Bankieri No.10 - January 2014

No. 10 January 2014 Publication of the Albanian Association of Banks

“DEBT AND INDEBTEDNESS”

AAB MEMBERS

www.aab.al

No. 10 January 2014

Contents

Publication of the Albanian Association of Banks

BANKIERI is the official publication of the Albanian Association of Banks which mainly focus the Albanian banking industry. Bankieri provide readers with valuable information on the financial industry's developments in general,

“DEBT AND INDEBTEDNESS”

and of commercial banks in particular.

EDITOR’S DESK Are we drowned in (bad) debt???

by Elvin MEKA

p.5

FRONTLINE Private debt in Albania – a lackluster existence

by Altin HOTI Increasing Public Debt – doing a “bad” thing for good reason by Spiro BRUMBULLI

Publication of Albanian Association of Banks

p.6 p.9

JOURNALIST’S CORNER DEBT – the ubiquitous reality

by Aurora SULÇE

p.11

INTERVIEW Intesa Sanpaolo Bank Albania – standing firm in Albania Interview with Silvio PEDRAZZI

p.13

BANKING SYSTEM p.14

Security roof by Roland TASHI

p.17

EXPERTS’ FORUM p.19

The Albanian Security Interest System, in the frame of latest changes and amendments

by Sokol ELMAZAJ and Sabina LALAJ

p.22

Risk-based internal audit plan in banking sector – Some key considerations by Holtjana BELLO

p.25

Elvin Meka Editor-in-Chief Junida Tafaj (Katroshi) Eftali Peçi Coordinators Anduena Manushi Editor Alban Nexhipi Photographer Design & Layout: Ladybird Creations

Editorial Board: Seyhan PENCABLIGIL AAB Chairman & CEO of Banka Kombëtare Tregtare Ioannis KOUGIONAS AAB Vice Chairman & CEO of NBG Bank Albania Christian CANACARIS AAB Executive Committee Member & CEO of Raiffeisen Bank Albania Periklis DROUGKAS AAB Executive Committee Member & CEO of Alpha Bank Frédéric BLANC AAB Executive Committee Member & CEO of Societe Generale Albania

ECONOMIST CORNER Monetary policies: price stability versus financial stability by Adrian CIVICI

Editorial Team:

Printed by:

Bank of Albania’s platform for handling non-performing loans – A new approach by Gerond ZIU

Stabilization - The keyword for the financial sector

by Enkeleda SHEHI

Bankieri No. 10, January 2014

p.27

SOCIAL CAPITAL

Bozhidar TODOROV AAB Executive Committee Member & CEO of First Investment Bank Endrita XHAFERAJ Secretary General, Albanian Association of Banks

World-class publishers in economics speaking Albanian through UET Press by Andi BIDOLLARI

p.31

Banks' Activity

p.33

Hysen ÇELA Chairman of Albanian Institute of Authorized Chartered Auditors (IEKA)

p.35

Adrian CIVICI President & Head of Doctoral School European University of Tirana

BALKAN NET Interbalkan News

TECH TOPICS Online communication secrecy by Oerd CUKALLA

p.38

FINANCIAL AUDITORIUM Issues and views on private banking

by Roberto RUOZI

AAB Albanian Association of Banks Activities

p.41 p.43

Spiro BRUMBULLI Chief of Cabinet, Ministry of Finance Enkeleda SHEHI Chairwoman of Albanian Financial Supervision Authority

ALBANIAN ASSOCIATION OF BANKS Bulevardi: “Dëshmorët e Kombit”, TWIN TOWERS Tower I, Floor 6, A3, Tirana Tel: +355 4 2280 371; Fax: +355 4 2280 359 E-mail: bankieri@aab-al.org; www.aab.al

EDITOR’S DESK

ARE WE DROWNED IN (BAD) DEBT???

The real problem is not how much debt you owe, but how much repayment power you got with, and how stable your future cash flows are. This is the root of argument for the Albanian debtor, either government, business or household.

by Dr Elvin MEKA1 Editor-in-Chief

D

ebt is not the-word-of-the-day, instead it is pretty much in vogue, everywhere we go everywhere we read or about economics, on a 24/7 basis. It came into the limelight in the aftermath of the latest financial and economic crises of 2008, especially at European countries, which are practically drowned in debt. The last remembered hot debate, in a global scale, about debt was the third world debt crisis and especially the Latin American debt crisis. One of the “magic” solutions, along with IMF interventions, was the brilliant idea of U.S. Treasury Secretary, Mr. Nicholas F. Brady to “securitize” it, by issuing Brady bonds.

But the size of such debt and the indebted countries’ typology has nothing in common with the current debt situation in Europe, including both public and private debt, and the “magic” nowadays is sought at regulators’ and regulations’ level.

But what’s about Albania? Are we drowned in debt? No one could give an exhaustive reply, as figures and situations cannot help form an exhaustive and one-off response. Currently, there is no “scientific” level of debt burden efficiency and riskiness, except in the area of corporate finance; instead there are only some pre-defined criteria and recommendations about public debt, which as a rule, are deliberately breached by those who have established them. When talking about debt we should consider both the public and the private one and in terms of numbers, such debt burden is not alarming; instead the public debt is facing a yellow light, but the private one is deemed

1

as relatively low, when compared to regional economies, not to mention developed countries.

But why worrying about debt, as long as its burden seems to be not at red alert? Unfortunately, gross and nominal debt figures are a bit tricky and misleading. The real problem is not how much debt you owe, but how much repayment power you got with, and how stable your future cash flows are. This is the root of argument for the Albanian debtor, either government, business or household. As the economy has entered a low-growth-but-prolonged-path and the economic expectations for households and businesses seem bleak, they just curb expenses, investments and employment, thus contributing less for state budget. Furthermore, debt repayment power and base has been compromised and deteriorated continuously, since 2009, thus piling up non-performing loans at banks. So, the vicious circle becomes self-sustained and bank financing become a precious, hard-to-find, hard-to-sell reality. This credit crunch turns into liquidity and payments’ crunch, which feeds up non-performing loans even further. Definitely, the problem is not the original debt, but the ever-increasing outstanding one, which is becoming the elephant in the room and bankers are staying with it, in front of it. Intuitively, this is called systemic risk.

Once, John Maynard Keynes quoted: “If you owe your banker a thousand pounds, you are at his mercy. If you owe your banker a million pounds, he is at your mercy.”

So, who is drowned in (bad) debt???

Head of Department of Finance, EUT-UET

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FRONT LINE

PRIVATE DEBT IN ALBANIA – A LACKLUSTER EXISTENCE Stimulating the private borrowing growth is an imperative, not because of a low private debt-to-GDP ratio, but for the sake of an acute need to ensure real economic growth, production and employment, at a time when, as World Bank’s experts put it, the impact of Central Bank’s monetary policy is almost exhausted, with relation to promoting lending.

by Mr Altin HOTI, PhD Dean of Faculty of Economy “LUARASI” University

S

ince the outbreak of the recent financial crisis, the borrowing became the “monster evil”, we cannot live without, whereas the destabilization of macroeconomic parameters has transferred the economists’ attention toward issues related, primarily, to the public debt. Such situation and discussion has, in fact, overshadowed another kind of debt, typically the private debt. The analysis of such, is perhaps even more important, as its negative impact on economic growth is, in qualitative terms, larger than the public debt’s one.

Private debt generally refers to debt that various entities (natural, legal persons) borrow form the financial system, i.e. money to finance consumption or investments. It is quite understandable the role of financing entities that generate aggregate demand, either through consumption or through investment, particularly in the context of an economic crisis.

In other words, financing business projects, or fostering consumer demand, just gives a momentum to the economic growth and the economic mechanism as a whole, by improving macroeconomic parameters,

1 2

whereas, the debt for private investments is by far, in terms of priority, the most important one. The economic impact of investments is broader, on the economic chains, and with a wider timespan, given that investments have different duration, when compared to consumption. Within Albanian reality, this kind of debt has a far more deep impact on economic growth, especially in circumstances where alternative sources of financing business projects, out of banking channels, are quite limited. Also, in an economy where the private sector is the major GDP contributor, the main impact on economic growth is therefore produced by private debt, whereas the public debt has a small effect, or plays an indirect role.

The importance of private debt goes beyond its contribution and impact on economic growth. Some economists at the University of Cambridge have concluded that “the rapid growth of private debt burden inevitably leads to deflation and debt crisis, while the critical level of sovereign debt only inhibits the pace of economic growth. The analysis of long-term historical records of both debt indicators have emphasized the pri-

Within the Albanian reality, this kind of debt has a far more deep impact on economic growth, especially in circumstances where alternative sources of financing business projects, out of banking channels, are quite limited. mary role that private borrowing plays in building the financial stability1” Also, financial crises have a much greater impact on the dynamics of the economy, compared to budgetary crisis.

The collapse of the financial sector in the US during ‘30s reduced the GDP level by 30 percent, while debt crisis in Argentina reduced it by 20 percent2.

Jordà, Òscar, Moritz Schularick, and Alan M Taylor (2013), “Sovereigns versus Banks: Crises, Causes and Consequences”, CEPR Discussion Paper 9678.

Reinhart, Carmen M and Kenneth S Rogoff (2009), This Time is Different: Eight Centuries of Financial Folly, Princeton, NJ: Princeton University Press.

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What’s about private debt in Albania?

According to INSTAT and Bank of Albania, by end-2008, the private debt amounted at approx. ALL 3.89 billion, where 65.4 % was business loans and the remaining 34.6 % the household loans. The year 2011 featured a sustainable trend of lending growth rate, averaging at an annual 11 percent, while the 2012 witnessed a clear sluggish growth dynamics, with a meagre rate of 2.43 %, and such trend continued even throughout 2013, which recorded negative growth rates. In October 2013 the private debt stock decreases by -2.77 percent, compared to end-2012. It’s worth saying that, to a great extent, the decreasing demand for business loans, was the key contributor to this reduction, which in turn, has even larger effects on the economy.

As regards the trend of consumer lending, it has been negative since the beginning of 2009, without any strong deviation. The reason behind such behavior is somewhat understandable, in the frame of financial crisis, which was transferred to Albania. The psychological reasons are chiefly associated with declining trust and confidence, as well as the implementation of new rules by parent banks, following one of the deepest crises in their countries of origin.

Here below, we can list some problems related to private debt in Albania: (1) The low level lending rates and its slowing pace, which does not stimulate economic growth quite enough, instead it has stimulated “usury”, loan sharks and barter trade. Such situation has increased informal cash flows, has reduced the effectiveness of monetary policy, as well as the efficiency of government agencies’ policies in general, in addressing this problem. Moreover, the private debt-to-GDP ratio is approx.

41 percent and is considered as a low rate (compared to developed countries, e.g. US, where such ratio is over 250 percent for 2008, including non-bank sector; Portugal and Greece had, in 2009, a private debt level (excluding non-bank sector) of 200 % and 100 % of GDP, respectively), which reveals an economy operating below its potential;

(2) The banking sector “monopoly” in financing business projects, the public sector monopsony in utilizing bank financing of Treasury Bills, with minimal risks and timely guaranteed payment installments, thus maximizing the commercial banks apathy; (3) Non-performing loans. The increase to current levels is related to a large extent with the somuch-discussed issue of public debt. This indicator is, at the same time, one of the key factors, causing the sharp drop of bank lending rates. In a time when businesses are insolvent, not merely by temporary liquidity problems, the “lifeboat” of further debt, cannot avoid bankruptcy at the end, thus increasing even further the problem loans rate; (4) Lack of liquidity, not in the banking system, but in the real economy. In other words, we have a good stock of deposits, which are not optimally channeled towards financing the real sector. Typically, lowering debt figure, by increasing savings, turns into a paradox: the rapid growth of deposits/savings deepens the recession and increases the debt burden, as the economy lacks proper and sufficient funding.

…we have a good stock of deposits, which are not optimally channeled towards financing the real sector. Typically, lowering debt figure, by increasing savings, turns into a paradox: the rapid growth of deposits/ savings deepens the economic downturn and increases the debt burden, as the economy lacks proper and sufficient funding.

Addressing the private debt issue in Albania Stimulating the private borrowing growth is an imperative, not because of a low private debt-to-GDP ratio, but for the sake of an acute need to ensure real economic growth, production and employment, at a time when, as World Bank’s experts put it, the impact of Central Bank’s monetary policy is almost exhausted, with relation to promoting lending. Lowering the refinancing rate is currently a theoretical measure, which does not produce real results, because it is for the high level of non-performing loans and many other factors that are inhibiting banks and businesses to lend and borrow, respectively. In such conditions, some comprehensive steps should be taken with, beyond monetary policy, as follows: (1) Identifying priority sectors, as well as their priority classification, as some sectors have reached saturation with respect to their role and weight in the economic growth and GDP (e.g. the construction sector). According to the World Bank, also, some sectors of the economy are fully saturated to generate real economic growth through domestic demand3. This would require a necessary dialogue/joint roundtable between stakeholders (commercial banks, central bank, government, businesses), to set out these priorities, in order to channel real financings with minimum risks; (2) Developing and deepening the financial market with new instruments (e.g. corporate bonds, etc.), in which commercial banks will play the primary role, in order to increase private debt, and also ensuring a risk distribution/minimization, through diversification.

