Bankieri No.11 - April 2014

No. 11 April 2014 Publication of the Albanian Association of Banks

Agriculture

the next frontier

AAB Members

www.aab.al

No. 11 April 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

Agriculture

the next frontier

financial industry's developments in general, and of commercial banks in particular.

Editor’s DeSK Agriculture – the next frontier

by Elvin Meka

p.5

Frontline Credit to agriculture - issues and opportunities for banks

by Adela LEKA Credit to agriculture as a means for development, growth and formalization by Edmond PANARITI

p.6 p.9

Journalist’s corner AGRICULTURE – Many challenges and need for a new credit momentum by Besart KADIA

p.11

INTERview Customer Intimacy – the ICB’s red thread Interview with Gideon van der BROEK

p.13

Banking System Benefits & Flexibility, keywords for a sustainable growth

by Alberto PRESTOPINO

p.14

p.17

European banks are waiting by Roberto RUOZI

p.19

p.21

Experts’ forum Private pension contributions – a (non)tax-exempted contribution! by Teuta BALETA and Rinald GURI

p.25

Economist Corner Abenomics as “the three arrows policy” - debates and doubts about its efficiency by Adrian CIVICI

p.27

Social Capital Banks' Activities

Eftali Peçi Coordinator Junida Tafaj (Katroshi) Collaborator Andis Rado 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 Bozhidar TODOROV AAB Executive Committee Member & CEO of First Investment Bank Endrita XHAFERAJ Secretary General, Albanian Association of Banks

p.35

Adrian CIVICI President & Head of Doctoral School European University of Tirana Spiro BRUMBULLI Chief of Cabinet, Ministry of Finance

p.39

AAB Albanian Association of Banks Activities

Elvin Meka Editor-in-Chief

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

Tech Topics SWIFT - 20 Years in Albania, a 20-year partnership

by Najada XHAXHA

Editorial Team::

p.31

Balkan Net Interbalkan News

Publication of the Albanian Association of Banks

Printed by:

Technological improvement in statistical reporting – a password of modern times by Diana SHTYLLA and Sonila TAÇI

Bridge Financing – an alternative to address government dues to companies by Altin HOTI and Elvin MEKA

Bankieri No. 11, April 2014

p.42

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

AGRICULTURE – THE NEXT FRONTIER Agriculture is not a usual business, like any other business, but in contrast to other businesses it strongly assists at ensuring a sustainable economic development. This feature makes agriculture quite unique and highly strategic, in the frame of national economy, and the support from banks far exceeds the fact of being simply an issue of loan portfolio and monetary benefits.

by Dr Elvin MEKA1 Editor-in-Chief

“Farming looks mighty easy when your plow is a pencil, and you’re a thousand miles from the corn field!”

This famous quote from Mr. Dwight Eisenhower, the 34th President of the United States, explains clearly the complexity of financing agriculture and the overall agribusiness. It sounds a bit familiar, when it is put in the context of the Albanian financial and agricultural reality.

Throughout its journey, the Albanian agriculture sector has experienced an almost endemic paradox, as it is quite obvious the evident discrepancy between the role and weight of the agriculture in Gross Domestic Product and its financing by the financial sector and public funding schemes.

Typically, it constitutes the main daily activity for almost half of the country’s population residing in rural areas, contributing 20 percent to GDP in the country, but so far it has managed to obtain funding from the financial system, at a modest figure of less than 2 percent of total outstanding loans.

But this paradox per se is not the biggest issue, because it is amazingly fully justified. This is because the penetration of banking services in agriculture remains a challenge, mainly due to high funding costs, the fundamental problems associated with lack of standard collateral to guarantee loans, informality, lack of information, cooperation between farmers, palpable segmentation of agricultural farm and land, lack of economies of scale and the tendency to implement urban banking product models in rural areas, too.

It is crystal clear for the Albanian banking system that, given the current situation the economy is going through and lingering effects of the recent global economic and financial crises, and the matured stage, some sectors of the economy have en1

tered into, one of the few areas where long-term benefits are identified, despite costs and risks, is exactly the agriculture and agribusiness. Certainly, this represents more than a challenge for banks, they are faced with a sizable set of requirements, related to: better modeling of rural financial products and services, according to the needs and practical or specific realities of farmers and agricultural production, educating and informing farmers about products, services, financial mechanisms and specialized counseling for rural issues bank could and do provide, of course maintaining a high level of transparency to them.

Now it is time for banks to assess and address the agricultural credit beyond the practice of ensuring short-term opportunities, without weighing the long-term consequences of pursuing them. It is imperative for banks to interact with other public and private institutions, in terms of providing a perspective for a sustainable development, according to new development models of agricultural business. This is so, because agriculture is not a usual business like any other business, but in contrast to other businesses it strongly assists at ensuring a sustainable economic development.

This feature makes agriculture quite unique and highly strategic, in the frame of national economy, and the support from banks far exceeds the fact of being simply an issue of loan portfolio and monetary benefits, because as the first U.S. President, Mr. George Washington, once quoted: “I know of no pursuit in which more real and important services can be rendered to any country than by improving its agriculture, its breed of useful animals, and other branches of a husbandman’s cares!”

Head of Department of Finance, EUT-UET

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Front Line

CREDIT TO AGRICULTURE - ISSUES AND OPPORTUNITIES FOR BANKS Given the specifics of the sector’ final products typology, the entrepreneurs need continuous investments in technologies that improve production and irrigation process, to obtain efficient equipment and in increasing crop warehousing and processing capacities.

by Ms Adela LEKA Head of Risk Division, PROCREDIT BANK

T

he agribusiness sector is getting an increasingly important role within the Albanian economy, given its specific stance. The sector’s development and growth is continuously supported by international organizations, such as: GIZ, USAID, EBRD, etc., in accordance with national/government strategies, by way of various projects undertaken, in favor of Albanian agribusiness. Notwithstanding the contribution in the Albanian economy and the positive trend observed in agricultural exports’ growth, the sector still suffers from a very low access to financial services of the banking system, albeit the increasing focus and interest on this sector.

Given the specifics of the sector’ final products typology, the entrepreneurs need continuous investments in technologies that improve production and irrigation process, to obtain efficient equipment and in increasing crop warehousing and processing capacities. By implementing such investments and supporting new technologies, domestic final products could enjoy the opportunity to become more competitive in the international market.

Challenges and difficulties faced by the agribusiness sector There are numerous challenges and problems faced by the sector. First,

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Agricultural businesses need to optimize the producing, processing and warehousing processes of inputs, by investing in efficient technology, with low fuel/power consumption and high performance.

Additionally, in accordance with the production cycle, the agribusiness needs working capital, to ensure better management of work flow and cash flow of the business. the agribusiness sector remains among high-risk sectors. Due to the sector’s particular producing characteristics and the lack of a welldefined overall infrastructure, it is highly sensitive and dependent to natural conditions /weather (typically against floods, frosts and rains that cause mass damage in final output). Such type of risk is often difficult to by fully assessed by financial institutions, moreover, this risk is accompanied by lack of insurance schemes, associated with sensitivity to natural conditions. Bringing

such schemes in the agribusiness landscape will have a positive impact in avoiding or reducing this risk and the banking system would be surely encouraged to show more entrepreneurship, as regards the agriculture and agribusiness in general.

Secondly, agricultural businesses often lack documentation, proper financial and managerial knowledge, which in turn, make this sector having difficulties in obtaining loans from the banking system. This “translates” into a higher risk for financial institutions, that require more sustainability, either in terms of financial information and business performance, or investment plans, on which funds will be spent and used.

Thirdly, land ownership remains a great challenge, too. Alongside the fact that, the Albanian agribusiness (farm) operates in tiny sized plots of land of approx. 1.2 hectares (below the European average), there are other problems, accompanying it. The limited size brings the inability to use the advantages of economies of scale, which would help in increasing production, by reducing cost-perunit for business. Also, another issue coming related to unclear ownership, as seen from the perspective of financial institutions, is the guarantee for the financial service required. Often, failure to cover guarantee requirements, pull entrepreneurs out of in-

vestments to develop their businesses, due to lack of funds.

Opportunities for developing agribusiness sector and the banking system Despite the contribution of this sector in the domestic economy, the financing from banking system is still at very low levels. However, it is worth noting an increased attention towards this sector, during recent years. Despite the challenges the sector is faced with, it reserves great potential for development. So, agricultural businesses need to optimize the producing, processing and warehousing processes of inputs, by investing in efficient technology, with low fuel/power consumption and high performance. Additionally, in accordance with the production cycle, the agribusiness needs working capital, to ensure better management of work flow and cash flow of the business. The increasing investments in this sector are stimulated chiefly, but not only, from the increased market demand for agricultural and livestock products. The positive trend in export demand for domestic products, which compete as peers in European markets, is a very positive and encouraging indicator for agribusinesses, and the economy in general.

ProCredit Bank, a key partner for Albanian agribusiness ProCredit Bank is a developmentoriented bank and in this way, it has paid special attention to agribusiness. Since 2000, ProCredit Bank has

provided responsible financial services, to ensure a sustainable growth and development for agricultural businesses - more than 30,000 loan granted and more than EUR 95 million, disbursed over these years.

ProCredit Bank has dedicated a special importance and commitment to this sector and is also reflected in establishing and adapting internal structures, devoted to agribusiness, with proper experts in the field.

ProCredit Bank runs an active loan portfolio of over EUR 25 million and more than 4,500 clients, thus positioning itself as a reliable partner for agribusiness.

Having a vast experience in this sector and specialized employees for agribusiness, ProCredit Bank has constantly brought competent financial services, to meet its customer needs. Thanks to a deep-rooted knowledge about business typology, identification of revenue streams and accurate estimates of the production season, our business advisers are quite ensured to provide customers with technical suggestions and assistance, before they make any financial decision, so that the investment made could increase business profitability.

The bank provides support to startup businesses (via Start - Up loans), to help those customers who take up the initiative to create a farm, or who want to invest in their own properties, thus supporting even those farmers who return from migration and wish to invest in Albania.

ProAlternative loan provides easing

collateral requirements for all those established businesses that face with ownership difficulties. Agribusiness advisers base their analysis upon business full information and full financial analysis, the sustainability and well-defined investment plan and such certainty makes possible the bank funding with more easing requirements for collateral. ProCredit Bank maintains high standards of banking accountability and loan making, based upon credit repayment capacity, and not on collateral coverage requirements.

Cooperation and Development Triangle is an ambitious project, which commenced two years ago in our bank. Through this project, ProCredit Bank aims to improve the functioning of all areas involved with more efficiency and higher profit rate, by having appropriate mechanisms for a functioning agribusiness chain, as well as for a better balance of supply and demand.

Business needs are supported better by the bank, through distribution of up-to-date technical, economic or market changes’ information, as well as connecting and orienting producers and agro–processing units. As part of the ProCredit group, based in Frankfurt, and with an international presence in 21 countries, we offer our customers the possibility of connecting with the entire network and therefore, finding new markets for them, thus confirming the commitment as a stable and reliable financial partner for agribusinesses.

