelerated decision-making by the commercial banks, with our coordination as the regulatory authority, will contribute to the efficient implementation of the plan of measures for the reduction of non-performing loans during 2017. We are working and will look at the results throughout the year.