(3) Increasing the active role of banks in risk-taking and economic-financial assistance, as this would create more flexibility in lending channels, by increasing not only the loan amount, but also its quality.

(4) Conducting a rapid resolution of government debt on to businesses, which would give a positive impulse to the real sector of economy, by increasing business ability to repay non-performing loans and mutual trust between banks and businesses, to relieve fund injection, a so-much welcomed event in the economy.

3 http://www.worldbank.org/content/dam/Worldbank/document/eca/Albania-Policy-Briefs-2013.pdf

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FRONTLINE

INCREASING PUBLIC DEBT – DOING A “BAD” THING FOR GOOD REASON If the debt level is considered high for the country’s economic power and GDP growth rates do not guarantee the obligations’ repayment, therefore government spending cuts are part of an economic austerity regime, where even the tax regime changes, in order to contribute to increased revenues.

by Dr Spiro BRUMBULLI Head of Cabinet Ministry of Finance

I

t is practically impossible for a country’s economy to develop without borrowing. The use of borrowings by public finance management is driven by the need to cover numerous expenditures and to improve public services quality, to cope with difficult situation, in times of economic downturn, and the investment needs, necessary to spur economic development and welfare. The fact whether the debt is a “bad” thing for a good reason, is out of question.

The real question and issue for public borrowing policies is how much debt is affordable. The economic history is full of different cases, about the role played by public borrowing. A manageable debt (meaning that there are repayment capacities and opportunities) represents a success story; an uncontrollable debt (typically playing with figures, thus hiding the truth for a certain period of time, fearing a cease of funding) has led to the miserably situation, instability and depression. Although the economic theory justifies and supports public borrowing, a well-accepted formula, about the optimal size of the public debt, is yet to come. Despite the fact that, the European Union (EU) has set for member states a debt limit requirement of not higher than 60 per-

cent and a budget deficit not more than 3 percent of GDP, respectively, such criteria, as the latest debt crisis showed, was not respected.

The size of public debt is not just a matter of numbers. Usually, after the debt figure appears the type of currency, which means that those monies must be repaid. Here is the key to solve the debt size. What are the repaying power and capacities of an economy? Should the government’s current state of affairs do not guarantee debt repayment it is bound to collect more money. Collecting more money means higher taxes, as the

Establishing financial discipline in paying all bills on time, halting investments which are not supported with budgetary funds, strict monitoring of budget expenditures, reining on investments which go beyond incomes, tight control on carry-forward liabilities’ repayments, etc., are measures planned to be implemented, with the purpose of establishing a new behavior and approach towards public finances.

main way for a government to collect revenues is through the tax system. Higher debt means higher taxes.

Debt repayment is not in the hands of the borrower, in the sense that it can choose to pay now or later on. Debt is an obligation and the failure to repay has grave consequences for a country. Every government definitely wants to avoid international austerity measures and is keen to negotiate with lenders for acceptable solutions.

But the debt is not written-off. It may be restructured with both parties’ consent. This means that the borrower can neither show its teeth to the lender, nor ignoring or denying the debt. History shows examples, especially in power transition periods in the hands of dictators, when the debt is refused or otherwise denied. But this is a temporary event, because after the system’ change, the first thing to be negotiated are old debts.

Public debt management requires prudent and responsible behavior to public finances. Developing the economy via borrowing is not an option given for free. Countries which have borrowed endlessly, in the name of making heavy investments but with insufficient returns from such investments, which will affect debt repayment, do not represent any success stories. They are in dire situations, with deep political and financial instability, with an inflationary situation and high costs to the economy and society, in restoring

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Countries which have borrowed endlessly, in the name of making heavy investments but with insufficient returns from such investments, which will affect debt repayment, do not represent any success stories. macroeconomic stability. Albania’s current situation has a tendency towards macroeconomic imbalances with risky consequences in maintaining macroeconomic stability. The pretended development of previous years, based on debt growth, has caused macroeconomic imbalances to be more significant and sensitive.

A sizeable amount of money is spent, rather not well-studied, in the name of infrastructure development and based upon the argument that investments will be repaid by increased future revenues. Public debt is expected to reach 69 percent of GDP in 2013, or about ALL 936 billion. The weakening of fiscal discipline by removing the only defense instrument, as the ceiling of 60 percent, equal to the level set for EU member countries, has just weakened the discipline of public finances.

Often the real debt is disguised behind reporting inaccurate figures.

In underdeveloped countries with poor infrastructure, cooking books and manipulation are quite present.

In our case, for example, the undisclosed government obligations, owed to business for unpaid public works, lack of VAT refund and prepaid income tax, has affected the debt by a 4 percent increase. There are other obligations, only mentioned, but not certified yet, like: court decisions, obligations to ex-owners and ex-political prisoners, obligations of state-owned enterprises, etc. We are witnessing a chain of payment delinquencies and barter phenomena within the economy, due to lack of li-

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quidity. The saturated debt situations should be handled with professionalism and sacrifice. If the debt level is considered high for the country’s economic power and GDP growth rates do not guarantee the obligations’ repayment, therefore government spending cuts are part of an economic austerity regime, where even the tax regime changes, in order to contribute to increased revenues.

The toughest measures in an economic austerity are wage reductions and job cuts. This is an undesirable, but inevitable situation. Resolving the debt payment issue by printing money is even more problematic than defaulting on it.

Debt reduction is not achieved through monetary measures. Fiscal policy is important, because it reduces excessive costs and expenditures, expands fiscal space to increase revenues, but this is not enough, yet.

Economic growth is the only guarantee to reduce debt. If we analyze both indicators for calculating public debt (the numerator of the ratio, represented by borrowing and the denominator, represented by GDP), it is obvious that this ratio is inversely related to GDP. So, an increase of GDP, other things being equal, reduces the debt ratio. Also, a reduced borrowing (i.e. budget deficit reduction) will impact the reduction of such indicator positively, but is difficult, in the medterm, to lower borrowing to that extent, which could impact a reduction in the debt level. Thus, it is advisable to spur economic growth, because it is the only way to create stability,

through creating new jobs and expanding taxable income basis. In this case, fiscal policy has a unique role in stimulating the economy, through incentives it injects into certain sectors.

Economic austerity regime is temporary, usually lasting for several years, until the economy rebounds, but it guarantees the restoring of macroeconomic balance. Currently, Greece is under an economic austerity regime.

By contrast, Albania negotiated with the IMF a flexible three-year deal, which is expected to be approved by respective board in January-February 2014. According to a flexible agreement, debt management is conducted by developing new methods, and aims at stopping default and helps in preventing the situation to deteriorate towards bankruptcy.

Notwithstanding the regime that applies to put public debt under control, it is important that lessons drawn from a certain situation will not be repeated and a new practice will be implemented, hereafter. In case of Albania, establishing financial discipline in paying all bills on time, halting investments which are not supported with budgetary funds, strict monitoring of budget expenditures, reining on investments which go beyond incomes, tight control on carry-forward liabilities’ repayments, etc., are measures planned to be implemented, with the purpose of establishing a new behavior and approach towards public finances.

JOURNALIST’S CORNER

DEBT – THE UBIQUITOUS REALITY Everything has entered a vicious circle, where debts are not solving anything, and everyone owes to everyone. There are theories in economics, which point out that “a loan may be taken for investment purposes, which in turn, yield development.”

This is certainly not the case for Albania.

by Ms Aurora SULÇE

T

here are endless articles on debt, written by different media, over the past two years. Furthermore, it is more than obvious that DEBT has been the most frequently quoted word, at economic section of broadcasted news, or newspapers. In November 2012, the former Mr. Berisha Government lifted the legal debt limit of 60% of GDP, a move which encouraged further growth of such indicator. The former opposition, now sitting in the government, pledged to reduce the debt burden. Now it is not only impossible, but seems to be the only device to get public finances and the economy out of the crisis. Along with a debt increase by ALL 22 billion, as projected by the normative act to revise the last year’s budget, the new government has just negotiated a new debt deal of US$ 300 million with IMF and a loan of US$ 350 million with the World Bank, due to be fully formalized by end-January.

If we go down further, we’ll see that businesses are not better off.

They are drowned in debts with banks, as the former government still owed them millions of dollars, for unpaid public works already done by them. Their debt saga goes on with payables, unpaid salaries and wages.

If we turn to individuals, the situation becomes even more painful. Personal borrowings from relatives and friends, even buying-on-credit to next door grocery, are piling up to their bank loans. This is the result, yielded by the recent Bank of Albania’s survey, where out of 1,210 households surveyed across the country, 33% were indebted and a part of debt was financing consumption. Even energy sector companies, like: KESH and CEZ Shpërndarje are reporting multi-zeroes debt figures; not to

mention other public utilities, such as water companies. Everything has entered a vicious circle, where debts are not solving anything, and everyone owes to everyone. There are theories in economics, which point out that “a loan may be taken for investment purposes, which in turn, yield development.”

This is certainly not the case for Albania. The combination of a debt level, deemed to exceed 72% of GDP, with an annual economic growth not higher than 1.3%, does not leave any imagination for economic development, instead turns the country into a los-making venture (the growth rate for 2014 is forecasted at 2.1 %). Actually, we pay, on average, 6% interest rate for each ALL borrowed, which equals 3.6 % of GDP. This means that growth does not fuel development and well-being, instead, is goes for servicing debt.

What will happen and what should we do? Again, the only so-

lution remains debt: a new debt to repay an old debt, a popular and productive economic theory, when the new debt is dealt with a lower interest rate than the current one. Such a debt was negotiated with IMF and the World Bank, but all scenarios include inherited costs, which will, undoubtedly, be borne by the new government and inevitably, by all of us and the generations to come. These are economic and political costs, as it will increase pressure on future fiscal and budgetary policies. Is this the right way? Now there is no more time for such reflections, as unfortunately, this is the only way available.

As for citizens the heaven must wait, at least until the new government debt creates a discharge valve in the economy. So, the focal point is that, how fast such effects will be incorporated in the everyday life and unavoidably, within the Albanian financial system!”

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INTERVIEW

INTESA SANPAOLO BANK ALBANIA –

STANDING FIRM IN ALBANIA Intesa Sanpaolo Group is definitely one of the most solid, liquid and balanced banking groups in the Eurozone, moreover the relationship between Italy and Albania is strategic. Our goal is quite clear: we’ll keep on developing both corporate and retail, consolidating and improving our position.

Mr Silvio Pedrazzi, Chief Executive Officer, Intesa Sanpaolo Bank - Albania

BANKIERI: FIRST OF ALL, I WISH YOU ALL THE BEST FOR YOUR NEW POSITION WITH THE BANK. THE

WHAT

ARE YOUR FIRST IMPRESSIONS ABOUT

ALBANIAN BANKING SYSTEM IN TERMS OF DEVELOPMENT, COMPETI-

TION AND PRODUCTS?

Thank you very much indeed for the wishes, I’m really glad and honored to serve as CEO in Intesa Sanpaolo Bank Albania. First impression is quite positive even if banking industry, in general, is facing a very challenging period across all the countries. As far as the Albanian one is concerned, we can observe lights and shadows. If on one hand the system is very well capitalized and liquid, on the other hand the level of profitability is definitely low and deteriorating, mainly due to the unsatisfactory quality of the assets. Of course banks, as the other industries, are suffering a stagnating environment but I believe the economy will soon pick up. Under these circumstances, given also the extraordinary low level of interest rates, the competition will increase; key success factors will be the ability to optimize costs, an effective risk management approach as well as the quality of human resources. On the business side, customer care, meaning the capability to address customers’ needs and the transparency of the commercial proposals, will make a huge difference between banks.

BANKIERI: AS OF ONE THE LEADING BANKING GROUPS IN ITALY, AND

liquid and balanced banking group in the Eurozone, moreover the relationship between Italy and Albania is strategic.

Our goal is quite clear: we’ll keep on developing both corporate and retail, consolidating and improving our position.

BANKIERI: COULD YOU PLEASE NAME SOME KEY ACHIEVEMENTS FOR 2013 AND SEVERAL KEY PRIORITIES OF THE BANK DURING 2014?

In the last year Intesa Sanpaolo Bank - Albania achieved excellent results, implementing also a number of projects aimed at setting the pre-conditions for further business developments. I think, among others, of the implementation of sophisticated tools for risk management, introduction of a full set of customer oriented policies as well as a strong and effective cost management system.