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Front Line

Credit to agriculture as a means for development, growth and formalization

Lending is a binding and demanding way to finance agriculture and as such it constitutes a strong developing and growth instrument, with comprehensive effects, as compared to grants.

by Prof. Dr. Edmond PANARITI Minister of Agriculture, Rural Development and Water

U

nder current state of affairs in the country’s economy and finance, the agriculture still keeps growing, although far below its potential. If we take a look at the fourth quarter of last year’s statistics, we could notice a growth by approximately 2.9 percent. A quick look at the agricultural financing, reveals that it mainly consists of state budget funding, most of which allocated to finance national schemes for supporting agricultural and livestock production. This year, such funds, mainly disbursed in the form of direct payments to support farmers, grew by 60 percent, compared with last ago.

However, that fact is that agriculture remains ill-funded, in relation to its contribution to the country’s gross domestic product. An significant part of agriculture financing is injected as part of European Union’s IPA Programs, through the pre-accession instruments, such as the IPARD-like program, which was designed as a “training” preparatory program for farmers and agribusinesses, aimed at increasing skills to be capable of meeting relevant criteria to benefit from more rigorous IPA financing

schemes.

Frankly speaking, lending is the key absence within the Albanian agriculture. Lending is a binding and demanding way to finance agriculture and as such it constitutes a strong developing and growth instrument,

In the frame of declining trends for country’s traditional sectors of the economy, such as: construction, services sector and a growing trend to focus on agricultural production and agroprocessing, as a long-term and more sustainable alternative for our country’s development, the banking system, generally with excess liquidity, is seriously considering a significant growth for agriculture lending portfolio.

with comprehensive effects, as compared to grants. However, agriculture remains the least credited sector of national economy, by obtaining about 2 percent, out of total outstanding loan portfolio, extended to the national economy. This is so, due to a high degree of informality with agriculture, lack of land ownership titles, a fact that prevents borrowers to provide collateral as loan guarantee, and also the lack of insurance schemes for agricultural production, from farms and farmers.

In the frame of declining trends for country’s traditional sectors of the economy, such as: construction, services sector and a growing trend to focus on agricultural production and agro-processing, as a long-term and more sustainable alternative for our country’s development, the banking system, generally with excess liquidity, is seriously considering a significant growth for agriculture lending portfolio. Undoubtedly, this is very encouraging. Actually, what is still required consists in establishing an absent-but-necessary financial spirit of confidence and security, through guarantee funds or assets, where the

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Government and especially the Ministry of Agriculture, Rural Development and Water are unavoidably instrumental and catalyst in this regard, especially to find and immobilize such funds.

On the other hand, the Ministry of Agriculture , Rural Development and Water is audaciously advancing towards distributing certificates of

ownership for farmers, thereby resolving a limbo in relations between the banking system and farmers, themselves. The Ministry of Agriculture, Rural Development and Water will commence, for the first time, the implementation of insurance schemes for agricultural properties and products, by way of an ambitious project, as part of a program funded

by an Italian soft loan. Also, the signing of several agreements on foreign direct investments in agriculture sector requires rapid mobilization of agricultural lending, in order to start their practical implementation. Personally, I am optimistic that the revitalization of agricultural lending will be fast and a great driver for agricultural production in Albania.

Improving Financing in the Agro-processing Sector

RisiAlbania (www.risialbania.al) is an innovative project that seeks to improve competitiveness and growth in the sectors of Agroprocessing, Tourism, and ICT in Albania. As part of their mandate, RisiAlbania conducted recently with leading financial experts an indepthstudy of the opportunities and constraints in access to finance in the agro-processing sector. The study, based on the actual needs of the agro-processors, seeks to inform the development of adequate financial services.

The study confirmed the high growth potential of the agroprocessing sector and highlighted that the sector’s creditworthiness is significantlyhigher than presently perceived by the banks.

Key findings include: • A very goodportfolio behavior compared to other industries, with an average rate of Non-Performing Loans of 6% (compared to a national average of 25%) and despite perceptions, a low-risk, high potential sector • Agro-processing is a more formalized market segment and less influenced by agricultural seasonality that the agricultural sector with which it is regularly associated.

• Agro-processing has experienced stable gradual growth of 3.3% in last 5 years, which is expected to continue.

• Agro-lending is being hampered by un-adapted financial products, lengthy and complicated application procedures and an inefficient and biased risk assessment.

• Banks have shortage of know-how on agro-processing sector.

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For financial institutions, this means there is a strong growth potential if they can: • Develop credit products customized to each agroprocessing sub-sector’sseasonality • Streamline application procedures • Improve risk assessment and credit evaluation procedures.

• Improve technical knowhow and expertise of their loan officers on agro-processing.

RisiAlbania is committed to improve agro-processors’ access to finance and is thus starting interventions and looking for partners among financial institutions to collaborate in order to develop these solutions and exploit the untapped potential of the agro-processing sector. All financial partners interested in this initiative are encouraged to contact RisiAlbania at: ashehaj@risialbania.al and visit www.risialbania.al

Journalist’s corner

AGRICULTURE – Many challenges and need for a new credit momentum The obvious lack of collateral is one of the main reasons why this sector seems to be not attractive for banks, and given the fact that many farmers develop their activities in arable land areas of approximately 1.2 hectares, with unclear property titles, where “land” remains the main asset of the sector, it becomes quite understandable the long-time reluctance of banks to extend loans and increase exposure to this sector.

by Mr Besart KADIA

O

ne of the most quoted statistics from Albanian journalists, economists, or politicians is the discrepancy between the sizeable number of employees in the agricultural sector and its contribution in the Gross Domestic Product. Thus, the agricultural sector employs nearly half of all country’s employees and contributes with approximately 20% of GDP. Meanwhile, this sector is currently the most underdeveloped part of the Albanian economy, which suffers from deep fragmentation of the arable land area, and after a long period of forgetfulness, the government decided to subsidize the farmers who planted olive trees, citrus, fruit trees and vineyards, in 2010 only. Such a measure was necessary, deemed as the only way the Albanian agriculture could be capable to compete with neighboring countries agricultural sector. Since then, agricultural exports recorded a continuing increase, thus becoming even more encouraging by the fact that, exports to EU countries have increased. But on the other hand, this sector is also known for other disturbing statistics, as mentioned above, like: banking sector during the past year had a total loan stock of ALL 547 billion, whereas the share of credit obtained by the agricultural sector was a tiny figure of just 1.8% of total loans outstanding, compared with 13.4% of loans extended to construction, or 16.4% extended to manufacturing industry.

The obvious lack of collateral is one of the main reasons why this

sector seems to be not attractive for banks. In an environment, where many farmers develop their activities in arable land areas of approximately 1.2 hectares, with unclear property titles, where “land” remains the main asset of the sector, it becomes quite understandable the long-time reluctance of banks to extend loans and increase exposure to this sector. According to a study, conducted by the economists Imami and Zhllima, the uncertainty over land ownership directly affects the agricultural sector’s development. Out of 700 farmers surveyed, more than 20% feel insecure about the ownership over their land.

The survey, which covered over 15 villages in Albania, also noted that only 57% of respondents had made​​ investments to increase productivity on their land, during the last five years and 70% of total investments were carried out in arable land, whose ownership was perceived as secure by the farmer. According to this study, the investments made were safer and social conflicts appeared with a less valence, in those areas where owners were able to show that the land was legally owned by their family, before 1945.

Also, another factor to be considered is country’s rapid demographic changes and respective changes in the labor force. According to Census 2011 and 2001, the population in rural areas has decreased significantly, over the past 10 years, with approximately 280.000 inhabitants, and during the last seven years to nearly

195.000. Such a reduction combined with the growth of labor productivity in agriculture, naturally led to a reduced labor force in agriculture sector, the latter moving to the cities and towards urban employment. Additionally, such sector of the economy cannot be developed uniformly in all regions of the country, e.g. the region with the highest annual income from agricultural production is Fier, which obtains ALL 14.9 billion from farms, where 43% of income comes from agricultural production and 57% of livestock production. Meanwhile, the district with the lowest income from agriculture is Kukës, which obtains about ALL 2 billion per year.

On the other hand, the sector may benefit from subsidies, provided in the frame of EU funds, such as: the IPARD – like program. The latter is an EU fund to support agriculture for acceding countries to be part of the EU. This program offers EUR 8.2 million for supporting two main components: farmers and agro-processing units. All persons who aim at establishing a farm or agro-processing unit will be funded up to 50-65% under this grant, but with a condition to draft a viable and credible business plan. The last call was back in 2012 and it showed another weakness of this sector, as the number of beneficiaries was lower than expected.

However, refocusing the attention on the agriculture is inevitable and necessary for the future development of the Albanian economy.

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Interview

Customer Intimacy – the ICB’s red thread Customer intimacy is the red thread through our organization and our clients’ experiences interact with our business. This is a unique feature for our bank that we can capitalize on in many years to come. tantly a process you can’t do alone, our customer feedback is important to us and we take our learnings and future improvements from that feedback. Additionally, thanks to our size, we can be nimble and therefore improvements can be implemented quickly and efficiently.

BANKIERI:

How could you describe ICB Bank’s activity for the year 2013?

Mr Gideon van der BROEK, Chief Executive Officer, International Commercial Bank - Albania

BANKIERI:

In your opinion, what role could play, and what opportunities do exist, for a small bank within the Albanian banking system?

First of all, I would like to typify ICB more as a boutique bank rather than small, and we believe that a market like Albania has sufficient potential for all types of banks.

Coming from large financial institutions I’ve been trained with the objective to achieve customer intimacy; after joining ICB Albania I can confidently state that this is the first bank I’ve worked for that has achieved this objective.

Having been in the Albanian market since 1997 it means that the bank has considerable knowledge of the market and is able to leverage that know-how in it is daily business conducts. By late 2011, ICB has taken a fresh turn and has commenced a transformation of its organization.

Customer intimacy is the red thread through our organization and our clients’ experiences interact with our business. This is a unique feature for our bank that we can capitalize on in many years to come.

BANKIERI: What

could be the most notable feature, by which

could be easily identified in the

Albanian market?

ICB Bank

Following through on the first question and the value discipline of Customer Intimacy, I believe that the critical element is service that is why we’ve spent considerable time and effort on improving the service levels of our bank.

Service can be felt on multiple levels on the day-to-day transactions with our bank, and the most important feature is the human touch and the willingness of ICB staff to go above and beyond the routine demand. Of course we realize that this is a continuous process and more impor-

Throughout 2013 ICB has continued to focus on improving the capabilities of the bank; this ranges from product portfolio to staffing. We’re particularly proud of the newly introduced products in the Consumer and Small Business segment; a strategically important segment. If I would highlight one specific product I would refer to our new Mortgage product, where extra attention has been spent on the flexibility of this product; understanding that this product entails a long-term commitment of the customer we at ICB deemed it very important to add in features, which meet the typical life-cycle of mortgage customers.