As far as the this new year is concerned, we have planned several important investments and started the upgrade of the IT System which, for instance, will enable the Bank to provide customers with the most updated mobile technology. In addition, we are going to launch a number of new and innovative products aiming at the satisfaction of customers’ needs. Specific attention will be paid to the segments we deem strategic for the local economy including agriculture, tourism, manufacturing as well as energy production; SMEs will enjoy a new business attitude. For retail too, new products are coming soon.

ALBANIA,

BANKIERI: WHAT COULD BE THE MOST DISTINGUISHING FEATURE OF INTESA SANPAOLO BANK – ALBANIA?

Intesa Sanpaolo Group is definitely one of the most solid,

Proximity to customers, transparency, fairness, rapidity and technology.

IN THE FRAMEWORK OF BIG REGULATORY MOVEMENTS IN THE EUROZONE, IS THERE ANY CHANGE IN THE BANK’S BUSINESS STRATEGY IN FOR THE YEARS TO COME?

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BANKING SYSTEM

BANK OF ALBANIA’S PLATFORM FOR HANDLING NON-PERFORMING LOANS – A NEW APPROACH The issue of loan restructuring has drawn a constant attention to the Bank of Albania, and along with relaxing regulatory changes made in the beginning of the year, it will get further attention, in the frame of recent initiative to introduce the platform handling non-performing loans.

by Mr Gerond ZIU Head of Supervision Office for Systemic Banks Supervision Department, Bank of Albania

O

ne, out of many problems the Albanian economy is being faced now is the non-performing loans phenomenon, which has been increasing, since 2008. Bank of Albania has shown its early concern about the phenomenon and has warned banks to take necessary precautions and measures, to anticipate such phenomenon, which can be summarized as follow: enhancing risk management quality, establishing appropriate structures, conducting timely and healthy loan restructuring, performing stress-test analysis and increasing capital resources, in accordance with stress-test analysis’ results. These are accompanied with relevant legal and regulatory amendments, aiming at early handling of the phenomenon, either for banks or other institutions, where the most important are: changes and amendments of the banking act, amendments to the regulation “On credit risk management”, or relaxing regulatory requirements for loan restructuring.

However, the high rate of non-

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performing loans has shown that important factors, which may affect in mitigating this phenomenon, have not worked with all their possible potential. The difficulties encountered during the collateral enforcement did not help enough in delivering relevant messages to individual economic operators about their responsibilities to payback their obligations due to banks. It was expected that, the phenomenon of writing-off problem loans from banks’ balance sheets, to be the word of the day (although it doesn’t mean, in any case, that borrowers would bypass their responsibilities to repay their obligations); typically it didn’t. Current fiscal legal framework has adversely affected banks, by inhibiting them in writingoff problems loans, due to loose interpretation space, created in this case.

In this regard, it can be said that the non-performing loan rate does not represent the actual loan quality under the influence of distorting factors.

Loan restructuring is an event, with expectations of facilitating borrowers’ repayment ability and by providing a deeper breath for the country’s economy as a whole.

Legal initiatives and regulatory changes have been typically associated with reducing the non-performing loans’ level, by way of creating a suitable environment with expected positive impacts. Amendments to the Civil Procedure Code aimed at increasing the efficiency of the collateral enforcement process, both in

terms of reducing bureaucracy and facilitating liquidation conditions of pledged properties, by ensuring a broader match with market offers.

Amendments to the Minister of Finance’s Guidelines on clarifying the meaning of bad debt for financial institutions, is expected to ease the loan write-off process and thus lowering the artificiality level of nonperforming loans. Bank of Albania’s package of measures, effective earlier this year, was intended to provide positive incentives in economic and financial environment, at least until the end of 2014, by relaxing regulatory requirements to encourage credit to economy. Bank of Albania’s regulatory changes, in relaxing regulatory criterions for restructured

The purpose of this platform is to analyze and handle troubled borrowers, or those that have showed signs of problems in individual banks’ portfolios. Banks are required, as the first step of platform’s implementation, to report all outstanding business loans, except those classified as “standard”.

loans’ classification and provisioning, have also created conditions to encourage this process. This is supported also with Bank of Albania’s publication of two guidelines for loan restructuring, one for business loans and the other for individuals ones, which drive both parties to enter into a restructuring relationship.

Bank of Albania, has, through constant messages since the breakout of international financial crisis, aimed at raising banking system’s awareness to perform early loan restructurings, as one of the most important instruments to assist business activity continuity and the economy as a whole.

Similar practices have been followed by countries which have been faced with severe financial crisis; they have undertaken large-scale restructuring in the economy, for which the most representative ones are the cases of England, South Korea and Turkey.

The issue of loan restructuring has drawn a constant attention to the Bank of Albania, and along with relaxing regulatory changes made in the beginning of the year, it will get further attention, in the frame of recent initiative to introduce the platform handling non-performing loans.

This platform was developed by Bank of Albania, in cooperation with the Financial Sector Advisory Center (FinSAC), in Vienna. The center was

established by the World Bank and aims to provide technical assistance on regulatory and supervision issues for the financial sector, central banks and financial regulators in Europe and Central Asia. FinSAC will assist the implementation process of this platform, through the services of a specialized company with international experience, including the region Albania belongs to.

The purpose of this platform is to analyze and handle troubled borrowers, or those that have showed signs of problems in individual banks’ portfolios. Banks are required, as the first step of platform’s implementation, to report all outstanding business loans, except those classified as “standard” (as prescribed by Regulation: “On Credit Risk Management”).

In addition to general information of exposure to the borrower, reporting requirements include also those regarding its financial records for the past three years, as well as pledged collaterals. A certain number of borrowers will be selected, out of this reported list, where recovery possibilities and opportunities will be individually analyzed. The selection will be made taking into consideration a number of factors: the loan size, the economic sector in which it operates, geographic location, level of exposure to the system, etc. The goal is

Banks will be required, for each selected borrowers, to prepare a recovery plan. A detailed analysis of the recovery possibilities and opportunities, will be conducted in parallel, with the help of the consulting company, through the use of its methodology. to perform the most representative selection, at system level, both in quantitative and qualitative aspects, in order to achieve the widest impact possible, not only for banks but also for the country’s economy.

Banks will be required, for each selected borrowers, to prepare a recovery plan. A detailed analysis of the recovery possibilities and opportunities will be conducted in parallel, with the help of the consulting company, through the use of its methodology. The results of these analyzes will be consulted with those of banks and discussed with them to reach an appropriate and sustainable solution for borrowers, as well as for banks.

This would create an opportunity not only at increasing options for tailored solutions, according to borrowers’ difficulties but also in applying them at the entire portfolio’s level, by establishing a good basis for future experience.

In order to provide the exercise with a more stable feature, and to have a complete coverage of all banks, the results of the exercise will be further analyzed, to assess the possibility of intervention in the market with further policies. As the initial identified element, in this regard, is the prescription of regulatory requirements, asking for a greater presence of banks’ Boards of Directors in the analysis and monitoring of large borrowers, as well as in drafting and periodic reviewing of recovery plans for these borrowers. Further areas, which will be identified for regulatory changes and ways of their implementation, will be thoroughly discussed with all banks.

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BANKING INTERVISTA SYSTEM

SECURITY ROOF Security should be considered a “product” of activity and commitment of security structures, leadership, stakeholders and interested and certified operators, as a roof that will protect and guarantee normal working and business conditions for the banking system.

by Mr Roland TASHI Chairman, AAB Bank Security Committee

A

lbania entered the capitalist economy a bit later, compared to other countries in the region. This fact, and the anxiety and rush to milk the “product” of the new social system, along with many social and economic changes, called for a total reshaped concept of security, national security and public safety, creating new concepts for human security, business security and especially, central bank, banking and financial system security, which gradually began to form and enter the path of capitalist development.

Security in the banking and financial system, which began to shape its structure either form the local business or also the foreign one, would turn to be the keyword and guarantee for a smooth functioning of the system, to avoid creating security violations precedents and creating disturbances and social unrest. Insufficient attention towards banks, not only in terms of physical protection and security, was followed by dramatic events during the first half of 90s, when pyramid schemes were

flourishing and booming, which reached the finish line in 1997, with quasi-war consequences.

Security should be considered a “product” of activity and commitment of security structures, leadership, stakeholders and interested and certified operators, as a roof that will protect and guarantee normal working and business conditions for the banking system. Subsequently, this obtained “product” will serve as a public good, which is then utilized either by those who work and have relationship with the bank, or more widely, by the general public. A question naturally arises: how should the “security roof” stand upright, which should be its pillars, so as to ensure its initial existence, and then to be efficient, protective and stable?

It should be understood beforehand, that all businesses, especially financial ones, where money is their base product and in this context, they are the hardest hit by crime and insider’s abusive actions, should have very clear concepts about security, and that their activity cannot begin without establishing initially the respective security unit, which would draft and implement the whole protection system to guarantee a normal course of the activity.

The first pillar is represented by a special functioning structure, within the organizational tree of a bank or other financial businesses, which performs security duties, only. De-

spite that this is a requirement imposed by Bank of Albania’s regulations some banks have not established or appointed special security units or specialists. The security and protection duties’ oversight are passed to employees who perform other duties, mainly of administrative nature.

The main task of this “pillar” should

It should be understood beforehand, that all businesses, especially financial ones, where money is their base product and in this context, they are the hardest hit by crime and insider’s abusive actions, should have very clear concepts about security, and that their activity cannot begin without establishing initially the respective security unit, which would draft and implement the whole protection system to guarantee a normal course of the activity. www.aab.al • BANKIERI • 17

be: forecasting (opportunities’ reduction) and protection (consequences’ reduction). The experience of a professional security specialist plays a particularly important role in predicting, assessing and interpreting specific situations at a bank, company, or any other organization. Rather, his lack leads to an escalated exposure level against risk and increasing economic costs to reduce consequences.

One of the influential consequences in the business remains the reputational risk, which along with economic costs, affects public confidence, especially to the banking business, where sensitivity and attention is even greater.

The second pillar is the legal and regulatory basis. Security structures should operate only on legal grounds, according to administrative acts and practices, approved by leadership.

It should be mentioned that, given the scope and tasks they perform, the security structures have direct or indirect access, through electronic security systems, cameras, etc., in vital and sensitive areas, procedures and practices for the institution. In this respect, should their activity is not “disciplined” by a full administrative practice, with separated authorities and powers, it could increase the probability that, certain segments of such structures may abuse, escalate exposure to risks, thus damaging the

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institution.

The third pillar relates to organizing and operating physical protection, bank’s active protection, through human resources, by using security services performed by bank employees, or employees of Physical Security and Protection Companies (PSPC-SHRSF). Although the third pillar is positioned in the center, as the backbone of the “security roof”, it remains the most vulnerable and susceptible. This is so, because the individual, who is in charge as the security officer, who serves as teller or as the operator, or performs the role of monetary values’ transporter/escort, or the individual who faces a crime scene, directly and physically, shall bear and suffer the psychophysical and psychosocial consequences. The effective harmonization of protection measures through human resources with those electronic and technical ones, not only increases the level of service’s efficiency, but also protects and keeps the individual away from the psychological damage.

The fourth pillar relates with the functioning of electronic security and other safeguards that are designed to operate without physical presence of individuals. Undoubtedly, it is an important and “hard-to-corrupt” pillar, which the more sophisticated it is, the more it prevents abusive and robbery acts, and the more it helps security

structures to increase the protection level of the facilities, and especially human resources. The “electronic protection”, otherwise known as passive protection, through technological devices and systems, operates on a “non-stop basis”. It provides protection to business, its assets and cash, during the rest of the day, and holidays, when the institution does not use human resources’ security service. It should be emphasized that, data obtained and archived by electronic security systems, especially those provided by closed circuit television system (CCTV), access control entries’ data, etc., will serve as material evidence for crime experts and law enforcement agencies, in cases of burglaries, insider robberies, and other various abusive situations.

Electronic protection systems must follow contemporary technological developments; banks and all interested institutions shall implement and install programs and advanced systems that enable full disclosure of any abusive event, or crime scene.

The fifth pillar consists in continuous training of bank, institution or enterprise’s employees, regarding security and caretaking issues at work.

Notwithstanding that, staff training and information about all risks associated or affected by their workplace is a legal requirement, it should be considered a “must” and business policies’ priority, at any level whatsoever Pursuant to Bank of Albania’s requirements, banks get physical security and transport & escort monetary value services by a PSPC-SHRSF. It is quite important that, given the specific feature such services have for banks, the PSPC’s employees must have specific periodic training, about the manner of service conduct and performance, responsive actions, in case of any bank or armored vehicle robbery and most important, when and how and to use guns. In many banking business units, which operate in downtowns with great frequency movement of citizens and vehicles, the use of firearms by untrained employees would cause more problems than the consequences of a robbery.

EXPERTS’ FORUM

STABILIZATION - THE KEYWORD FOR THE FINANCIAL SECTOR

AFSA will undertake a package of measures for the financial market in the medium term (2014-2016), which is aimed to foster financial markets’ development, expand the range of financial products, improve consumer protection and education, support financial reforms, and increase the effectiveness of market regulation and supervision.

by Ms Enkeleda SHEHI Chairwoman, Albanian Financial Supervisory Authority, AFSA

I

t is already known the fact that the financial system constitutes the cornerstone of a modern economy. In one way or another, each of us is in a constant contact with the financial system. In the emerging economies, financial system has also a significant importance, because its performance and development affects widely the overall development of the economy.

A sound and modern financial sector contributes to the economy’s health.

Meanwhile, the financial crisis, as the history shows and the recent global financial crisis of 2007-2008 confirmed, causes serious consequences for a country’s economy and population. Sometimes, restoring it takes several years to complete, which is quite a costly process. In this regard, it is quite important to prevent the occurrence of crises and adopt early and immediate measures, to minimize their consequences whenever they are unavoidable. Lessons drawn from the past financial crisis, have led to an increased emphasis on regulatory and supervisory process of financial sector, and have driven the attention not only on each financial institutions’ performance, but also on promoting stability in the financial

market as a whole, enhancing coordination between regulators’ actions in both domestic and crossborder level, as well as strengthening the supervisory and regulatory standards, in an international scale.

Although, when talking about financial sector and crises, we refer primarily to banking market and banking system crises, leaving in disguise the other components of financial markets, such as: insurance market, private pension funds and securities market, which are not of less importance. These segments of the financial sector, if developed properly, turns into important elements of an effective and healthy financial system. Through their contribution to the expansion and deepening of the financial system, they would ser-

The stabilization strategy could not be implemented by AFSA efforts alone, instead through a close cooperation with other institutions, particularly the World Bank and International Monetary Fund.

ve as a solid basis for capital formation, economic growth and prosperity. The operators in the financial markets (life and non- life insurance companies, voluntary private pension funds or investment funds and other intermediaries) provide additional financing channels for the economy, via their services, whose importance increases when lending channel is stagnant; provide longterm savings opportunities and risk-averse products, diminish potential financial and social problems in the future, alongside with their costs, increase investment alternatives for the general public and help out the general well-being of the population.

Meeting these goals requires that financial market operators and financial market itself must be managed properly, to assure their soundness and efficiency.

The same considerations are valid for Albania, despite the underdeveloped stage of its financial sector.

For this reason, the keyword for the financial sector, in the medium term, will be “the stabilization”. What does the market stabilization literally mean for the Albanian Financial Supervisory Authority (AFSA)? Surely, that does not mean and does not presume that the financial market in the country is currently unstable at all, or unable to operate. Rather, AFSA uses the term “stabilization”

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to depict a package of measures to be undertaken, by the Authority, for the financial market in the med-term period of 2014-2016. This package aims to foster financial markets’ development, expand the range of financial products, improve consumer protection and education, support financial reforms, and increase the effectiveness of market regulation and supervision. Accomplishing these objectives will lead to strengthening of stability in the markets, which, on the other side, contributes to an increased economic stability. In other words, AFSA will undertake stabilization measures to ensure stability.

In other words, stabilization is based on these pillars: 1. Strengthening the AFSA’s independence, especially financial and operational independence, as a prerequisite to improve the effectiveness of regulatory and supervisory process.

2. Supporting consumer protection, by identifying measures to increase transparency and simplicity to disclose information to financial institutions customers. Consumer protection is supposed to be realized through promoting a sound competition in the financial market, which means providing products at a reasonable cost to customers, without sacrificing or jeopardizing service continuity and benefits that a customer expects to receive from financial institutions, such as: damage repayments by insurance companies, real returns from investments funds, or pension payments from private pension funds.

3. Implementing the consolidated supervision, which means a new stage in the supervision process of financial institutions, through the combination and coordination of supervisory competences of AFSA and Bank of Albania, on banks and investment funds. This calls for the need to strengthen the actual cooperation, to achieve an effective supervision of liquidity and market risks.

4. Supporting the development of pension’s third pillar and establishing the second one, as part of pensions’ reform. These mean a thoroughly reform in pension schemes of the country, in order to manage risks arising from demographic changes, and to provide mechanisms for maintaining and enhancing the well-being of the

Lessons drawn from the past financial crisis, have led to an increased emphasis on regulatory and supervisory process of financial sector, and have driven the attention not only on each financial institutions’ performance, but also on promoting stability in the financial market as a whole, enhancing coordination between regulators’ actions in both domestic and crossborder level, as well as strengthening the supervisory and regulatory standards, in an international scale. population. In this regard, AFSA plays an instrumental role, which means underpinning supervisory capacity to ensure prudential supervision of pension funds and their sustainability.

5. Improving the functioning of insurance market, by setting up well-defined standards regarding minimum reserves, liquidity, implementing the risk-based supervision, or through the adoption of measures with long-term impact, such as developing programs to

ensure the services’ accountability and protection from risks arising from natural disasters.

The stabilization strategy could not be implemented by AFSA efforts alone, instead through a close cooperation with other institutions, particularly the World Bank and International Monetary Fund. The stabilization of financial sector consistutes the keyword for financial sector, because, at the end, it serves to the interests of every citizen in Albania.

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EXPERTS’ FORUM

THE ALBANIAN SECURITY INTEREST SYSTEM, IN THE FRAME OF LATEST CHANGES AND AMENDMENTS Practically, the effective perfection and/or enforcement of the pledge, taken under the Civil Code over intangible assets, is very questionable.

by

Mr Sokol ELMAZAJ Partner, BOGA & ASSOCIATES

T

he year 2013 is marked with some important changes and amendments in the legal framework as regards sthe security interest system, financial collateral and payments.

1. The financial collateral

During the first half of 2013, the Albanian Parliament endorsed the Law On Payment System (no. 133/2013), which entered into force on 29 May 2013. The law introduced, inter alia, the financial collateral, in line with the Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 “On Settlement Finality in Payment and Securities Settlement Systems”, as amended and the Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 “On Financial Collateral Arrangements”.

The financial collateral is a new type of security interest that can be taken over cash and/or financial instruments to secure repayment of loans and other obligations. The law defines “cash” as “…money credited to an account in any currency, or similar claims for the repayment of money, such as monetary deposits…”, while financial instruments, as “…shares of joint-stock companies, either foreign or local, and other securities equivalent to shares in joint-stock companies, bonds and other forms of debt instruments, if these are negotiable on capital markets and any other securities which are normally dealt in and which give the right to acquire any such shares, bonds or other securities by subscription, purchase or exchange or which give rise to a cash settlement (excluding instruments of

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&

Ms Sabina LALAJ Senior Associate, BOGA & ASSOCIATES

The ambiguities in the law and lack of consolidated case law or jurisprudence does not give proper guarantee, that a security interest should give, to the secured party when it comes to taking and enforcing a pledge over intangible assets under the Civil Code. payment), including units in collective investment undertakings, money market instruments, precious metals credited in an account and claims relating to or rights in or in respect of any of the foregoing…”.

The financial collateral over financial instruments is created by written agreement and is perfected by either transferring the possession of collateral to the collateral taker, or when the financial instruments are held, transferred or subject to any measure in such a manner that the collateral taker, or a person acting on its behalf, has the possession or the control of the financial instruments. The same applies to the financial collateral over cash, possession of which is transferred to the collateral taker or transferred in a special account, or is held, transferred or subject to any measure so as to be in the possession or under the control of the collateral taker, or a person acting on the collateral taker’s

behalf. The collateral taker notifies the debtor of the performed transfer by acknowledging the claim on the cash or the debtor’s obligation to recognize explicitly the existence of the financial collateral agreement.

The financial collateral is an instrument that can be used only among legal entities, the individuals are excluded, where at least one of the parties in the financial collateral agreement is the Republic of Albania, the Bank of Albania, a foreign central bank, a local bank or financial institution, a foreign bank or financial institution or entity similar to a bank or financial institution, a settlement agent, an operator or another local or international public authority. Enforcement of the financial collateral appears to be easy and does not involve courts and/or any other public authority.

2. Security interest over intangible assets

Since 1 January 2000, when the Securing Charges Law (no. 8537, dated 18.10.1999) entered into force, security interest in the form of the securing charge over intangible assets (including without being limited to shares in limited liability companies and/or nominal shares in joint-stock companies, receivables, contractual rights, etc.) was created by written agreement of the parties and perfected by registration with the Securing Charges Registry without loss of possession of the security interest offeror. After 13 years, starting from 29 May 2013, this type of security over intangible assets is no longer available, because

Insofar as it concerns the pledge over receivables and other contractual rights, the question that arises is how the possession of such rights will be transferred from pledgor to pledgee and in which way third parties will become aware of the existence of such pledge? of certain amendments in the Securing Charges Law passed by the Albanian Parliament (no. 132/2013).

According to the amendments, the securing charge cannot be taken over intangible movable properties, securities, instruments and accounts. This amendment does not affect the security interest that can continue to be taken in the form of securing charge over tangible movable assets. This means that assets, such as shares in limited liability companies, unlimited and/or limited liability partnerships, nominal shares in joint-stock companies, receivables, contractual rights, etc., can no longer be subject of a securing charge.

Actually, the security interest over intangible assets, such as those mentioned above, may, under the provisions of Civil Code, be taken in the form of pledge. The Civil Code (art. 546) defines the pledge as a security interest that can be taken over movable properties or over rights of bearer or over the usufruct of such property or right. The pledge is perfected by transferring possession of the property or title to the pledgee or to a third party, appointed by agreement of the parties. Additionally, according to the second paragraph of art. 143 of the Code, stating that “…the provisions related to movable properties are applicable to all other rights…”, theoretically, it is possible to take a pledge over intangible assets. Furthermore, pursuant to art.

547 of the Code, it is possible to take pledge over shares (i.e. in unlimited and/or limited partnerships, limited liability companies, joint-stock companies) and perfect it by registration in the book of shareholders.

Practically, the effective perfection and/or enforcement of the pledge taken under the Civil Code over intangible assets, including those men-

tion above, is very questionable in Albania. In case of the pledge over shares in limited liabilities companies, unlimited and/or limited partnerships, the question that arises is “what is the book of shareholders?”

We can presume what it can be, but do not find any definition of such book in the Civil Code and/or in the Law on Entrepreneurs and Companies (law no. 9901, dated 14.04.2008, amended). It is a practice to file and publish the pledge agreement with the National Center of Registration (NCR), but would that constitute perfection of the pledge as required by the Civil Code, or would the commercial register kept NCR be considered as the “book of shareholders”?

The same question is valid for the pledge over shares in joint stock companies. In the Law on Entrepreneurs and Companies that we find the definition of “shares register” rather than “book of shareholders”. Thus, would the shares register defined by Law on Entrepreneurs and Companies be considered the book of shareholders referred to by the Civil Code?

Insofar, as it concerns the pledge over receivables and other contractual rights, the question that arises is how the possession of such rights will be transferred from pledgor to pledgee and in which way third parties will become aware of the existence of such pledge? The answer to this question is the assignment of

rights under the provisions of art.

499 to 507 of the Civil Code, but that is not a common practice, yet. The enforcement of the pledge taken under the Civil Code remains unclear.

According the Code (art. 556), the pledge is enforced by the sale of the pledged asset, upon authorization of the court. The courts are not required to be involved, only in case of pledge enforcement over receivables and/or contractual rights, according to art.

557. In principle, the court authorization is a court decision and as such it can be appealed by the pledgor in a superior court (i.e. courts of appeals and Supreme Court). As the practice shows, the appealing process of court decisions is time-consuming and hampers the enforcement process, thus harming the lenders’ interests.

Conclusively, it may be said that ambiguities in the law and lack of consolidated case law or jurisprudence does not give proper guarantee, that a security interest should give to the secured party, when it comes to taking and enforcing a pledge over intangible assets, under the Civil Code.

Such gaps require changes in legal framework, either by introducing in the Civil Code a chapter explaining how the pledge over intangible assets is perfected and enforced, or reinstate those provisions in the Securing Charges Law, that were repealed by the latest amendments.

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EXPERTS’ FORUM

RISK-BASED INTERNAL AUDIT PLAN IN BANKING SECTOR – SOME KEY CONSIDERATIONS

Internal auditors should focus not on the whole universe, but on the most relevant aspects of it to help bank achieve objectives by delivering assurance that systems of control, governance and risk management are appropriate.

by Ms Holtjana BELLO Partner/Consultant Risk & Audit Consulting

O

ne of the questions I’m regularly asked in my professional and academic capacity is how to quantify my organization’s internal audit universe. To this question, my reply is “well it’s good to be an internal auditor rather than a scientist.” Professor Brian Cox writing in the Wall Street Journal in April 2013 explained: “Quantum theory tells us that the universe we experience emerges from a bewildering, counterintuitive maelstrom of interactions between infinity of recalcitrant sub-atomic articles.” Believe me, defining the internal audit universe is much simple than that, although the principles may be similar.