It therefore includes an installment break for families expecting a child (interest only for 12 months), and it allows for accelerated repayments –following the natural career evolution of the customer. Latest trends in Social Media have also been followed with ICB having a following of Facebook fans in excess of 10,000. We also stepped up our marketing activities through our cooperation on the “100 million” TV show with Top Channel. Additionally, the most important point is the process improvement the bank has undergone with the focus on customer experience. The processing of transactions has been improved, and now transactions take seconds, not minutes. Customers are now also able to check their account balance by SMS and request an e-account statement by SMS too.

BANKIERI : What

is your bank’s main priority and objective for the years

to come?

As for any business growth is our main priority, we believe that ICB has an important role to play in Albania not only from the responsibility to be an active financial partner for consumer and businesses but also in the manner we operate. Lacking the ‘fire-power’ of the bigger players in the market ICB will need to remain quick on their feet and embrace changes in the financial eco-system. Most recently ICB has mapped out a new 5-year plan, in which our focus - apart from the traditional banking targets - is also embracing new technology, with the objective to deliver improved customer experiences and banking solutions.

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Banking system

Benefits & Flexibility, keywords for a sustainable growth The Central Bank & Government measures and also the proper focus and product designation on behalf of the banks, could be instrumental in overcoming the actual economic weakness, thus leading to a sustainable economic growth.

by Mr Alberto PRESTOPINO Head of Retail Division, INTESA SANPAOLO BANK

A

lbanian economy manifested clear signs of slowdown during 2013. External demand and fiscal stimulus were the main drivers of economic development, while private investments and consumption contracted. Consumers during 2013 proved reluctant to spend and opted for saving.

Customers’ trend to save surely did not pass unnoticed by all commercial banks. Our bank’ focus was placed more on exploiting additional deposit features, which would attract customers towards them. In order to tackle this continuing trend of customers towards saving, as well as to diversify the overall deposits portfolio, our bank started, since the beginning of 2012, to put more emphasis on longer term deposits of 2-3 years of maturity, thus offering to customers the safety ground of stable interest rates for a defined period, apart from a wider choice of products. Our focus and efforts were aimed, not only in devising an attractive product in terms of interest rates and features (such as the 6 months interest liquidation) for this longer tenor deposits,

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but also in proper product marketing. It is notable that these endeavors surely paid off well, as numbers are increasing and customers are now more willing to invest in deposits longer than one-year.

Our bank’s strategy to partially transfer customer deposits in 2 and 3-year tenor has undoubtedly contributed in providing retail customers with a tangible opportunity to mitigate the downturn trend of time deposits’ interest rate, which, since end-2012, has been a quite common event in the market. It should be noted that, the decreasing trend of customer’s time deposits in local currency has been primarily driven by the downward trend of Albanian Government Bonds’ yields, along with the steady decrease of the base rate, as one of the important instruments that Bank of Albania is relying on and using for the transmission of the monetary policy.

The monetary policy followed by central bank through lowering of the base rates, is a global monetary policy approach, which will last over time. While being an easing policy, it has contributed to the decrease of the Albanian Government securities’ yields, which in turn, have contributed to a cheaper cost-of-funding from customers. The reduction in cost-offunding enables the banking system to provide lending to individuals and non-individuals at lower rates.

Such effect was observed during the last year and this year as well and is discernible by the very competi-

tive offers made by local banks for loans, not only in local currency, but in foreign currencies, too. As regards our bank, were put major efforts, last year, to channel the lending process towards Lek-denominated loans, aiming specifically to the decrease of associated exchange rate risks, in alignment with the Bank of Albania’s suggestions and recommendations.

This is not, however, a practice and behavior that changes overnight, especially when bearing in mind that customers’ request for loans in foreign currency is primarily dictated

Even though the market has developed significantly and the customers are more active in investments with longer term than the traditional 12-month-tomaturiy, we still believe it is premature for the market, at this stage, to believe that a good part of the individuals will move to 5-year, 7-year and even 10-year investments, despite their higher return rates.

by currency’s selling price. A strong and continuous educational campaign, alongside persuasive skills on behalf of the staff is needed, so that customers approaching the bank at any point for a loan could be able to reach to a well-informed and righteous decision. Said this, it will still require time and efforts to deepen financial literacy and culture amongst the wide range of customer and noncustomer base.

The decrease of customer time deposits’ interest rates could be interpreted in the light of its possible negative effects, possibly related to individuals’ increased attraction in buying Albanian Government Securities, in the primary and secondary markets, at higher yields. In order to consider the latest as a threat for the market we have to take into account: 1. For the individuals, the amount of Albanian securities, offered in the market, is limited, due to the distribution of government debt between individuals and financial institutions. On the other hand, in case of individuals with high amounts of savings, the participation in the auction should be at competitive rates, which makes it difficult for the mass category, as it requires considerable knowledge of the market. Furthermore, even though the market has developed significantly and the customers are more active in investments with longer term than the traditional 12-month-to-maturiy, we still believe it is premature for the market, at this stage, to believe

that a good part of the individuals will move to 5-year, 7-year and even 10-year investments, despite their higher return rates. It is typically indicated and supported by Bank of Albania’s data, whereby only 3.8% of the deposits have tenor longer than 2 years (as of January 2014 data).

2.

The collective investment schemes are specifically appropriate for customers, willing to undertake, alongside the benefits, certain risks and fluctuations associated with the performance of the schemes, too. This is not the case, however, with the mass depositors, who are more confident in depositing their money against a defined interest rate.

When it comes to the lending sector, we can obviously note it was the most affected sector by the economic downturn. Therefore, lending remained weak during last year, reflecting low demand for financing alongside the increased conservative lending policies from banks. Nonetheless, lending was not left outside the focus of our bank; strong efforts were engaged in order to promote it and also make it more accessible to the customers. The growing rate of non-performing loans during 2013, does not necessarily translate into lowering of interest rates, as the cost of funding still remains at the same levels. Our bank, in the light of the group’s best practices, underwent a series of activities in the all the 5 P-s, aiming at a thorough revision of the crediting process:

Product – The existing loan products underwent a revision process, and new loan products are created with particular emphasis on flexibility offering to the customer the possibility to choose the scheme he can afford.

Price – Revision of interest rates and terms, through differentiating preferentially salary customers.

Promotion – A strong and targeted promotional campaign process is set-up and launched, focused primarily on the benefits of the loan, be them process-wise or product-wise, rather than on price.

Process –A thorough analysis of the process resulted in an automation of loan origination process and also a downsizing of approval times arriving at a time-to-yes of 3 days.

People –Last year we introduced an e-learning platform, which alongside traditional classroom training aimed to fully train staff on each aspect of the new products.

In summary, despite the weak economic growth and weak lending rates during 2013, the expectations for 2014 are that the economic activity will gradually improve.

Uncertainty and hesitation will remain the main problems hindering Albanian economy. However, we do believe that, through the Central Bank & Government measures and also through the proper focus and product designation on behalf of the banks, a considerable part of this will be overcome, thus leading to a sustainable economic growth.

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Banking system

Technological improvement in statistical reporting – a password of modern times

Ms Diana SHTYLLA,

Ms Sonila TAÇI,

The electronic or automatic reporting will avoid manual data entries from reporting entities and Bank of Albania and on the other hand, will improve reporting control, will reduce the required time of reports processing, will increase the volume and quality of reported and processed data, as well as increase the number of reports and reporting entities.

Deputy Director

Head of Monetary and Financial Statistics Sector Financial Stability & Statistics Department BANK OF ALBANIA

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ach central bank needs a strong and continued support with statistical information to accomplish its functions, as prescribed by law, like: drafting and implementing monetary policy, banking system supervision, supporting the financial stability, international reserves’ administration and ensuring the well-functioning of payment systems. For such information, to be a quality and useful one, several conditions must be satisfied, as regards to timely publication, implementation of standardized methodologies and appropriate procedures for its dissemination to interested users and decision makers.

Typically, the function of producing statistical information, gives the central bank, in many countries as well as in Albania, an important place in the national statistical system, in addition to statistical office (INSTAT) and the Ministry of Finance or Treasury Office.

In its role as a statistical agency, or even in the exercise of its statistical function, the central bank must adapt to changes in the external environment, such as: technological developments and innovations, introduction of new instruments and financial in-

stitutions in the market, regulatory acts or new methodologies, as well as economic and financial crises. Especially, the latter plays an important role in requirements to statistical agencies globally, since each crisis, irrespective of its dimension, is followed by a detailed analysis of short-

The increasing requirements for statistical reporting asks for a reporting platform, capable of meeting either the criteria of adaptability against the increase and frequency of changing the reporting requirements, or the criteria of quality and ease of use, for reporting entities and statistical agency, itself.

comings in terms of statistics of the pre-crisis period.

At the same time, for countries like Albania the road towards European integration makes it even more significant the need for a steady development of statistics, up to a level pretty much closer to the European Union’s standards and its relevant organizations of the field. Bank of Albania, by being in constant contact with national and international statistical institutions, and considering the volume and complexity of mid-term obligations for statistical reporting, according to international standards and EU membership requirements, has deemed that it is time now to upgrade and revamp the reporting process, with the aim to automatize it. Bank of Albania had the opportunity of visiting closely two remarkable experiences in this regard, those of Bank of Italy and Bank of Slovenia.

Both central banks focused their support on addressing key requirements to an automated reporting platform, defining priorities and harmonizing reporting requirements by different profile’s users, e.g. supervision and monetary policy.

Following an arduous adminis-

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At the current stage, the system provides automatic reporting by banks – as reporting entities, only, but soon it will also extend and include non-bank financial institutions, which according to the legislation in force report to the Bank of Albania.

trative work and the significant contribution by EBRD1 in this respect, consulting firm, initially contacted during 2012, was selected to draft and create an automated reporting system, whose objectives were: increased reporting efficiency, reduction of reporting burden and an increase of the statistics’ quality. The project spans over a period of two years (November 2012 - October 2014) and its implementation is divided into four distinct phases. On top of the requirements of this project is setting up a dynamic, web-based system, which will enable an online reporting by the reporting entities, under special security conditions, which will simultaneously perform automated control of reporting and generated statistical output tables, on a system and entity-level basis. Such electronic or automatic reporting will avoid manual data entries from reporting entities and Bank of Albania and on the other hand, will improve reporting control, will reduce the required time of reports processing, will increase the volume and quality of reported and processed data, as well as increase the number of reports and reporting entities. The main benefit for reporting entities

will be avoiding double reporting, automatic control and real-time reported data, and a quick and costfree tracking of Bank of Albania’s reporting history.

Currently, Bank of Albania collects financial data from banks and other non-bank financial institutions, according to the Unified Reporting System (URS), which is a set of forms for reporting financial data, for banking supervision purposes, financial stability, monetary statistics and the external sector of the economy. Bank of Albania has, under the project of statistical reporting automation, taken a number of measures towards SRU improvement, in line with new international standards for statistics, as well as the new regulatory and macro-prudential requirements of supervision and financial stability.