The definition of internal audit quoted in the International Professional Practices Framework (IPPF) give us a clear steer that “we should be concerned with the organization’s operation; in other words, everything that our organization encompasses and interacts with.” In such terms, the quantification of the scope of operations and their review clearly represent a massive task. Then the question

raised is how can we decide where we should focus our attention? So the issue becomes not “what is the size of universe?”, as this is an exhaustive exercised, but rather “what is the extent of the focus for our internal audit plan in strategic and operational terms?”1 .. I offer a view of how a head of internal audit in a bank might advise an audit committee over the components of the internal audit plan.

The head of internal audit should look where the board gets assurance from. This requires an analysis of three lines of defense, in which inherent and residual risks are assessed.

At this stage we should assume that residual risk is likely to fall into one of three categories: • Red - an unacceptable level of risks remains, which is above the risk appetite of the board.

• Yellow – the level of risk exposure requires constant monitoring by executive management.

• Green – a level of risk that is unlikely to cause business disruption.

Three areas of internal audit activity  In the red area the management will implement solutions to bring

exposure within the risk appetite of the board. Internal audit activity is likely to be of a consultancy nature.  In the yellow area there is a control risk line where, if key controls fail, the organization would be exposed to unacceptable or even catastrophic risk. This is where internal audit needs to provide assurance-based work as third line of defense.  The green area is likely to feature operational activity. Therefore some compliance audit may be appropriate to reassure the board about the continuity of control and to contribute to overarching opinion relating to control, governance and risk management.

The essential aspect of the internal audit plan is therefore a riskbased analysis, featuring not only the areas of perceived greatest risk, but also key controls within them. Then, it raises the question how to assess areas of greatest risks and controls built to manage the risks? How to define the auditable areas to be recommended to the audit committee for attention? The following factors should be considered by the head of

1. Pritchard,R.(2013). ” What planet are you on?”, July/ August 2013, p.22

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IMPACT ON BUSINESS

Categories of residual risks Critical 4

12

14

15

16

Major 3

8

10

11

13

Moderate 2

4

5

6

9

Minor 1

1

2

3

7

Almost Never 1

Unlikely 2

Likely 3

Almost Certain 4

Unacceptable level of risk exposure, which requires extensive management

Risk management measures need to be put in place and monitored

Acceptable level of risk subject to regular monitoring

LIKELIHOOD OF OCCURING

internal audit in a bank to prioritize the audits: a) Bank’s business goals and objectives The internal audit coverage should align with the bank’s strategic direction and the annual plan should demonstrate a good understanding of the goals, objectives and priorities of the bank. b) Consultation with the Board of Directors, and the Audit Committee, and the Chief Executive Officer, and senior managers c) External context Bank of Albania’s policies, economic and social conditions of Albania and the expectations of external stakeholders are all relevant factors that influence the plan. External sources, including, reports from the reviewers, regulators and the external auditor, are potential sources of risk, which should be considered as part of developing the plan. The expectation of stakeholders to whom the bank has a reporting requirement shall also be considered. d) Bank’s risks The bank’s current and future risk profile have an important influence on internal audit plan and the types and level of internal audit activity. Given that the bank’s risk identification process and risk management framework is established, the bank’s risk management plan is a key source of information, in developing the internal audit plan. In situations where the bank does not have an established risk management framework, internal audit needs to

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develop its own bank risk profile for discussion with the Audit Committee and the senior management of the bank. e) Mapping of assurance coverage It is important that the planned internal audit coverage complements, rather than duplicates, the work of other internal and external assurance and review activities. This consists of an analysis of the significant risks facing the bank and the extent to which each of the various assurance elements addresses these risks.

Such an exercise is a very useful way of obtaining a broad bankwide perspective of the assurance landscape and assists in identifying any gaps or duplication.

Additionally, the head of internal audit may develop a set of criteria to assess risks and controls and rank potential audit topics in a bank (see BOX).

Numerical scores can be allocated to each of the criteria which, can be aggregated further on to arrive at an overall audit ranking. Although audit scores can help to rank audit topics, such a process involves judgment of the head of internal audit in the allocation of individual scores.

Conclusively, prioritizing auditable areas is the distinguishing feature of a risk-based audit plan. Therefore, internal auditors should focus not on the whole universe, but on the most relevant aspects of it to help bank achieve objectives by delivering assurance that systems of control, governance and risk management are appropriate.

CRITERIA FOR ASSESSING RISKS AND CONTROLS IN A BANK • Internal control system MGT oversight and control - Control activities and segregation of duties - Information and communication - Monitoring activities and correcting deficiencies

• System, Organization, IT changes Known errors - Use of new technology/system - Development of new product - Staff changes - Staff number

• Competence and Integrity of Personnel - Experience and education - Integrity

• Hints and complaints - Potential irregularities - Complaints - Mystery Shopping

• Future strategic importance - Potential for cost savings - Potential for revenue increasing

• Time since last audits • Results of last audits • Requirements from regulatory for special audits (ASD; AML-DPPP) • Specific request from internal stakeholders - Board of Directors - Audit Committee - Executive Management

• Branch performance - Current accounts volume - Term deposits volume - Loan overdraft/ credit card volume

ECONOMIST CORNER

MONETARY POLICIES: PRICE STABILITY VERSUS FINANCIAL STABILITY Current global financial crisis brought to the limelight the importance of financial stability and showed clearly that, the objective of price stability alone is not sufficient to guarantee macroeconomic stability and especially sovereign debt issues and budget deficits.

by Prof.Dr. Adrian CIVICI President & Head of Doctoral School European University of Tirana, EUT – UET

T

he global financial and economic crisis of 2008-2013, confronted monetary policy with new challenges, regarding their relationships and implications with the overall financial stability and debt and budget deficits management policies, in particular. The most fundamental question made to monetary policies is whether they should play a more important role in maintaining financial stability, reducing negative effects of sovereign debts and improving the overall economic health, along with their “classic” mandate, in the field of price stability and inflation control?

Actually, this is so-much-present theoretical and academic debate, within scientific environments, central banks and universities, although it hasn’t reach an exhausted and consensus response among experts and scholars of monetary policy. The fact in the spotlight is that, before the financial crisis there did exist an almost absolute consensus on tasks and scope of monetary policy, whereas during the post-crisis period links between monetary policy and financial stability are still in an ongoing study and analysis process.

Debates about monetary policy, during the last 3-4 decades, have

been focused on links between inflation and economic activity, while the issue of financial stability/instability is seen as a fairly side objective of it. Experts explain this by the fact that, during the second half of the twentieth century, developed countries’ economies have been never faced with a financial crisis, similar to the last global crisis. Such econo-

Central banks should be more attentive to consider in their decision-making analysis for monetary policy, the elements which cause financial imbalances, as the crisis showed that financial risks are also price stability risks, which implies an expanding horizon for monetary policies and a change in their communication with the general public and economic stakeholders.

mies moved from a period of high inflation and stagflation of 1970s, to a non-inflationary period in 1980s, concluding that “inflation had not produced a sustainable economic growth and any reduction of unemployment, rather it led to a monetary instability, with negative consequences for growth and employment”. Meanwhile, this disinflation produced a reduction in macroeconomic volatility.

Beyond debates over favorable macroeconomic effects of this period, impacting the restructuring of many economies, or the improved management techniques, it seems that there is a broad consensus regarding positive effect, produced by monetary policies pursued, during this period. Firstly, long inflation’s longterm evolution was determined by monetary policies, which set “price stability” as their main objective, i.e. inflation stabilization or inflation targeting; secondly, the objective of price stability does not have countable costs for the economic activity, in a time when monetary policies, aimed at spurring economic growth, at the price of high inflation, had failed. The idea that ensuring price stability was the best contribution, that monetary policy can provide for economic growth and employment had triumphed, while central banks were focused more on flexible inflation targeting, rather than adhere to a strict inflation targeting; third, the

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The question on the table now is: should, in future, a wider mandate for monetary policy be seriously considered, in order for them to contribute more directly to the issues of financial stability? role inflation anticipation had played in the inflationary process itself, i.e. the positive effect of promises and the trust in central banks, that they would stick hard to the objective of price stability, fourth, the consensus that central banks needed a solid legal and institutional framework, capable to reinvigorate the authority and credibility of monetary policy and their focus on the objective of price stability.

The existence of clear mandates for “price stability” led many central banks to translate this mandate into quantitative targets for inflation, which created a nominal anchoring for anticipating inflation levels.

Central banks increased the transparency and communication level, thus making forecasts by economic agents look quite close to the central bank’s target. The independence of central banks increased further their credibility. Even the strategy of Eurozone’s monetary policy set the price stability as the primary objective of ECB’s monetary policy, by explicitly stating it in EU operation treaties.

Before the outbreak of the crisis, before 2008, a broad consensus did exist on relations between monetary policy and financial stability, as by ensuring price stability, the monetary policy contributed directly to financial stability, where the financial stability, on the other hand, facilitated the transmission of monetary policy itself, which was never shaken, as in the case of the latest global financial crisis of 2008-2013. The first two decades before the financial crisis emerged as a “divine coincidence”, during which the monetary policy, pegged at price stability and inflation level, was more than sufficient to ensure financial and macroeconomic stability. Many authors go even further, by noting that “easing (dynamic) and accommodating monetary poli-

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cies were the ones that sowed the seeds of global financial crisis and stimulated adventures toward significant risks, undertaken by brokers or through financial derivatives.”

However, for a countable number of financial experts, the objective of price stability was a necessary but not sufficient condition, to ensure financial stability, as the financial stability much benefited more from prudential policies of regulation and control, rather than monetary ones.

The hottest debate consisted in the fact whether monetary policy should consider or ignore the issue of asset price, and if so, in which form and in which way? Some experts championed the position that “assets’ prices, or other financial variables, should be taken into account by monetary policy, only in cases when they create implications on inflation, during time periods shorter than the 2-year periods, covered by key decisions of monetary policy”. So, they could not be specific targets, instead they were merely indicators, taken into account by central banks when forecasting inflation and (economic) growth, because financial bubbles were difficult to identify in real time and that those bubbles did not necessarily create financial instability, or significant macroeconomic fluctuations. Meanwhile, another category of experts defended the position that “central banks should take into account asset prices and finan-

cial disequilibrium, even beyond implications they may have on inflation, i.e. for periods longer than two years.”

They emphasized negative macroeconomic consequences that may be caused by the outbreak of financial bubbles, trying to curb asset price increase through the policy called “lean against the wind”. However, during the period 1970-2007, it was for the first group to dominate.

But this quasi 50-year-old consensus about the role and objectives of monetary policy was marred by the outbreak of global financial crisis, in 2008. Although is a bit early to reach all-accepted conclusions from lessons of the crisis, the debates and analyses about the future of monetary policies are synthesizing several “lessons” to be considered, during the new postcrisis period, which seems to start by 2014. Some of them to be mentioned are: (1) price stability is not enough to ensure financial stability, not less to ensure macroeconomic stability.

Inflation is not appropriate litmus, helping at warning about the next financial and monetary bubbles, which are being created or that could burst at any moment, moreover, these bubbles could lead immediately tot macroeconomic and financial instability, thus hampering seriously the transmission of monetary policy measures. Ensuring macroeconomic stability is achieved not only by seeking price stability but also asking for

prudential policies; (2) anchoring of inflation anticipations has remained stable even during periods of crisis, which means that, in times of contracting economic activity, due to the crisis, the relaxing monetary policies have positive effects, (3) the identification of real-time financial instability requires evidencing and studying many specific indicators, beyond asset prices as an objective of monetary policy, such as the prices in the real estate sector, the debt level of economic stakeholders, business financing costs, loan performance, instability of public finances and sovereign debt, etc.; ( 4 ) not only monetary policies, but also the economic and prudential ones should be seriously involved with managing the financial instability. Monetary policy alone cannot fight the economic crisis and financial instability.

These situations call for a bold presence and role of micro and macro prudential policies, in order to eliminate systemic risks. The efficient macro prudential policies, aimed at increasing the resistance capacity of financial system, facilitate the scope for monetary policy. The fact that monetary policy contributes to financial stability goes in the opposite direction to the price stability.

One of the lessons from the crisis is precisely that “focusing particularly on price stability in the medium term - not exceeding 2 years - poses a risk to financial stability and, consequently, the longterm price stability itself.” The fact that monetary policy can affect financial stability, fits well with fulfilling its classic objective, the long-term price stability, (5) the necessity to define clear mandates for monetary and macro prudential policies, in order to increase efficiency of these policies, by combining them together.

In conclusion, it can be said that the current global financial crisis brought to the limelight the importance of financial stability and showed clearly that, the objective of price stability alone is not sufficient to guarantee macroeconomic stability and especially sovereign debt issues and budget deficits. The question on the table now is: should, in future, a wider mandate for mon-

etary policy be seriously considered, in order for them to contribute more directly to the issues of financial stability? Among expert community of monetary policies and central banks a certain thinking is beginning to take shape that, ensuring financial stability requires a strengthening of prudential policies, especially macro prudential policies that limit systemic risks, stemming mainly from the interaction and interconnections between financial system institutions and the other part other the economic system. The causes of financial instability are different, in different countries of the world. Efficient macro prudential policies facilitate the scope for monetary policy avoid the inclusion of additional objectives, beyond that of price stability, as this crisis clearly demonstrated the necessity and effectiveness of inflation anticipations and central banks’ credibility

in monetary policy of price stability.

Central banks should be more attentive to consider in their decisionmaking analysis for monetary policy, the elements which cause financial imbalances, as the crisis showed that financial risks are also price stability risks, which implies an expanding horizon for monetary policies and a change in their communication with the general public and economic stakeholders. It should be noted that, even at this point, experts are divided in two groups, regarding the central bank’s mission and the necessity to be articulated through monetary and macro prudential policies. One group thinks that there should be a clear separation between monetary and macro prudential policies, while the other champions the position of their coordination and appearance as a single policy, in the context of central banks.

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SOCIAL CAPITAL

WORLD-CLASS PUBLISHERS IN ECONOMICS SPEAKING ALBANIAN THROUGH UET PRESS

by Mr Andi BIDOLLARI Director of Public Relations European University of Tirana UET-EUT

U

ET Press, the publishing house of the European University of Tirana, UET, has already written its biography by appearing at the Albanian public environment with a dual role, either as a serious and full-scale publisher with a clear strategy and transparency in scientific publications, or with impact on public life, to make possible a real transition toward a new stage of Albanian publications, in a very rapidly changing world, especially in its forms of communication. UET Press is an antenna of publishing the best domestic or foreign authors or books, targeted not only to Albanian students and researchers, but also to the whole Albanian environment.

Curriculum series (a university publication) is UET Press’ baseline and fundamental publishing series, which contain more than 100 publications and titles, whereas another 100 titles are planned or under publication. These are baseline university texts of five most popular publishing houses, major international brands, such as: Elsevier, Pearson, Sage, Oxford University Press, Cambridge University Press, McGraw - Hill Press, etc., which possess almost the most important quality capital for scientific publications, in today’s academic and scientific world market. Actually, students are provided with manuals, basic texts, exercise books or primary literature of such standard, by enabling a rapidly elevated teaching level, as far as teaching quality depends on textbooks or literature. Such publishing series, available to all Albanian students and lecturers, has established a new standard with regard to scientific

publications, and in the same time, standing firm against plagiarism, backwardness and extreme mercantilism of individual lecturers’ publications.

UET’s objective is to provide a basic text, practically the most wellknown and frequently used on foreign universities, for each subject delivered there, and that’s the philosophy of such publishing series, in the field of economics. Practically, UET Press has published some of the best titles in international economic studies, where the recently published book is: “Principles of Marketing”, by Philip Kotler and Gary Armstrong.

This is the basic and the most widely

used and important university textbook of marketing in the world; a practical and managerial approach to marketing, rich in examples and applications that show major decisions managers could face in their efforts to balance objectives and resources along the needs and opportunity in the global market.

Textbooks are translated into Albanian language by professionals, who are lecturers of respective subjects. Other textbooks are still under the publishing process, part of the economic series, like: Investment Management, Financial Management, Money and Banking, and EU Economic Theories.

UET PRESS PUBLICATIOnS Published: 1. “Basic Finance” - Herbert Mayo 2. “Economics: Macroeconomics & Microeconomics” - N. Gregory Mankiw & Mark P. Taylor 3. “Fundamentals of Management: Essential Concepts and Applications” - Stephen P. Robbins, David DeCenzo, Mary Coulter 4. “Introduction to Human Resource Management” – Paul Banfield, Rebecca Kay 5. “Public Finance” – Harvey S. Rosen 6. “Introduction to Business” – Julian Gaspar, Leonard Bierman, James Kolari, Richard Hise, L. Murphy Smith 7. “Principles of marketing” – Philip Kotler, Gary Armstrong 8. “Statistics for Business & Economics II” – David R. Anderson, Dennis J. Sweeney, Thomas A. Williams Under publication: 1. “International Economics. Theory and Policy” – Paul R. Krugman & Mauricie Obstfeld 2. “Management - Leading & Collaborating in the Competitive World” – Thomas S. Bateman, Scott A. Snell

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SOCIAL CAPITAL

ALPHA BAnK - ALBAnIA Donations for the New Year celebrations On the occasion of the New Year celebrations, Alpha Bank Albania used the budgeted fund for printing postcards, to support the families of the martyrs of the State Police. Mr. Periklis Drougkas, CEO of Alpha Bank Albania, said, inter alia, that this initiative comes as Christmas means giving more love and doing more for those in need. Also, this end-year Alpha Bank’s staff visited the premises of the “Baby House in Tirana” and donated different toys and clothes.

Supporting “Vlora 2013” contest Alpha Bank Albania supported the Literary Contest “Vlora 2013” with publications in prose, poetry, children’s literature, etc. Bank’s representatives attended the awards ceremony and Vlora Branch Director handed in “Petro Marko” Prize.

BKT “The Banker” awards BKT as “The Best Bank in Albania” for 2013 BKT was again awarded as “The Best Bank in Albania” for the year 2013. The prestigious financial magazine “The Banker” has awarded BKT’s successful financial management, its sustainable growth of profitability and market share, as well as its banking innovations. The award was handed to the President of the Board of Directors, Mr. Mehmet Usta, and CEO and member of the Board of Directors, Mr. Seyhan Pencabligil, at Gala evening, organized in London.

Supporting the initiative “Let’s clean up Albania for one day” According to its policy of social responsibility, Banka Kombëtare Tregtare supported the initiative of the Green Line Albania Association for the mass activity, held on 22 November 2013, for waste disposal, across the country.

CREDInS BAnK On the occasion of year-end festivities, Credins Bank offered its contribution to the National Center of Culture and the General Directorate of Police, by donating gifts to 3,000 children of Tirana kindergartens and for 300 children of police officers, killed on duty.

As part of its special care and attention to Art promotion, the bank supported the National Theatre of Opera and Ballet, for performing the Gala event, on the occasion of the 60th anniversary, and the special show of director Kiço Londo.

CREDIT AGRICOLE On 27 October, YWCA held for the fifth consecutive year, the event on breast cancer awareness. Credit Agricole Albania supported this important event, attended by representatives of all social strata.

The staff of Credit Agricole Albania was actively involved in helping participants with information and instructions to carry self-examinations, as well as to raise awareness about the importance of early detection of the disease. At the end of the activity, various informative flyers and promotional brochures were distributed, as well as cakes and symbolic gifts, under the Credit Agricole Albania bank’s logo.

FIRST InVESTMEnT BAnK As a tradition for Fibank, that year-end festivities’ greetings are accompained with donations to those who most need support, this year’s greeting cards were bought in favor of “Down Syndrome Albania” Foundation. Fibank will consistently support this recently established foundation in Albania, to support children with the Down syndrome.

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INTESA SANPAOLO BANK ALBANIA Live ART in Tirana, Durres, Vlora, Korca and Shkodra Intesa Sanpaolo exhibited works of 26 finalists of LiveART 2013 Painting Contest in Tirana, close to the National Art Gallery on 1-10 October, in Durrës at Visual Art Gallery “Nikolet Vasia”, on 1-30 November, in Vlora at the lobby of “Petro Marko” Theater, on 14-30 November, and at the cultural center “Guri Madhi” in Korça, on 13-30 December 2013. This project reinforces the Bank’s commitment to promote culture and art, pursuant to the principles of Corporate Social Responsibility. LiveART will become an annual tradition.

Two scholarships for Albanian students in Italy The Bank sponsored two scholarships to Albanian students in Italian universities, within the framework of the Italian Embassy Project to support the Albanian youth with outstanding results in the continuation of their studies. Two students, Grigor Angjeliu and Eljona Muçostepa were awarded with 2,000 Euros each. Cheques were handed over by the Director of the Retail Division Mr. Prestopino, in a ceremony organized by the Italian Institute of Culture, on the occasion of the “Week of the Italian language”.

Voluntary Blood Donation - A human act that saves life!

As a consolidated establishment, the Group of Voluntary Blood Donors of this bank organized a second donation initiative for this year, at “Rruga e Barrikadave” branch and headquarters, in 7-8 November 2013. This donation was attended by 35 colleagues.

The number of donations during 2013 is over tripled, compared with 2012, thanks to the commitment of colleagues in this humanitarian initiative and bank’s increased awareness about voluntary blood donation.

Supporting the initiative: “Let’s clean Albania for one day” “Let’s clean Albania in one day” initiative, part of the global initiative “Let’s do it!

Cleanup of the World”, was organized as a domestic initiative, thanks to colleagues’ voluntary commitment under the motto “We are our stories! We are Intesa Sanpaolo Bank!”. The bank staff participated voluntarily in cleaning areas at “Tirana e Re”, the inner area of “Dinamo” sporting complex, as well as the surroundings of the bank branch in “Kombinat” area.

Day of Disabled Persons, in Korca The Bank supported the activity of Korca Municipality, organized on 3December 2013 at “Tamara Nikolla” sports hall, on the occasion of the International Day of Disabled Persons.

The children of this community took part in various sporting and cultural activities with themes such as: “Yes, we also Can”.

Donations to SOS Village Children The staff of Intesa Sanpaolo Bank Albania visited SOS Village children on Friday, 27 December 2013, on the occasion of the year-end festivities, adding to the Bank donation also the voluntary donations of the staff in financial values or material goods, meeting the basic needs of these children and wishing them the Holidays.

“Albanian Ball” At the end of December, the Bank supported the Albanian Ball, a high-level Gala event organized under the auspices of the President of the Republic. Intesa Sanpaolo Bank supports the activities aimed at the preserving, promoting and developing spiritual values , expressed in Art.

PROCREDIT BAnK ProCredit Bank introduced Albanian agricultural businesses in the German market On 29 November 2013, in Essen, Germany there was organized the Economic Day, where ProCredit Bank participated with its clients, in the field of agricultural business. ProCredit Bank offered its partners the opportunity to promote the agricultural production, not only for companies operating in the Western Balkans (Albania, Kosovo and Macedonia), but also for German companies that expressed interest in expanding and strengthening trade relations. This activity enabled the Albanian businesses in the agricultural business sector to create new business relationships, to raise standards and production exports.

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NBG BANK ALBANIA Supporting talented students NBG Bank Albania continues to cooperate with Faculty of Economics of Tirana University, supporting students through initiatives aimed at training and preparing them to be introduced and approach the labor market. At the graduation ceremony of students of Faculty of Economics, NBG Bank - Albania offered full financial coverage to continue their studies at Masters level, for students with outstanding results. During 2013, twenty students were involved in the internship program at NBG Bank Albania, also taking all necessary training.

Supporting “Albania donates” NBG Bank Albania has become part of the campaign “Albania donates”, by supporting activities in different cities of the country. In cooperation with the Department of Education in Gjirokastra, the bank awarded gifts to 50 outstanding students in their year end celebrations. Following the activities in the city, under the slogan “Gjirokastra Donates”, in collaboration with the Regional Social Service and Gjirokastra Prefecture, the bank donated food packages to families in need and gifts for orphaned children in the “Warm Fireplace” center.

“NBG Bank Albania donates” Under the motto “NBG Bank Donates”, the bank distributed gifts and aid to disabled persons in Berat. This initiative was embraced by the staff of the bank, which prepared food and clothingpackages, by voluntary contribution, then distributed at an event organized in collaboration with the Regional Service and the Ministry of Social Welfare and Youth, under the auspices of the Minister Mr. Erion Veliaj.

RAIFFEISEn BAnK Raiffeisen Bank funds the planting of 390 trees, in cooperation with Tirana Municipality On 17 December, at the Artificial Lake park, Raiffeisen Bank in cooperation with tirana Municipality organized a ceremony, on the occasion of sponsorship for planting 390 trees, which was attended by Mr. Christian Canacaris, CEO of Raiffeisen Bank and the Mayor of Tirana, Mr. Basha. Mr. Canacaris said that Raiffeisen Bank was satisfied and that it was among the first companies that answered the call by Mr. Basha for planting new trees and increasing green areas in Tirana.

Sponsoring the purchase of hospitality materials for diagnostics at Oncology Clinic at the UHC Minister of Health, Mr. Ilir Beqaj and Mr. Christian Canacaris, CEO of Raiffeisen Bank Albania, signed a sponsorship agreement between the bank and the Ministry of Health, according to which Raiffeisen Bank undertakes to cover the expenses, amounting at EUR 30,000, for the purchase of hospitality materials, like kits and necessary reagents for diagnostics, at Oncology Clinic of University Hospital Center (UHC). During the ceremony, Mr. Canacaris said that Raiffeisen Bank is sensitive to the situation in this sector, thus responded positively to the request of the Ministry.