In this regard, the first phase of the electronic reporting project posed a dual challenge for URS makers and data users. Following the process of identifying forms to be: a) transferred by the existing SRU b) changed and c) introduced as brand-new ones, the next level was to work intensively for harmonizing and standardizing input forms , controlling the indicators, names and labels, validation

formulas and output tables, introducing international nomenclature’s codifications and national classifications, translating forms and reporting tables from Albanian to English and vice versa, filling gaps in paper reporting and overcoming limitations of the existing processing system, SRAS2. At the end of this phase, a set of forms and tables of the first version (RRS 1.0) was built and uploaded into the new system.

During the second phase of the project, the main focus was incorporating RRS 1.0 into the new reporting system, as well as testing all built-in forms, indicators, and output tables.

Tests were performed with real data, reported by subjects during previous periods. Also, the procurement of technical equipment, such as: software, hardware and necessary system licenses, was completed during this phase, along with translation in Albanian of all menus and commands of the system’s portal section (reporting entities), the supervision center (Bank of Albania) and help files for both above sections. During the third phase, the supporting infrastructure got installed, along with entering all data into the system, deemed as necessary for the “live” run. Business

1 This project was made possible by the financial support of European Bank for Reconstruction and Development: http://www.ebrd.com/saf/search.html?type=project&country=Albania.

2 SRAS – Statistical Reporting Administration System.

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Banking system

and Bank of Albania’s technical users were trained and certified for system administration and usage. Also the banking industry, with representatives from all systemic banks, was trained during this phase.

The last phase of the project, the system’s handover, focused on technical training and certification of specialists, who will work for the system maintenance and running, in the coming years. Bank of Albania’s staff, based upon knowledge and training received during previous phases, with the support of consulting firm, will design, build and upload the next version of the system (RRS 2.0).

Given the fact that, the new system will go ‘live’ during the second half of 2014, a pilot rehearsal will follow soon with three reporting entities (commercial banks), which are willing to take part in this process. At the current stage, the system provides automatic reporting by banks – as reporting entities, only, but soon it will extend and include non-bank financial institutions, which according to the legislation in force report to the Bank of Albania.

It is widely known and generally accepted that, without quality and reliable economic and financial statistics, designed according to the standards of Acquis Communautaire, it becomes rather impossible to assess the progress and success of the integration processes in all sectors, or chapters of the Acquis Communautaire, itself. For Bank of Albania, the preconditions for achieving these standards of statistical producing and reporting, are translated into deepening regulatory and methodological knowledge, human resource intensive training, as well as technological capacity building and development, to collect, control, process and publish its own statistics. The electronic reporting project offers major benefits for Bank of Albania, as a statistical agency and supervisory authority for the banking system, and is also a significant step towards accomplishing its objectives. It does represent only the beginning of a long process of other developments in the area of​​ statistical producing and reporting.

European banks are waiting

by Mr Roberto RUOZI Professor emeritus UNIVERSITÀ BOCCONI DI MILANO

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uropean banks are waiting with anxiety, the stress-tests, announced by ECB, to be conducted during the next June 2014. The waiting climate is fairly quiet, although the capital adequacy issue is still quite serious. The policies adopted by different banks give some obvious signs of hope. Moreover, the validity of the stress-tests to assess the European banks’ soundness is completely relative, in the sense that they may be valuable should they be negative, but it doesn’t constitute any added value, if they are positive. The experience has shown that, typically, banks that passed the stress-test successfully have miserably fallen into a state of insolvency, just few months later.

Whatever the outcome of the next stress-test may be, it will not be a definitive one, but it is really hoped that, it could confirm the impression, as many believe, that European banks have made considerable progress, since the days when such tests were conducted earlier.

This would be evidenced, inter alia,

Whatever the outcome of the next stress-test may be, it will not be a definitive one, but it is really hoped that, it could confirm the impression, as many believe, that European banks have made considerable progress, since the days when such tests were conducted earlier.

by way of the regained confidence among U.S. investors, who, for some years, have abandoned European banks to their fate, and since June 2013 have reversed their approach, by commencing their capital investments. It is crystal clear, however, that European banks have still a long way to go, both in terms of capital and profitability. According to a recent survey by Standard & Poor’s, a relative calm is just prevailing, either in terms of rebalancing assets and liabilities’ maturities, or liquidity management, which is structurally in a better shape now, compared to some time ago.

The main issues, still wide open on the table, will ask for considerable investments, which will naturally consist in various measures, pertaining to individual banks, thus making generalizations quite dangerous and therefore providing space to mediocre considerations only, widely known as having limited significance. The fact is that, there is no agreement on the way how to deal with such issues;

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…we must not forget that the Albanian banking system is extensively made up of banks that belong to nearly all European groups involved in the stress-test of next June. Therefore, it is important to know the health status of such groups, as it will also constitute the fate of their subsidiaries in Albania. furthermore, it is obvious that some of them may be suitable for certain banks, and not for the rest.

One of the most controversial topics relates to the “dimension” objective, which is a concern, especially for larger banks. In this regard, it is said that some of them have reached dangerous proportions, which should be downsized, even by way of asset sales or operations’ concentration on narrower markets and, in some cases, exclusively on domestic ones. Others believe that the size (dimension) is an artificial problem, and what really matters is typically having a management team able to ensure a better size management, whatever they may be.

In this context, and contrary to what is generally stated, some people believe that the concentration of activities within the domestic market is a mistake and in this regard, it would be more appropriate to establish cross-border banks which, if wellmanaged, could turn out to be more stable institutions.

Similarly, the exercise of mixed activities could be finally judged in different ways, as it happens today almost everywhere, or for example, the separation of the commercial and investment activity, as the new British Banking Act prescribes. As for the latter act, I am pretty much convinced

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that the choice is not significant instead, what really matters is the quality of their management, which brings into the limelight the managers’ role, ethics and capabilities, from which, banks’ fortunes will largely depend, in the near future. Assuming that, managers’ professional skills, the time horizons of their activities, their approach against real economic activities versus financial ones, the attitude towards remuneration, especially towards its variable component, and their human resources’ managerial capabilities are appropriate and therefore substantially different from those that have been characterizing such managers when the crisis broke out, they should build up and spread out a new banking culture, so much needed at addressing the altered market scenarios.

A natural question arises at this point: what the interest could be for Albania to get acquainted with such things? The answer is so plain and simple: on one hand, it is always useful getting knowledge, even that the subject of knowledge does not seem to be directly connected with today’s problems. Albania is practically not an integral part of the European Union and its banks are not part of ECB’s stress-tests. On the other hand, we must not forget that the Albanian

banking system is extensively made​​ up of banks that belong to nearly all European groups involved in the stress-test of next June. Therefore, it is important to know the health status of such groups, as it will also constitute the fate of their subsidiaries in Albania. If any critical situation would appear, a radical decision for those subsidiaries could follow suit, which could turn such subsidiaries into a selling subject to raise cash, free up some capital commitments and rationalize the structure of groups in question. Contrary to this, in case of a positive situation, the Albanian subsidiaries could take a breath of relief and, undoubtedly, they could continue their business as usual, quietly.

Before drawing exhaustive conclusions in this regard, it would be better remembering what was said in the beginning, that the stress-tests are an important thing, but not a decisive factor. However, such tests alone cannot radically change the banks’ strategies. Certainly, they could produce important signals (either positive or negative), which are difficult to be bypassed and overlooked. That is why, even in case of Albania, banks that operate there and the Albanians, as a whole, must pay a certain attention to ECB’s tests.

Banking system

Bridge Financing – an alternative to address government dues to companies This model actualizes and monetizes with several years forward, the government’s accrued obligations to the businesses, and companies which have urgent liquidity needs could discount their obligations totally, or partially, to a bank, with belowpar value, thus allowing immediate injection of fresh liquidity to maintain a normal functioning, as well as expanding to new business projects.

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

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Dr Elvin MEKA Deputy Dean of Economic Faculty, European University of Tirana

he recent global economic and financial crisis has impacted the Albanian economy, inter alia, through formation of a continuous chain of unpaid obligations, both government and private ones, as well as a growing liquidity crunch, thus putting the economy’s normal functioning into a complex whorl. Currently, the most commonly discussed issue relates with the government’s unpaid obligations to local businesses, because from the economic logic viewpoint, this kind of obligation has a significant impact and effect on economic growth, especially in the frame of a deep liquidity crunch.

Certainly, the government’s recent moves to obtain an IMF multimillion-euro loan and the commencement of its disbursement to businesses will help in restoring the image of the government as a serious partner and customer to the business, as well as in assisting and supporting, at its utmost, to relax the problem of non-performing loans, within the Albanian banking system.

However, everyone is aware of the fact that such unpaid obligations to the business are not expected to be repaid within a calendar year, typically this is a process which, at best, will take several years, and perhaps

borrowing from supranational institutions may not necessarily be the sole and more practical getaway, given current needs for liquidity in-

The only disadvantage in this regard, we think is the fact that, the actualization of this part of government’s unpaid obligations would increase the public debt figure, beyond the actual one, but revitalizing and producing a momentum for the real sector of the economy, is the only remaining option to get it out of the deadlock, where it is currently stuck in. Hence, the attempt to improve employment and economic growth figures prevails over debt sensitivities, whereas the above alternative of solving the issues of government’s unpaid obligations would distribute the weight of its servicing among other economic stakeholders, and in turn will promote the development of financial market with an additional and attractive instrument for investment.

jection and financing in the economy.

Another alternative could merit a practical attention, which may actually help in accomplishing several objectives, simultaneously, coming from various stakeholders. Specifically, it is for bridge financing, as an alternative that offers a synergistic solution, through the participation of three stakeholders with different issues and priorities, but closely related to each other: the government, private companies (businesses) and commercial banks. Before we explain its principle of functioning, let see what are the issues, each stakeholder is faced with: The government is facing a situation where, despite the seriousness and goodwill to repay the obligations due to businesses for their finished public works, there are no idle or free funds to accomplish such “mission”.

On the other hand, the budget deficit is not at low optimal levels, the debt level has already passed the 72 % of GDP and its servicing has become even more complex, when the economic growth rate is meagre. Also, there are a set of conditions IMF has already required to the Albanian government for granting a EUR 330 million loan, in the frame of a 36-month program of budgetary support (Ex-

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tended Fund Facility - EFF). Under such conditions, it becomes a bit difficult to quickly address the problem of unpaid obligations to local businesses by the government, only.

Companies (businesses) involved in public works, have a receivables claim to the government, an obligation that has technically turned the current business affairs’ functioning situation into a deadlock and therefore, has blocked the completion of work started, or have substantially trimmed their fresh investments. At the same time, these companies’ obligations to third parties are transmitted, as a chain reaction, in the form of financial debts to all other economic operators, thus paralyzing those firms, which have no direct connections with government projects (public works). Also, by experiencing a worsening financial balance, such companies find it difficult to approach individual banks, with the aim to fund their activity’s continuance.

Commercial banks, despite the lack of a rosy landscape, could rejoice their deposits at satisfactory and growing levels, which “contradict” the logic of the financial crisis.

On the other hand, the low level of new lending during recent years has left banks with idle funds, which are difficult to be channeled efficiently toward financing the real economy, despite the ongoing efforts by Bank of Albania to overcome this gap through the ultra dynamic monetary policy, by way of lowering the base interest rate at historical records.

Under such circumstances, it would be highly desirable for all to put into functioning a mechanism that allows efficient use of banks’ idle funds, as an immediate lubricant for liquidity crunch and austerity among private businesses, the latter being the main contributor to the real sector of the Albanian economy. Bridge financing would be the quickest and perhaps the most effective alternative, which would link the debt’s state guarantee, banks’ idle funds and business needs for them. This type of financing would consist in restructuring such part of this unpaid obligation, in the form of securities - “promissory notes” - which can be discounted by commercial banks.

Certainly, banks could consider buying such government’s unpaid obligation to the businesses with a lower price, however, on an individual basis (i.e. each firm chooses by itself to dis-

BRIDGE LOAN & FINANCING

A bridge loan is short term financing, often used as interim financing, which is typically used to obtain funds until long term financing, or longer term solution, becomes available to borrowers. This is where the term ‘Bridge’ Loan initiated. Additionally, bridge financing is a method of financing, used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash. Bridge financing ensures that someone does not miss out on a deal simply because there was no cash at that point of time. Moreover it provides an easy and fast approach to processing and makes bridging finance a popular choice. Often referred to as hard money loans, these loans differ from traditional loans, including: - Duration. While a traditional loan tends to be longer term, typical bridge loan terms do not exceed 2-3 years.

- Large finance. Bridge finance arranges large sums of money to be borrowed within a short period of time. Bridge loans are not for everyone and can help in overcoming potential hurdles that would have otherwise been deal breakers in the case of obtaining traditional financing.

- Amortization. Bridge loans tend to be interest-only loans, with little to no principal amortization. Typically the entire principal is due at maturity. In addition, negative amortization and zero-coupon notes may be an option.

- Interest Rate. As bridge lenders take on additional risks when underwriting loans—including liquidity risk, default risk and limited access to information—bridge loans typically have higher interests rates than other similar loans.

- Timing and Flexibility of Execution. The higher costs attributed to bridge loans are partially offset, however, by the speed in which bridge lenders are able to provide the loan. Bridge loans can be very beneficial for providing a flexible form of finances for short-term opportunities, which enables fast funding and a temporary cash injection. Bridge loans provide the borrower with the flexibility they need to be able act quickly, so they can take advantage of market opportunities as they arise over the longer term.

- Versatility. There are two types of bridging finance: closed bridging finance – where the lender and borrower settle a certain date in the future for the repayment of the loan amount and this agreement is backed by legal contracts. This type of bridging finance is secured for lenders; open bridging finance – it does not define any date for repayment.

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count its obligation). Such an alternative would provide an efficient way of using banks’ idle funds, at a very small “cost” to the business, because the sovereign risk would reduce the cost of using such funds, quite substantially. This model actualizes and monetizes (according to the principle of the time value of money) with several years forward, the government’s accrued obligations to the businesses, not limited but including the unpaid public works. So, companies which have urgent liquidity needs could discount their obligations totally, or a portion of it, to a bank, with belowpar value, thus allowing immediate injection of fresh liquidity to maintain a normal functioning, as well as expanding to new business projects.

Meanwhile, banks will be able to collect the par value of such obligations from the government, by obtaining the discount rate as a return, when the promissory note matures. This model goes in line with that quoted

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by honorable Professor Paul Krugman, as follows: “…more debt can be the solution to a debt-induced slump.”

Although commercial banks may consider this type of financing as a subprime, its repayment risk is quite minimal, because the guarantor and single payer at maturity is the government, which currently and so forth, is supported by supranational institutions, such as IMF and World Bank, which virtually act as credit enhancers for the Albanian public finances. The only disadvantage in this regard, we think is the fact that, the actualization of this part of government’s unpaid obligations would increase the public debt figure, beyond the actual one, but revitalizing and producing a momentum for the real sector of the economy, is the only remaining option to get it out of the deadlock, where it is currently stuck in. The attempt to improve employment and economic growth figures prevails over debt sensitivi-

Bridge financing, is an alternative that offers a synergistic solution, through the participation of three stakeholders with different issues and priorities, but closely related to each other: the government, private companies (businesses) and commercial banks. ties, whereas the above alternative of solving the issues of government’s unpaid obligations would distribute the weight of its servicing among other economic stakeholders, and in turn will promote the development of financial market with an additional and attractive instrument for investment.

Experts’ forum

Private pension contributions – a (non) tax-exempted contribution!

A possible solution to promote alternative pension schemes is a prompt implementation, without restrictions, of fiscal reliefs for contributions to private pension funds, as the current Law: “On voluntary pension funds” prescribes, by way of certain necessary amendments in income tax law, aimed to harmonize the legislator’s will, as expressed in the pensions’ law. by

Ms Teuta BALETA, Advisor

&

Mr Rinald GURI Head of Department of Research, IT and Statistics

Albanian Financial Supervison Authority, AFSA

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rivate pensions market in Albania has been developed relatively late and actually counts just three private pension funds, which operate upon the third column principle, whereas the second column is not developed, yet. Currently, these funds total appoximately 7.888 members and their net assets value, by end-2013 , amounted to ALL 443 million, with an increase of approximately 56.6 %, compared with end-2012 , or 188 % compared with end-2011 , the commencing year for the pension fund activity, based upon the relevant law1.

Pension funds role in the economy and in the country’s financial sector remains modest, yet. At the end of 2013 the ratio of total pension fund assets to the size of the economy (as measured by GDP ) in Albania was 0.03 % , from 0.01 % in 2011 and quite low, compared with 7 % , as the average level for OECD countries for 2011, as well as with the same indicator for some countries in the region (see table). The private pension market makes just 0.6 % of the domestic financial sector and membership in such schemes is still negligible, compared to the total labor force, just only 0.7 %, out of it.

The alternative pension schemes

Comparative indicators

for several countries in the region, third column only

Country

(2013 )

Total assets / GDP (%)

Members

Albania

0.03

7,888

Serbia

0.34

180,669

Macedonia

0.08

18,665

Bulgaria

0.85

557,000

development depends on the choice that individuals make, to save and contribute, as members or participants in pension plans. One of the most widely used practices, to encourage savings and increase pension contributions, are fiscal incentives, offered by the government. Such incentives are provided in two forms and could be used separately, or in a combined way. The fiscal incentive is provided as a tax relief (a reduction of the tax amount due), i.e recognizing pension contributions as allowable deduction (expenses) for tax purposes. Also, it is provided as a tax credit to the individual contributor.

The law endorsed in 20092 prescribed, for the first time in Albania, the principle of fiscal relief, in the form of tax relief, only. The law

stipulates that pension contributions made by any member of the pension fund is, for tax purposes, deducted from his personal income, as well as employer contributions in favor of employees are not considered as member’s personal income (Article 88). So, a person who contributes to any private pension fund could pay less personal income tax, compared to a person who does not make such contribution, for the same level of gross income. The tax relief is applied according to the member’s age, and it reaches a maximum annual benefit limit. Also, contributions made by the employer on behalf of employees in an occupational pension plans are recognized as deductible operating expenses, up to the limit of ALL 250.000 per year (Article 89). Mean-

1 The establishing, functioning, regulating and supervising of private pension shcemes and market is based upon the Law No.10197, dated 10.12.2009 “On volunatary pension funds”.

2 Law no.10,197, dated 10.12.2009 “On volunatary pension funds”.

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Relevant tax procedures do not prescribe, for tax purposes, any direct tax deduction by the employer, as the common practice suggests, in countries where such incentives and reliefs are established. Under current legislation, the tax deductible amount is refunded, after the individual tax income form is filed with Tax Authority. while, the law stipulates that, payments received by a pension fund’s member are taxed. So, the law on pension contributions prescribes the treatment of private pension funds according to EET3 principle.

Currently, the fiscal relief scheme’s effectiveness is hard to be assessed, as it has not been applicable in practice. Although there are over 7,000 members of private pension funds, they do not benefit from such fiscal relief, as provided by the above law. This is, because according to tax legislation, typically as regards the personal income tax, voluntary pension contributions are recognized as deductible expenses only for those individuals, whose gross revenues fall under the limit of ALL 1,000,050 (Article 13/3)4.

Also, relevant tax procedures do not prescribe, for tax purposes, any direct tax deduction by the employer, as the common practice suggests, in countries where such incentives and reliefs are established. Under current legislation, the tax deductible amount is refunded, after the individual tax income form is filed with Tax Authority (Articles 10 and 13).

Such prescripition has made the fiscal relief unattainable in reality because: (1) the lack of legislation’s harmonization, (2) the taxpayer with taxable incomes under ALL 1,000,050, is not adequately informed about this ben3 4 5 6

efit, as s/he is not obliged to submit any income tax form. Given that in judicial practice (hierarchy of acts) the specific norm enjoys the implementation’s advantage, so in case of fiscal reliefs, income tax (law & regulatory acts) provisions do prevail.

Such a situation has impacted the interests of many individuals who are, or intend to be, members of voluntary pension schemes. Actually, investing in any voluntary pension fund represents the most inferior investment or saving alternative, as the EET principle, contemplated in the pensions act, is in fact implemented as TET5 principle, under the provisions of income tax legislation.

Consequently, for the the second and third column to be effectively developed, it needs to be supported by a favorable tax treatment, a wellknown and widely accepted faktor by almost every country seeking to develop such schemes. The system must work under the EET, ETT or EEE6 principle, which implies three elements: the employer and employee’s contributions, investment income or capital gains, as well as payments, following the retirement benefits. These elements, are tax exempted (E) or not (T), according to the chosen principle. Almost all EU member states tax occupational pensions under the EET or ETT principle,

EET - an acronym for: Exemption-Exemption-Taxation.

Law No. 8438, dated 28.12.1998 “On income tax”, as changed.

TET - an acronym for: Taxation-Taxation-Taxation.

ETT and EEE are acronyms for: Exemption- Taxation-Taxation and Exemption-Exemption-Exemption.

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with the main goal to encourage EU citizens to save. Obviously, Albania has a tax practice, which is inconsistent with the practice of EU countries, and even with countries in the region, like Macedonia, and it does not promote any growth in long-term savings.

A possible solution to promote alternative pension schemes is a prompt implementation, without restrictions, of fiscal reliefs for contributions to private pension funds, as the current Law: “On voluntary pension funds” prescribes, by way of certain necessary amendments in income tax law, aimed to harmonize the legislator’s will, as expressed in the pensions’ law. This will serve as a short-term momentum for developing third column pension schemes.

Meanwhile, the long-term reform of the pension system, as regards fiscal incentives schemes requires the harmonization of the existing legislation and practice with those of EU countries. The solution to this issue is deemed to be carried out quickly, as this step is favored by the need to develop the private pension market in the country, as part of implementing the pension system reform. Such element is openly recommended by the FSAP mission and is currently under discussion with relevant authorities.

Economist Corner

Abenomics as “the three arrows policy” debates and doubts about its efficiency From a theoretical perspective, the three arrows of Abenomics seem to respond at a specific economic and financial situation, a country is positioned, but in holding the interpretation of economic phenomena in the frame of neoclassical analysis, it appears that the chances of success are not equal to the initial expectations and objectives of such reforms’ package.