TIRAnA BAnK Tirana Bank supports the lonely elderly in the International Day Against Poverty On 17 October, the International Day Against Hunger, Tirana Bank joined the initiative of the Albanian Red Cross: “Think of those who are not like you.” In this context, at the offices of the Red Cross in Tirana, Tirana Bank distributed 100 food boxes for elderies living alone. This activity is part of the bank’s commitment to help the community in which it operates, and increases awareness for contribution to people in need.

Supporting breast cancer awareness October is the month of breast cancer awareness, in the spirit of united community, to honor breast cancer survivors, to raise awareness about the steps that can be taken to reduce its incidence. This year, Tirana Bank joined this initiative by supporting TV campaigns, as well as printing and distributing posters to promote awareness and encourage examinations, through its central office and all branches, to raise the awareness of its staff, clients and community.

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BALKANNET

INTERBALKAN NEWS BOSnIA-HERCEGOVInA

by the Ministry of Finance, Standart daily reports. The new rules will give banks an opportunity to lend more money. In the EU, the capital adequacy requirement is 8%.

Sarajevo

Bosnia’s non-performing loans increased to 14.9% in Q3 2013 hispanicbusiness - 02.12.2013 Bosnia’s non-performing loans increased to 14.9% of total loans in the third quarter of 2013 from 12.7% a year earlier and 14.3% at end-June, central bank data showed. Bosnia’s banking sector remains well capitalized with a capital adequacy ratio of 17.0% at end-September, up from 16.7% a year earlier. The banking sector’s liquidity improved in annual terms as the ratio of liquid assets to total assets stood at 25.3% at end-September, up from 24.8% a year earlier.

EBRD is providing a €10 million loan to Bosnia Herzegovina’s Sberbank Balkans.com Business News Correspondent - 10.12.2013 The EBRD is providing a €10 million loan to Bosnia Herzegovina’s Sberbank BH d.d. The funds are being provided under the Western Balkans and Croatia Financing Framework aimed at supporting banks and non-bank financial institutions in extending finance to small enterprises. To date, the EBRD has invested more than €1.6 billion, in some 110 projects in Bosnia and Herzegovina, with a focus on infrastructure development, support for SMEs, and strengthening the financial sector.

BULGARIA

Sofia

Bulgarian banks will now have more free money Balkans.com Business News Correspondent - 06.11.2013 Bulgarian banks will now have more free money after the requirement of a minimum 12% capital adequacy was removed by an amendment of the Credit Institutions Act

Bulgarian banks have participated heavily in foreign currency lending Balkans.com Business News Correspondent - 08.11.2013 Bulgaria is well served by foreign and domestic owned banks with notable clustering around Sofia and along the Black Sea coast. When questioned about competitors in SME, large enterprise and retail lending, all responding banks agreed that foreign-owned banks are strong competitors. Bulgaria is one of only two countries in the region where the percentage of banks that agreed or strongly agreed that information on banking laws is consistent and predictable increased from 2007 to 2011.

CROATIA

Zagreb

Croatia is completely ready for the allocation of money from EU funds Balkans.com Business News Correspondent - 06.12.2013 Croatia is completely ready for the allocation of money from European Union funds, the Deputy Prime Minister and Minister of Regional Development and EU Funds, Branko Grcic, said at a Cabinet meeting. Croatia has been given access to 1.12 billion euros in all EU programs, of which 806 million or 72% has been approved through projects, according to Grcic.

Croatia’s Central Bank predicts the fall in GDP to be milder than earlier outlook Dalje - 15.10.2013 The Croatian National Bank (HNB) expects that the total fall in economic activity in 2013 could be a little milder than the HNB’s outlook given in July when the central bank projected a fall in GDP of around one percent.

Expected economic growth over the next few years will continue to remain weak and accelerated growth can only be achieved through raising competitiveness of the domestic economy based on extensive structural reforms, HNB believes.

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MOnTEnEGRO

GREECE

Athens

Podgorica

Moody’s has upgraded the mortgage covered bonds of five Greek bond programs The Street - 11.12.2013 Moody’s Corporation (MCO) has upgraded the mortgage covered bonds of five Greek bond programs including National Bank of Greece to B3 from Caa2.The upgrade covers the ratings of the mortgage covered bonds issued

by Alpha Bank A.E., under its Direct Issuance Global Covered Bond Programme, Eurobank Ergasias S.A. Eurobank, under both of its programs and National Bank of Greece, under both of its programs.

Greece’s growth rate of new nonperforming loans is easing Balkans.com Business News Correspondent - 19.11.2013 It appears that Greece’s growth rate of new NPLs is easing as bank officials say that third-quarter results will reflect that the slowdown in the creation of bad loans continued for a second quarter in a row. Containment of bad loans is a key issue for the future of the country’s credit sector. Bank officials explained to Kathimerini that unless the economy reverts to growth, the banking sector will be forced to face the risk of finding itself in a difficult position again.

KOSOVO

Montenegro’s commercial bank assets increased 5.4% y/y Hispanic Business - 26.11.2013 Montenegro’s commercial bank assets increased 5.4% at end-October, mainly reflecting slower increase of cash and deposits held with the central bank while private sector’s lending growth strengthened over the period, data from the central bank (CBCG) showed. The total assets-to-GDP ratio stood at 91% at end-October, up from 85% a year earlier, according to IntelliNews calculations.

Montenegro plans to sign a contract with the World Bank for the project “Energy Efficiency in Montenegro” Balkans.com Business News Correspondent - 18.11.2013 Montenegro’s Finance Minister Dr Radoje Žugić associates met with Anabel Abreu, head of the World Bank Office for Montenegro and Bosnia-Herzegovina. The meeting also discussed the status of the projects, with the support of the World Bank, implemented in Montenegro, concerning the field of energy and environmental protection. It was announced that negotiations related to the project “Energy Efficiency in Montenegro”, has successfully completed and the next step is signing the credit agreement in the amount of 5 million euros.

MACEDONIA Pristina Skopje Kosovo to commence the use of financial institutions SWIFT codes with proper country identification BQK -06.12.2013 On 9 December 2013, Kosovo commenced of the new SWIFT codes of banks in Kosovo that already are directly connected to SWIFT (ProCredit Bank, Raiffeisen Bank, TEB, NLB Prishtina, and Turkiye IS Bankasi Kosovo).

These SWIFT codes identify relevant institutions as Republic of Kosovo institutions. Relevant information can be found on these banks’ websites.

Governor Hamza participated in the annual meetings of the IMF and World Bank in Washington DC BQK -12.10.2013 Governor of the Central Bank of Kosovo, Mr. Bedri Hamza accompanied by the CBK delegation is participating in regular annual meetings of the IMF and the World Bank, which took place in Washington DC. During the meetings Governor Hamza received these institutions support for ongoing projects and new future projects, which will directly contribute to the further development of the financial sector in the Republic of Kosovo.

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EBRD is increasing its support to FYR Macedonian enterprises Balkans.com Business News Correspondent - 20.12.2013 The EBRD is increasing its support to FYR Macedonian enterprises with two credit lines to Ohridska Banka Societe Generale. A loan of up to €6 million will be used to finance energy efficiency investments and a second loan of €1 million will be provided for competitiveness improvements of SMEs. The EBRD started investing in the FYR Macedonian economy in 1993 and to date has signed over 80 projects in the country.

Banks should support private sector more, says FYR Macedonia’s Fin Min Balkans.com Business News Correspondent - 18.12.2013 The banking sector should give bigger support to private companies, banks are stable and strong and there is no reason for credit activity not to be rehabilitated,

and especially this refers to support by several largest banks in the country, FYR Macedonia’s Deputy PM and Finance Minister Zoran Stavreski said at FINEXPO 2013.

The banking sector this year moves good, has enough liquidity both for support of projects of the companies and for purchasing bonds and treasury bills, Gjorgji Jancevski, President of the Banking Association within (FYR) Macedonian Economic Chamber said.

ROMAnIA

Bucharest

About 70% of clients’ operations done through online banking- OTP Bank Balkans.com Business News Correspondent - 12.12.2013 Dragos Mindreci, director digital banking at OTP Bank Romania, said that internet banking has grown in popularity for the lender, with 70 percent of the total operations of clients being completed through this channel, while the rest in the physical agencies. The lender has launched a new version of its mobile banking application, OTPdirekt – Smart Bank, accessible from smartphones and tablets.

Three top list banks that enjoy the best reputation in Romania Balkans.com Business News Correspondent - 03.12.2013 ING Bank, Raiffeisen Bank and Banca Transilvania lead among banks that enjoy the best reputation in Romania, according to GfK reputation management study conducted using Reputation Management Model - RepMan®. ING Bank, Raiffeisen Bank, Banca Transilvania and BRD Societe Generale are also the main bank for 60% of the urban banked population. According to Romanians, the bank with the best reputation has to be people oriented, very preoccupied by its customer satisfaction and driven by principles like honesty, transparency, ethics and responsibility.

SERBIA Belgrade

National Bank of Serbia is mandated to strengthen the stability of the financial system Balkans.com Business News Correspondent - 26.12.2013 The National Bank of Serbia Executive Board adopted in its meeting of 17 December the Strategy for Implementation

of Basel III Standards in Serbia as part of its efforts to continuously improve the regulatory framework for banking operations in line with international standards and EU regulations. The process will be fully transparent and the Strategy and any potential amendments and/ or supplements to the Strategy will be published on the central bank’s website.

World Bank will approve a loan worth 500 million dollars to Serbia Balkans.com Business News Correspondent - 15.11.2013 The World Bank will approve the loan worth 500 million dollars to Serbia to support the budget and implement reforms, while the loan worth 250 million dollars for the first stage of reforms could be approved in February or March, 2014 already - World Bank’s Director for the West Balkans Ellen Goldstein announced. Goldstein specified that the support to the Serbian budget implies severance packages, funds for the unemployed and various programs that would enable persons who lose their jobs to find new jobs or acquire new skills.

TURKEy

Istanbul

Turkish banks may face pressure in 2014 from rising interest rates Balkans.com Business News Correspondent - 23.12.2013 Turkish banks may face pressure in 2014 from rising interest rates, slowing economic growth and a weakened Turkish lira, Fitch Ratings says. These trends will contribute to a modest fall in margins and rise in loan impairment charges, but strong capitalization, healthy funding structures and liquid balance sheets will help minimize the impact on credit quality, leading to a stable rating outlook for the sector. Potential interest and currency rate shocks are the greatest risks to the Turkish banking sector as they would feed through to borrowers and weaken loan quality Turkey aims to increase regulations on loans and credit cards Balkans.com Business News Correspondent - 14.11.2013 Turkey’s Deputy Prime Minister Ali Babacan has said the government has been implementing regulation three specific areas across the financial services sector, namely with regard to banking services, loans and credit cards; the objective of the regulatory measures is to raise savings rates. During a press conference held to celebrate the 10th anniversary of Turkey’s private pension system (BES) he went on to say, “We have implemented a significant amount of regulation in this field. The banking watchdog (BDDK), Central Bank, Treasury and Development Ministry have also been in the process of leading an impact analysis of these projects.”

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TECH TOPICS

ONLINE COMMUNICATION SECRECY Banks are responsible for protecting not only themselves, but also their customers and other corresponding parties, so financial institutions have been among the pioneers for developing secure communications.

by Mr Oerd CUKALLA IT Officer Veneto Banka

T

he world we live in is heavily dependent on electronic devices; we keep them on our desks, purses and pockets and use them to connect with other electronic devices regardless of their remote location. Waiting and set-up times of previous remote connections are reduced drastically, resulting in better and faster communications. Banks have been among the first to take advantage of the diffusion of electronic communications.

They have established real-time connections with their branch offices, installed Automated Teller Machines in remote areas, have provided customers with electronic payment processing, quite similar to what is available in front of real counters in real offices, without complementary waiting times. These are jointly called “online services” in the banking sector.

Increasing the reach of communication has significantly reduced the secrecy, provided by close and intimate communications. To cope with this obstruction and provide secrecy for communications, cryptography has been employed since the ‘90s with mainly satisfactory results. Cryptography used to be defined as the art of writing and reading through codes.

Nowadays, it enables two remote parties to communicate in complete secrecy under the condition that they

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apply correctly a pre-established communication protocol. Secrecy is rendered possible by the knowledge of a shared secret or key and a method to use this key to encode communication data.

Cryptography’s mostly used communication protocol uses the same key for encoding data as well as for decoding. This operating mode is called symmetric key encryption.

Communicating parties agree upon a secret key (a word, a phrase or a combination of characters) and use it to encode communications in a way that only who has knowledge of the key is able to decode the message and understand the contents. Every secret line of communication requires its own unique key. For communications to be really secret, these keys need to be unique and secret, creating a need for key management. In spite of all advantages provided by symmetric key cryptography, banks remain still exposed to unresolved issues: they need to share a secret key (key transmission) with each customer; safeguard the secret of a large number of keys (key management); and more important, banks

Banks in Albania can take another step into making communications more secure: acquire digital certificates signed by authorized and recognized Certificate Authorities.

and customers need to be assured of the identity of corresponding parties at the other end of communication lines (mutual identification).