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

S

ince the 1997 crisis, Japan’s economy and finances found themselves in a worrying situation: a low economic growth, ranging between 0-1% level, accompanied by the deflation and a negative inflation, as well as an external debt at world record levels, reaching 240 % of GDP, a stagnant economy, increasingly shaky and less competitive exports, coupled with a problematic trade balance, especially given the key role of exports in the Japanese economy and consumption, increasing difficulties to cope with major new regional economic actors, like: China, South Korea, etc.

After the global financial crisis of 2008, these could be, and are obviously the very symptoms of most developed or developing countries in the world. In December 2012, Mr. Shinzo Abe, the Japanese Prime Minister-elect, declared his ambition for a new “Japanese economic recovery” policy, called Abenomics, as a direct reference to the neoliberal policies, proposed and implemented by Mr. Ronald Reagan, the US President of

1980s, and his platform of Reaganomics. Also, this was perceived as the “last chance policy”. Notwithstanding the fact that these two types of policies are pretty much the opposite, in terms of goals and means they use, they converge in one point: the need to abandon the old existing policies and the determination to fight against a clearly identified problem. Abenomics was portrayed as the “three arrows” picture, each of them to target and shoot on a specific goal: monetary easing policy, by increasing monetary base, active fiscal policy (stimulus) and launching public investment, as well structural reforms, aimed at increasing exports, significant privatizations and labor

Abenomics is “modestly” hailed by the financial markets, whereas the IMF is skeptical about its results, as Abenomics risks provoking a brutal increase of interest rates, thus making public debt financing quite a headache and also threatening dangerous bank failures.

market deregulation. The ultimate goal should be “exiting deflationary situation and returning to economic growth”. Its concerns, instruments and objectives were directly or indirectly consistent with the concerns of all developed countries in the world, as well those expressed by many international and financial institutions, such as: IMF, World Bank, OECD, EU, ECB, Fed, etc. Could it be for the “three arrows policy” to turn into a recipe, to be recommended and used massively, or it was a “Japan- specific” policy, with unclear results?

Now, following 16 months after its commencement, the analysis and debates about its efficiency are taking shape and some practical conclusions are coming above water.

“The First Arrow” consisted in implementing an expansionary (dynamic) monetary policy, by pumping a very large amount of liquidity into the economy, aiming at producing inflation, consumption growth, yen depreciation, stimulating exports and increasing economic productivity. In practice, this meant that the Central Bank of Japan should buy massively Japanese government bonds, besides fixing a 2% inflation targeting, thus financing directly the country’s companies and corporations, but clearly undertaking the risk of loss of independence from the political power.

Specifically, it was meant to double the monetary base in circulation, by

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JAPAN: Abenomics - “The three arrows” mechanism

Monetary easing

Inflation increase

Yen devaluation

Exports increase

Exit from deflation

Production growth Budgetary (fiscal) stimulus

Consumption growth

Self-enforced right circle

Benefits growth

Return to growth

Structural reforms Income growth

targeting two objectives: stimulating exports and increasing the cost of imports. By increasing the cost of imports, Japan sought to “import inflation from abroad”, hoping that such inflation would affect the prices and wages’ increase in the country.

The economic growth and inflation would automatically reduce the debt burden.

“The second arrow” corresponded with a stimulating and active budgetary policy. The state and government launched some large publicfunded projects, amounting more than USD 110 billion, in infrastructure, transport, airports, etc., with the aim to support the economic activity.

Such move intended to stimulate the national production, employment and consumption. Combined with an ultra expansionary monetary policy, the arrow should be launched directly at inflation, by increasing it, stimulating country’s corporates activity and thus stabilizing their financial deficits.

“The third arrow” had to do with structural reforms, aimed at developing deregulating policies and supporting such investments that vitalize production. The package of measures presented some outstanding structural reforms, aimed at a greater opening to international trade through new free trade agreements, increasing labor market flexibility, stimulating foreign investments, by creating attractive and easing conditions to them, enhancing the competitiveness of some key sectors of the Japanese economy, as: robotics,

biotechnologies, agriculture and agro-industry, energy, etc. The third arrow’s measures should be substantial, to the point to support those of the first two arrows.

The analysis of Abenomics’ results and values should be done in three different directions: first, the results such reform produced during the 15-16 months of its implementation in Japan, secondly, theoretical and methodological discussions and conclusions it produced, thirdly, the opportunity and scope, such a concept and reform could provide, to be applied by other countries, which more or less have the same concerns and objectives.

But how such reform is assessed in Japan? Mr. Shinzo Abe’s voluntaristic policy produced a substantial devaluation of yen (26% against euro and 20% against U.S. dollar, respectively). Japanese exporting companies and corporations cashed sizeable benefits from a weak yen, as the volume of exports rose by 9.3% during 2013, however, a weak yen produced a negative effect on imports, which increased by 15%, during the same period, by exacerbating particularly the country’s energy bill. The halt of work at Fukushima nuclear power plant caused an sharp increase in electricity tariffs, which triggered a chain reaction of increasing consumer products’ prices, such as: food, clothing, etc. According to a poll conducted by Kyodo press agency, some 73% of Japanese respondents say that the Abenomics reform has not got a positive impacted on their personal

situation, despite some apparent positive and hopeful results. Their purchasing power has not changed at all. Given that domestic consumption represents just 50% of Japan’s GDP, it is clearly understood that when the purchasing power falls, the entire Japanese economy suffers and does it not produce the desired growth.

Meanwhile, the economic growth and inflation, which should be maximally stimulated by the Abenomics package, were practically increased only at 1.3-1.4% level, during 2013.

Doubts over Abenomics’ efficiency are formed mainly on the expected results from the first arrow, because the devaluation process must meet

Abenomics was portrayed as the “three arrows” picture, each of them to target and shoot on a specific goal: monetary easing policy, by increasing monetary base, active fiscal policy (stimulus) and launching public investment, as well structural reforms, aimed at increasing exports, significant privatizations and labor market deregulation. www.aab.al • BANKIERI • 29

several important conditions. First, the central bank should have complete control over such operation, and not being under any pressure from political decisions, or conditioned by the financial markets’ behavior. Secondly, the global external demand must be very strong to absorb quickly and largely “cheaper” Japanese exports. The context of the global crisis and protectionist efforts identified in many countries, however, makes difficult the favorable context, as desired by Abenomics. Thirdly, the central bank which implements an easing monetary policy must be sovereign and act in full power when devaluing its currency, to eliminate competition, or shocks from other currencies. In case of Japan, although it became the country to devalue its currency most, other countries followed suit, by entering and starting a wild “currency war”, ranging from US to other Asian countries.

From a theoretical perspective, the three arrows of Abenomics seem to respond at a specific economic and financial situation, a country is positioned, but in holding the interpretation of economic phenomena in the frame of neoclassical analysis, it appears that the chances of success are not equal to the initial expectations and objectives of such reforms’ package. Central banks of many large

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and developed countries, like: US, Germany, China, United Kingdom, Canada, Australia, South Korea, Brazil, India, Russia, etc., are concerned and follow carefully the penalizing effects such Japanese policy is causing, in order to avoid any significant revaluation of their currencies against Japanese yen, in the context of a fierce currency war, whose consequences would be very grave for the world economy and finances.

Is it possible and valid for other countries to copycat the Abenomics package of measures? Given its specific elements, especially the economic and financial situation that forced Japan to take such measures, like: low economic growth, aging population, high level of sovereign debt, deflationary tensions, high unemployment, etc., one can say that it resembles in may points with many European countries, such as: Spain, Italy, France, UK, Portugal, Greece, etc., but also with other countries in the world, too. In many cases, the European leaders have mentioned the “Japanese experience” as a means that through “budgetary and monetary easing” aims at a much desired success even in Europe, and moreover in an opposite direction with the “monetary and budgetary orthodoxy, fanatically supported by Germany”.

Abenomics is “modestly” hailed by the financial markets, whereas the IMF is skeptical about its results, as Abenomics risks provoking a brutal increase of interest rates, thus making public debt financing quite a headache and also threatening dangerous bank failures. In Western countries, the biggest lesson to be drawn, from the extreme measures contained in Abenomics, is the concern that developed countries must pay attention to the effects of the crisis and the consequences of their mismanagement.

Following the devastating effects of the speculative financial bubble of 1980s, when the Tokyo Stock Exchange market capitalization was significantly much higher than Wall Street, or when Mitsubishi bought with a tick of the pencil the Rockefeller center, it took just 24 years for Japan to be ready for a radical reform package, whose effect is not yet guaranteed. The experts of finance and economy highlight the positive effects, Mr. Shinzo Abe’s policy is yielding, but it still needs time to conduct sustainable analysis and draw reliable conclusions about Abenomics’ efficiency, especially when trying to serve it as a lifeboat recipe for other countries experiencing difficult economic and financial situations, like Japan.

Social Capital

Alpha Bank - Albania Giving Voice to Picture the World Alpha Bank - Albania contributed to the charity event: “Giving Voice to Picture the World”, which aimed to raise funds, to enable the purchase of a computer program for reading in Albanian, via audio, for visually impaired people. Participants dined in complete darkness for about two hours, and their movement within the hall was facilitated by visually impaired people. Mrs. Brunilda Isaj, Member of the Management Board and Director of Retail Banking Business at Alpha Bank – Albania stressed that solidarity and understanding of the world from another angle is always associated with positive feelings and a desire to contribute to a full inclusion of disabled persons in social and economic life.

World Down Syndrome Day Alpha Bank - Albania was one of the sponsors of the conference: “Health and welfare – Care and equality for all”, organized by Jonathan Center, on the occasion of World Down Syndrome day, in 21 March. The conference was a fundraising event for the development and support of persons with Down syndrome in Albania. Mr. Periklis Drougkas, CEO of Alpha Bank - Albania said that everyone should contribute, not only financially, but also by providing individuals with Down syndrome with a fair environment, where they feel welcomed and equal.

BKT Sows 2,500 decorative plants in Tirana Municipality As part of the initiative to increase green areas within Tirana Municipality, Banka Kombëtare Tregtare, sowed 2,500 decorative plants across “Dritan Hoxha” Str., and the New Ring.

This activity is part of social responsibility policy, pursued

by BKT, aimed at protecting the environment and increasing the quality of life in the countries where it operates.

Donates an ultrasound transducer to “Queen Geraldina” Maternity In the frame of its social responsibility policy, Banka Kombëtare Tregtare donated an ultrasound transducer to “Queen Geraldina” Maternity in Tirana.

Credins Bank As an annual tradition, Credins Bank continued to make its contribution in the field of art and culture.

Specifically, during this period the bank: - Donated costumes for the show “Graduation Ball” put on stage by Theatre of Opera and Ballet, the first of its kind, with the choreography by the wellknown artist, Mr. Ilir Kerni, - Supported books publications from Mr. Nuri Dragoj, and the public exhibition of sculptures of Professor Emir Grezda, - Sponsored the show organized by Tirana Theatre of Puppet, for orphaned and children with health problems, by distributed gifts, too, - Supported financially the initiative by the Institute of National Employment Service, to open the employment office in Vlora, which aims to support youngsters and the active labor force.

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Social Capital

Credit Agricole Supports the project: “Giving Voice to Picture the World” In the context of its social responsibility policy, Bank Credit Agricole - Albania supported the project that will help the integration of visually impaired people in the endless information of internet world.

The project aims to use technological text-to-speech solution, with the goal of improving living conditions for some 20,000 people with sight problems. In

addition, this application will benefit 5,000 visually impaired people of different ages, who use their cell phones, by using a similar application. The project is a unique collaboration between Vodafone Albania Foundation, the Association of Visually Impaired Persons in Albania and other businesses in the country.

International Commercial Bank Bank’s staff donates blood For the third consecutive year, the International Commercial Bank’s staff in Tirana donated blood for children with thalassemia and for other people in need, thus responding to the appeal by the Albanian Red Cross. The bank will continue the tradition of voluntary blood donations, two times a year.

Voluntary contribution for orphans The employees of International Commercial Bank supported the Albanian Red Cross and made ​​their contribution in monetary terms, for orphans, as part of the awareness campaign to raise funds for orphaned children.

Recycling paper and plastic wastes In the context of environmental care, International Commercial Bank launched a new initiative: recycling paper and plastic wastes. The bank, in collaboration with “Green Recycling” and with the commitment of its employees, recycles already all used papers and plastic wastes, by contributing to a better and clean environment.

Intesa Sanpaolo Bank – Albania Collect plastic lids, help people with special needs!

Intesa Sanpaolo Bank - Albania is part of contributors for the ACP Project (Albania Cap Project). The bank has put 32 boxes in all its branches, to collect plastic caps with the aim of creating a collecting chain, through which the recycling of plastic caps would allow providing wheelchairs for people in need. In this way, a real contribution could be done, to help in keeping a clean environment and also wheelchairs for people who cannot afford buying them.

“250 kg lids/caps = 1 wheelchair! Help people in need, be aware for recycling. Collect and dispose lids/caps in this box!”

Children Carnival Festival The bank organized, on 22 February, “Children Carnival Festival”, which was attended by more than 150 children of staff from all over Albania. In company of professional animators, children played and had fun for more than 4 hours, by wearing costumes of their favorite characters. In his greeting speech, Mr. Silvio Pedrazzi, CEO of Intesa Sanpaolo Bank - Albania, thanked parents and children for their attendance and presence.

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“Giving Voice to Picture the World” - a sponsorship that opens doors to integration The bank participated in the fundraising event (dinner in full darkness), organized by the Vodafone Foundation, in support of visually impaired people and those with visual disabilities, titled “Giving Voice to Picture the World”.

Summer Day – an event for children of police officers killed in the line of duty The bank sponsored the event organized by “State Police Martyrs” Association, at the premises of TKOB, on the occasion of the Summer Day, which gathered orphans of officers killed in the line of duty and their families.

NBG ALBANIA To protect the environment The staff of NBG Bank - Albania organized a voluntary cleaning undertaking at the beach of Divjaka. The initiative was supported by Divjaka Municipality and its chairman Mr. Fred Kokoneshi, who joined the undertaking. Ms. Aida Apostoli, Director of Retail Banking, said that the environment protection is a permanent commitment that NBG Bank Albania has showed toward the community and this cleaning undertaking is the first among several others to follow.

PROCREDIT BANK Supports small and medium enterprises ProCredit Bank, as a stable and reliable financial partner for small and medium enterprises, held a series of activities in Durrës and Korça and meetings with local businesses in Fier to discuss about issues related to the new fiscal package entered into force on 1 January 2014.

At the meetings bank’s staff conveyed general information about the new fiscal package and its respective impact on businesses.

RAIFFEISEN BANK To support those who do not fear challenges Raiffeisen Bank – Albania sponsored the actual challenge for the Albanian mountaineers team, members of “Mountaineers and climbers - Tirana” Association. On 11 February, at 17.00, climbers reached Aconcagua, 6,962 m, which is the highest peak of South America. Despite the difficulties, due to weather conditions, the entire team with five climbers Mr. Gjergj Bojaxhi, Mr. Fation Plaku, Mr. Ervin Dervishi, Mr. Gerti Pishtari and Mr. Erli Rrudho managed to climb up and unfurl the Albanian flag on the highest peak of South American continent.

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SOCIETE GENERALE ALBANIA BANK Contributes to arrangements of “Summer Day” Now, “Summer Day” is a traditional holiday, celebrated in particular in the city where it originated, in Elbasan. Following the support of Societe Generale Bank – Albania, some 30,000 flowers with wishes were distributed throughout the city and many activities were organized, such as: sports cars parade across the Castle Road, great concert and a parade with colorful costumes.

TIRANA BANK Our philosophy: “Tirana Bank Cares” Under the slogan “Tirana Bank Cares” the bank’s staff stressed the corporate positioning in the society, by providing assistance and support in achieving objectives of corporate social responsibility.

“Activity launchers” - Managers as Santa Managers of Tirana Bank in Santa dresses, offered some happy moments to children with thalassemia and leukemia, and to children of police officers, killed in the line of duty, and those in need, during the event: “Happy Hours for children in need”. Four members of Tirana Bank Executive Committee: Mr. Thalasinnos, Mr. Kousouris, Mr. Paloudis and z. Chaniotis, became part of such noble gesture. This was a beautiful afternoon with games, music, dancing and of course gifts from Santas.

The event organized by “Down Syndrome Foundation – Albania” During the festivities of New Year 2014, Tirana Bank, decided to make a big “gift” for those who need more, by supporting and funding “Down Syndrome - Albania” Foundation, instead of the ordinary ritual of gift distribution to customers. The foundation granted a thanking certificate to Tirana Bank for its involvement and generosity.

VENETO BANKA As sponsor of “Transformers” project Veneto Bank supported the “Transformers” project, by painter Gjergji Meta, which was materialized through the art exhibition, at the National Museum of History.

A contemporary fountain at “Kombinat” In the frame of social responsibility projects, Veneto Bank donated to the community “Kombinat” neighborhood in Tirana, a contemporary fountain, located in the center of the neighborhood. The bank’s contribution followed the “Kombinat” Municipality Unit’s request to implement such social project.

Veneto Bank and “Flamurtari” mini-football team Veneto Bank is the sponsor of “Flamurtari” minifootball team for 2013-2014 season, for the second consecutive year. The team currently leads the Albanian Futsal Championship. During recent years Veneto Bank has shown obvious support for the sport, where teams like: “Himara” football and volleyball team, “Besa” football team of Kavaja, and “Marin Barleti” and “Besëlidhja” women’s volleyball teams, have been consistently supported by the bank.

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Balkannet

INterbalkan News

BOSNIA-HERZEGOVINA

Vasil Simov. The business, trades and stock exchange have been affected by the political turmoil in the country, Mr. Simov said at the company’s annual report press conference.

Sarajevo

RBI subsidiaries in Bosnia and Herzegovina will benefit from IFC’s investment Balkans.com Business News Correspondent - 11.02.2014 IFC, a member of the World Bank Group, will invest up to EUR150 million in Raiffeisen Bank International (RBI), with financing channeled to the bank’s subsidiaries in Central and Eastern Europe, to promote economic recovery and growth in the region. RBI subsidiaries in Bosnia and Herzegovina, Poland, and Russia will benefit from IFC’s investment in RBI’s capital increase. IFC’s final investment is expected to contribute to improved access to finance and stronger private enterprise in the region.

EFSE grants a senior loan to Komercijalna Banka a.d.

Banja Luka Balkans.com - 29.01.2014 The European Fund for South Eastern Europe (EFSE) granted a EUR 3 million senior loan to Komercijalna Banka to support the expansion of loan products to micro and small enterprises. Komercijalna Banka, an affiliate of Komercijalna Banka a.d. Beograd in Serbia, plans to expand its business from its current focus on corporate and public sector lending into the MSE segment.

BULGARIA Sofia

2013 was a difficult year for the Bulgarian Stock Exchange American Chamber of Commerce Bulgaria - 13.01.2014 Te year 2013 was a difficult year for the Bulgarian Stock Exchange (BSE), according to BSE-Sofia Chairman Mr.

Fibank gets Bulgarian approval to buy MKB Unionbank Standart - 19.02.2014 Bulgaria’s central bank has given First Investment Bank (Fibank) the green light to buy smaller rival MKB Unionbank, Reuters reports. Fibank is the Balkan country’s third-largest lender in terms of assets and one of the few banks that are not foreign-owned. Last August it said it had agreed to buy MKB Unionbank from Germany’s Bayerische Landesbank (BayernLB). However, the deal was subject to central bank approval.

CROATIA

Zagreb

Some 300,000 Croatian citizens have their bank accounts blocked Balkans.com Business News Correspondent - 31.01.2014 Some 300,000 Croatian citizens have their bank accounts blocked because of debts. Opposition politicians have revealed in the parliament the total debt of the above mentioned citizens is around 24 billion Croatian kuna.

These figures also indicate the level of the economic crisis in country with a population of 4.2 million and over 370,000 unemployed people reports Croatian Times.

Hungary’s OTP Bank to buy Banco Popolare in Croatia bne - 03.02.2014 OTP announced that it is to purchase the Croatian unit of Banco Popolare. The unit has some 0.6 percent market share with equity of HRK 324mln (EUR 42.3mln). This suggests that the deal is value-creative, meaning that it is within the daily volatility range (a very small deal).

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Greece

Goldstein exchanged information on the current economic and financial developments in Kosovo, and discussed about the multidimensional support that the World Bank continues to provide on the economic and institutional development of the Republic of Kosovo.

Athens

MACEDONIA Greek banks are in the best shape they have been in for years City Wire - 12.03.2014 Greek banks are in the best shape they have been in for years. Speaking to Citywire Global, Francois Gobron, Fund Manager at Generali Investments said, although Greece is still mired in recession, there are reasons to be upbeat.

Greece’s Alpha Bank is in talks to acquire part of Citibank’s local retail banking ekathimerini - 12.02.2014 Greece’s Alpha Bank is in talks to acquire part of Citibank’s local retail banking operations, financial daily Imerisia reported. Citibank, which started shipping and corporate lending operations in Greece in 1964 and expanded into retail banking in the 1980s, runs a network of 21 branches across the country. The two banks are looking into a plan under which Alpha Bank would acquire Citibank’s retail arm and its wealth services, the paper said, without citing sources or providing any figures on how much Alpha would pay for the deal.

Skopje

Fitch affirms Macedonia’s BB+ Credit rating Einnews.com 21.03.2014 Fitch Ratings has affirmed Macedonia’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BB+’ with Stable Outlooks. This as Ministry of Finance said is a great recognition for the economic policies and all policies in general carried out in the country.