Fortunately, these issues have been addressed by another cryptographic protocol, a development of modern cryptography: asymmetric key encryption. In this encryption protocol each party has two keys, one is kept private and one is made public. The asymmetric key encryption protocol requires messages to be encrypted with the receiver’s public key and can be decrypted only by his private key. In some cases, a sender can apply another round of encryption with his private key, assuring the receiver of the sender’s identity.

Besides providing communications secrecy, asymmetric encryption enables identification of the corresponding party and simplifies key management by reducing the total number of keys in a single couple for all communications.

Without delving into cryptography’s technical aspects, the following is a general view of how cryptography can help establish secure communications. In information security, a secure communication is one where communicating parties (1) are undeniably identified, and (2) are the only ones capable of decrypting the communication. These requirements are not accidental. Banks are responsible for protecting not only themselves but also their customers and other corresponding parties. For this reason, financial institutions have been among the pioneers for developing secure communications. Encrypted tunnels and Virtual Private Networks (VPN) were initially used to secure communications. Later, Certificate

Authorities (CA) were established to vouch for publicly distributed encryption keys. Hassle-free secure communications were made possible for the masses by such cryptographic tools enabling undeniable identification of organizations and individuals throughout the globe. This is of critical importance in a communications channel as public and anonymous as the Internet.

Virtual Private Networks (VPN)

A private network is a computer network completely or partially isolated from the Internet. Equipment connected in such networks is considered protected from external attacks either due to the complete lack of communication or the presence of a firewall device that controls and filters incoming and outgoing communications according to some predefined rules. Branch offices with such connectivity are lonely islands that cannot entrust their communications to the public and anonymous Internet. Virtual private networks (VPN) make possible extending the boundaries of private networks by creating encrypted communication channels between remote branch offices. Distance between branch offices suddenly is not meaningful and communications are protected and secret from the Internet. VPNs enable access to internal network resources from personnel or service providers that are not physically in the office building.

Secure Socket Layer (SSL)

Secure Socket Layer (SSL) in its core is an encrypted communications protocol that takes the best of both symmetric and asymmetric encryption.

Symmetric encryption is a relatively simple and fast protocol suffering

Cryptography used to be defined as the art of writing and reading through codes.

Nowadays, it enables two remote parties to communicate in complete secrecy under the condition that they apply correctly a pre-established communication protocol.

from key transmission and identification problems, while asymmetric encryption is exactly the opposite. The SSL protocol works in two stages.

During the first phase, the connecting client and the bank use asymmetric encryption to verify each other’s identity and to exchange a secret encryption key. The next stage establishes a secure communication channel encrypted with the symmetric key generated during the previous phase.

After continuous enhancements, SSL version 3.0 is generally considered to be secure if the generated symmetric keys are longer than 128 bit. This protocol is used by clients during ebanking operations and electronic payments and is recognizable by its “https://” prefix.

known by every SSL-enabled electronic device. Extreme caution is mandatory when Internet browsers warn about dubious digital certificate origins. Forms should not be filled out and, generally, no personal data should be given away. If we still decide to continue communication, there are no guarantees about the communication’s secrecy or the corresponding party’s identity. Certificate issues generate warnings that someone might be spying on the communication and maybe altering transmitted data. Although unlikely, this is a present danger not to be taken lightly when using online services from a bank.

Certificate Authorities (CA)

In addition to the responsibility of banks to inform customers about the risks they are exposed to, banks also have a responsibility to find the right balance between security measures and usability of secure services.

Studies in information security have shown that users will often find a security-compromising workaround for security measures imposed on them. Awareness campaigns about security mechanisms of electronic cards and e-banking have had satisfactory results (do you still keep your PIN in your wallet?) Banks in Albania can take another step into making communications more secure: acquire digital certificates signed by authorized and recognized Certificate Authorities. Their benefit is secured communication between customers and banks’ online servers and less surprising moments when browsers warn about a bank’s certificate authenticity.

Increased use of asymmetric key encryption brought forth the need to verify public keys of institutions, organizations and individuals. To meet this need, several entities called Certificate Authorities (CAs) were created to act as public notaries for issuing digital certificates. A digital certificate is just a public SSL key to which an electronic signature is applied by the Certificate Authority. This makes it possible for Internet browsing software like Google Chrome and Mozilla Firefox to be able to verify the authenticity of digital certificates.

In daily browsing activities, we are often faced with red boxes of alert messages if the SSL certificate is not signed by a recognized Certification Authority or if the certificate has expired or is revoked.

Customer-side issues

Digital signatures of authorized Certificate Authorities are publicly

Provider-side issues

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40 • BANKIERI • www.aab.al

FINANCIAL AUDITORIUM

ISSUES AND VIEWS ON PRIVATE BANKING Private banking is not an easy profession, as recently it has been the subject of higher attention of the national and international supervisory authorities.

by Mr Roberto RUOZI Professor Emeritus UNIVERSITÀ BOCCONI DI MILANO

P

rivate banking is defined by the international practice as the activity of management of assets, in particular financial assets, of considerable size, thus belonging to highincome families, generally defined as HNWI (High Net Worth Individuals). In principle, financial intermediaries that are active in this domain, set certain minimum limits for the assets they take under management.

These limits vary amongst different countries. In Italy, for example, the limit is set at 500.000 Euro. In the United States and other highly developed countries, these limits increase up to 1.000.000 Euro, or US Dollars, respectively. Obviously, the private banks are, nonetheless, flexible in this regard, and willing to accept lower sizes of assets, especially when aiming to obtain new customers.

Customers are usually sophisticated and demanding, requiring a personalized treatment and more often than not, necessitate tailored financial products. The criteria on which the management of customers’ assets is based are, of course, various and reflect the respective risk appetites, which shall also determine the return expectations.

The professionalism of the private bankers, hence, must be high, and they must have a wide and deep knowledge of all segments of the financial trade in all major international markets. The diversification of portfolios, especially in terms of products and markets, is in fact a core element for the success of private banking. It generally increases with larger sizes of portfolios and financial literacy of the customers. Additionally, the latter

varies greatly from one country to another, reflecting the degree of development of the respective markets.

In addition to professionalism, the private banking necessitates also great confidentiality, which has always been one of the basic requirements for asset managers and bankers in general, and ever more transparency, especially with regard to the terms and conditions included in the contracts with customers. These conditions mainly concern the fees charged to customers that may relate to the management, the performance, and trading of securities. There is a big debate, at an international level, over whether the methods of remuneration of private bankers can be specifically modified in order to ensure that the managers divide with the customers not only the positive returns of the management, but also the negative ones, especially when the markets are not on their best performance.

It is obvious that private banking is not an easy profession.

Moreover, and especially in recent years, it has been the subject of higher attention of the national and international supervisory au-

www.aab.al • BANKIERI • 41

thorities, who have regulated it with very rigid discipline, both in terms of relationships with customers, and for the purpose of anti money laundering and handling of the transactions with related parties.

Nevertheless, the private banking can be carried out by several types of financial intermediaries. For example, in Italy this activity is carried out by 226 intermediaries, of which 50 Italian commercial banks, 35 foreign banks, 10 specialized banks (the real private banking institutions), 22 financial companies and boutiques, 4 networks of financial advisors, and 105 family offices.

Furthermore, private banking is strongly developing, and has a huge potential market despite the financial crisis that hit the world since 2007.

Actually, in 2012 the number of potential customers worldwide, i.e. the aforementioned HNWIs, has exceeded 12 million, with an increase of 10 per cent compared to the previous year. Their total assets exceeded US$ 46 trillion, also showing an increase of 10 per cent over the previous year.

The countries of North America and Asia are those recording the best progress in the private banking profession.

Of course, not all potential customers become eventually actual customers. In Italy, for example, the value of the assets managed by private bankers amounts to approximately 50 per cent of the potential market.

In Albania, the private banking is still at an early stage of its development, evidencing, nevertheless, some relatively successful movements of some banks that belong to international groups. Currently the technical content of this activity is quite moderate, and the minimal limits for access are relatively low. Since the concentration of wealth in the country seems high, as evidenced by the fact that 5 per cent of bank depositors possess around 58 per cent of total deposits, the prospect for this industry is encouraging. The progressive improvement of the structure and functioning of the domestic financial system also pushes to the same direction. The accession of Albania in the European Union would then be crucial, as it would open up important new areas for investment of the national savings.

1)

PRIVATE BAnKInG1) Private banking forms an important, more exclusive, subset of wealth management. At least until recently, it largely consisted of banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. On the whole, many clients trusted their private banking relationship manager to ‘get on with it’, and took a largely passive approach to financial decision making.

Private banking has a very long pedigree, stretching back at least as far as the seventeeth century in the case of some British private banks. It is, however, only really over the last two decades or so that the term ‘wealth management’ has found its way into common industry parlance. It developed in response to the arrival of mass affluence during the latter part of the twentieth century; more sophisticated client needs throughout the wealth spectrum; a desire among some clients to be more actively involved in the management of their money; a willingness on the part of some types of financial services players, such as retail banks and brokerages, to extend their offerings to meet the new demand; and, more generally, a recognition among providers that, for many clients, conventional mass-market retail financial services are inadequate. Wealth management is therefore a broader area of financial services than private banking in two main ways: PRODUCT RANGE. As in private banking, asset management services are at the heart of the wealth management industry. But wealth management is more than asset management. It focuses on both sides of the client’s balance sheet. Wealth management has a greater emphasis on financial advice and is concerned with gathering, maintaining, preserving, enhancing and transferring wealth. It includes the following types of products and services: Brokerage. a) Core banking-type products, such as current accounts, time deposits and liquidity management. b) Lending products, such as margin lending, credit cards, mortgages and private jet finance. c) Insurance and protection products, such as property and health insurance, life assurance and pensions. d) Asset management in its broadest sense: discretionary and advisory, financial and non- financial assets (such as real estate, commodities, wine and art), conventional, structured and alternative investments. e) Advice in all shapes and forms: asset allocation, wealth structuring, tax and trusts, various types of planning (financial, inheritance, pensions, philanthropic), family-dispute arbitration – even psychotherapy to children suffering from ‘affluenza’. f) A wide range of concierge-type services, including yacht broking, art storage, real estate location, and hotel, restaurant and theatre booking. g) Based on research by BCG, non-cash investments may account for no more than c.36% of the global wealth management revenue pool.

CLIENT SEGMENTS. Private banking targets only the very wealthiest clients or high net worth individuals (HNWIs): broadly speaking, those with more than around US$1 million in investable assets. Wealth management, by contrast, targets clients with assets as low as $100 000, i.e. affluent as well as high net worth (HNW) clients.

Global Private banking Wealth Management – The New Realities, David MAUDE, 2006, p.1.

42 • BANKIERI • www.aab.al

AAB

ALBANIAN ASSOCIATION OF BANKS ACTIVITIES AAB - ACTIVITIES AAB ON FINANCIAL EDUCATION, 20.11.2013

AAB SIGNS THE MEMORANDUM OF COOPERATION WITH MINISTRY OF SOCIAL WELFARE AND YOUTH , 24.12.2013

AAB, in the framework of its commitment to financial education, presented at the premises of “Fan S. Noli” elementary school, the new educational package “1,2,3...Çufo piglet learns to save”, dedicated to pupils of 1st, 2nd and 3rd form of elementary schools. This year AAB distributed for free some 2.500 copies of this package.

AAB ORGANIZED THE 17 DECEMBER 2013

YEAR-END

GALA DINNER,

AAB organized the Annual AAB Gala Dinner for the celebration of End-Year festivities, with bank directors and other representatives of member banks, Governor Ardian Fullani and other guests from Bank of Albania, and also members of “Bankieri” Magazine’s Editorial Board. Special guests at this dinner were also the Ambassador of EU Delegation in Albania, Mr. Ettore Sequi, and Mr. Nadeem Ilahi, Chief of IMF Mission in Albania.

The Memorandum of Cooperation between the Ministry of Social Welfare and Youth (MSWY) and AAB member banks aims to establish synergies which consist on joint activities for the implementation of practices for professional schools students. The Memorandum was signed by Minister, Mr. Erion Veliaj, and AAB Chairman Mr. Seyhan Pencabligil.

AAB – TRAInInGS

“PRIVATE BANKING”

“TRADE FINANCE OPERATIONS”

4 October 2013

7-9 October 2013

24-25 October 2013

"AUDITING THE TREASURY FUNCTION – A PRACTITIONER’S GUIDE" 11-12 November 2013

PCI DSS

“GUARANTEES AND RECEIVABLES”

10-11 October 2013

“MENAXHIMI I SIGURISË NË BANKA”

16-18 dhjetor 2013

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44 • BANKIERI • www.aab.al