Macedonia’s gross general government debt is expected to rise modestly to around 36 percent in 2014 and 37 percent in 2015, in line with the ‘BB’ median. Thanks to a further stimulus by public investment, Fitch forecasts that growth will accelerate slightly in 2014 and 2015, to 3.2 percent and 3.5 percent, respectively. Macedonia is a standout in the ‘BB’ category in terms of ‘ease of doing business’. The banking sector is well capitalized, with a Tier 1 capital adequacy ratio of 14.4 percent at end-2013.

Only 9% of Macedonians use online banking

KOSOVO Pristina

Global Money Week BQK– 14.03.2014 “Learn to Save” was the motto of the activity that gathered in the auditorium of the National Library children and primary school teachers of the capital, representatives of the Central Bank of Kosovo, representatives from Banking Association and media. This event is marked all around the world and is the main protagonists are children, students and young people. Within the field of financial education, with the aim of young people awareness, every year worldwide campaigns are organized with the activities named as “Global Money Week”. These activities are mainly organized by Central Banks of the respective countries.

World Bank supports projects for the Central Bank of Kosovo BQK– 05.03.2014 Mr. Hamza, BQK’s Governor, welcomed on a meeting in his office Ms. Ellen Goldstein, the World Bank’s country director for the Western Balkans and Mr. Jan-Peter Olters, Country Manager of the World Bank Office for the Republic of Kosovo. Governor Hamza and Ms. Ellen

Einnews.com 04.03.2014 Only 9.1 percent of internet users in Macedonia use e-banking services, according to figures from the Central Bureau of Statistics, reported by Kapital. More than 65 percent of households in the country have internet access in their homes. Bankers say that electronic banking has been on the rise in the last two years, but Macedonia still lags the more developed countries and other countries in the region.

MONTENEGRO Podgorica

EBRD will provide a credit worth EUR 10 million to Societe Generale Montenegro Bank Balkans.com Business News Correspondent - 29.01.2014 EBRD will provide a credit worth EUR 10 million to Societe Generale Montenegro Bank, to finance long-term housing loans for citizens in Montenegro. Funds would be used for lending to the population in the period when the access to the finances has been limited. Head of the EBRD Office in Podgorica, Mr. Gulio Moreno, said that new credit activities in Montenegro were especially important during economic recovery, in order for the country to get back on the road of stable and sustained growth.

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Bank of Intesa interested in cooperation with Montenegro Balkans.com Business News Correspondent - 03.02.2014 Montenegro’s Director General of State Treasury Miodrag Radonjic’s associates met with representatives of the Intesa SanPaolo Bank from London, Nerijus Damanskasom and Eimaitisom Simonas and representatives of the Bank of Zagreb (part of a group of Bank Intesa), H. Bujanović and Goran Kursani. Representatives of Bank of Intesa expressed a positive attitude towards the activities of the Ministry of Finance and commended Montenegro’s progress when it comes to improving fiscal stability.

ROMANIA

Bucharest

economy and population, Governor of the National Bank of Serbia (NBS) Jorgovanka Tabakovic stated. All banks are solvent and there is considerable potential for credit growth which is currently lacking, mainly due to the lower demand for credit products, Tabakovic said in an interview for the Belgrade-based daily Vecernje Novosti.

EFSE and ProCredit Bank Serbia sign a new EUR 15 million loan agreement Balkans.com Business News Correspondent - 12.02.2014 The European Fund for Southeast Europe (EFSE) and ProCredit Bank Serbia signed a new EUR 15 million loan agreement to finance small and medium-sized enterprises (SMEs) in Serbia. Thanks to this credit facility, ProCredit Bank will provide long-term financing that Serbian SMEs require for their investments. As part of the ProCredit group, ProCredit Bank is strongly focused on business and agricultural lending.

TURKEY Banking measures triggered fierce debates in Romania Balkans.com Business News Correspondent - 14.02.2014 The Romanian Government’s intention to pass an emergency ordinance, under which people who loaned money from banks but whose incomes do not exceed approximately EUR 360 per month would get to pay half the monthly installment for a period of two years, under an agreement with the bank, has triggered fierce debates in Bucharest, Radio Romania reports. The Central Bank has stated it has not taken any monetary policy or banking measure regarding the rescheduling of debt payments by people with incomes below the average net salary. The Bank has said it was only consulted about the project before and during the negotiations between authorities and the IMF, the European Commission and the World Bank.

EIB supports Small and Medium companies in Romania Balkans.com Business News Correspondent - 14.02.2014 EIB is providing a EUR 15 million loan to BCR Leasing to finance small and medium-sized enterprises (SMEs), midcap companies and public entities in Romania implementing projects in industry, services and infrastructure. BCR Leasing IFN S.A., part of the BCR Group which is majority-owned by the Erste Group is signing a first tranche of EUR 15 million from a total credit line of EUR 75 million agreed with the EIB.

Serbia Belgrade

Serbia’s banking sector is well-capitalized Balkans.com Business News Correspondent - 20.02.2014 Serbia’s banking sector is solvent, well-capitalized and capable of securing the entire financial sector of the

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Istanbul

Credit Card installment volume dropped around 7 percent Balkans.com - 17.03.2014 The installment payment restrictions introduced on the credit cards by the Turkey’s banking watchdog have taken their toll, according to data that shows installment volume dropped around 7 percent in five weeks. The Banking Regulation and Supervision Agency (BDDK) brought in new measures at the beginning of February to curb the use of credit cards to pay for goods in monthly installments in the hope it would restrict the country´s growing inflation and current account deficit. There are 57 million credit cards in Turkey – one for every Turk of working age.

Turkish banking sector’s profits dropped by 43. 9 percent Balkans.com - 14.03.2014 Speaking during the Turkish-Arab Banking Forum held in Istanbul on 13 March, prominent figures of the sector sought to downplay the escalated concerns after the latest data revealed that the Turkish banking sector’s net profit dropped in January. “As we have said before, some measures taken by the economic management would like to have an adverse effect on the banks’ profits. However, we don’t expect to see a drop in this extent for the whole year”, Turkish Banking Association head Hüseyin Aydın told reporters on the sidelines of the forum.

Tech Topics

SWIFT - 20 Years in Albania, a 20-year partnership Banking community in Albania is a unique user of SWIFT platform, showing a consolidated and sustainable partnership, a business with mutual and value-added benefits, during the whole time period of joint cooperation, which should be considered, consolidated and expanded, in the future to come.

by Ms Najada XHAXHA SWIFT User Group Chairperson in Albania Head of Payment s Department, TIRANA BANK

B

ack in 1994, Albania was included in the list of SWIFT users, thus becoming one of the listed countries and eventually registered in international books. By being an unknown fact, for the time being in Albania, few people knew and understood the importance of such presence in that international community. Albania soon became a desirable market for neighboring countries, and along with growth in trade relations with them, the banking system took a notable development. The impact of such development appeared, firstly, in the form of opening the banking market to foreign participation, by way of licensing private foreign banks, and secondly, in the substantial change of the way of conducting and doing banking activity. Meanwhile, being a SWIFT listed country was an added value for this new market, and well as an important requirement of the business and its strategic performance. Banks in Albania began to implement international standards, a mandatory requirement to develop a robust business. New developments in trade and commerce with neighbors, business expansion, population movement and continuous developments in technology naturally brought into the limelight the need for banks’ investment in their

internal systems, aiming at adapting them to up-to-date and modern time requirements.

During these 20 years, SWIFT turned to be a joint partner in this journey, regarded as the latest technology and not only. Its platforms supported almost all changes the European currency brought to the international financial system. Systems like: RTGS (real-time gross settlement system), TARGET (the entirety of RTGS systems) and SEPA (a platform for payments in Euro currency only) have been established and based on SWIFT standards and rules. Also, the payment system infrastructure in Albania is built upon its platform.

AIPS (Albanian Interbank Payment System), used by banks in Albania, is based on RTGS principles and AECH (Albanian Electronic Clearing House), is also based on SEPA system principles and structures, thus paving the way and providing opportunities to rising requirements

Bank of Albania, in cooperation with relevant structures of commercial banks in Albania, has successfully accomplished the implementation of SEPA’s standards, thus developing further the national payment system. The new system commenced operations in 21 February 2014 and its ratification is on the right track.

for a national strong and stable payment infrastructure. Here, it is worth noting that, it was just for the Bank of Albania’s farsighted strategy and the Albanian banking system’s professional support, our country ranks among many developed countries in Europe, with a consolidated and contemporary payment system. It is practically that important infrastructure which will support the ongoing further business development, by bringing together into a common platform the national schemes of direct debiting, payroll, depositories, cards or other projects, already launched in the market.

SWIFT and SEPA – together for a common platform

It is just for users requirements, be them banks or businesses that refocus SWIFT towards establishing priorities, thus being the basis for developing its own products. At the same time, its short and long-term strategy contains substantial support in international projects of its users, such as: successful implementation of SEPA system, legislation and regulatory framework implementation, compliance services, SWIFTRef and of course, high security and reliability of the technology offered, being always as the focal point of attention.

Specifically, we can identify and appraise a service that also belongs to the Albanian market, out the whole set of SWIFT products and services offered, such as: SWIFT prepared to assist SEPA laggards. While SEPA deadline’s approaching, questions about the industry’s willingness, remain. SEPA is an initiative to effect electronic payments in Euro within Europe, in an easy, cheap and efficient way, regardless of location.

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It is worth noting that, it was just for the Bank of Albania’s farsighted strategy and the Albanian banking system’s professional support, our country ranks among many developed countries in Europe, with a consolidated and contemporary payment system.

SWIFT has kept banks tightly focused on SEPA and considers that they should be ready to honor the implementation’s deadline. Should it be any delay, SWIFT would naturally provide assistance to ensure the banking system’s migration.

Many doubts clouded around the implementation of this project, but SWIFT has a range of on-the–shelf products and services, which include solutions, even in cases when certain members are unprepared for SEPA’s deadline (2016). Bank of Albania, in cooperation with relevant structures of commercial banks in Albania, has successfully accomplished the implementation of SEPA’s standards, thus developing further the national payment system. The new system commenced operations in 21 February 2014 and its ratification is on the right track. Surely, it is up to the banking community to create an added value at this infrastructure, by increasing the range of its usage, aiming for high efficiency and low cost.

SWIFT - open for business

Picking right opportunities is crucial for SWIFT and the financial industry.

Governments around the world have imposed major structural reforms, in order to increase transparency and mitigate the risk accompanying these transactions and processes, whereas capital requirements are increased.

All this set creates challenges for all stakeholders, especially banks, which perform transactions and operate in a global scale. In this new and dynamic environment other regulatory requirements, related to compliance and customer recognition, “Know Your Customer” (KYC) requirement, etc., weigh substantially on banks.

So, banks are actually investing significantly in infrastructure and human resources, to comply with regulatory requirements, related to money laundering and financing of terrorism. Under these conditions, a typical demand arises naturally to cope with challenges such requirements do produce, by way of using a single platform. This is a good opportunity for the Albanian banking community, to consider establishing a national platform, by creating schemes in accordance with the legislation, to fight against money laundering and financing of terrorism. A close cooperation between relevant structures would be deemed as the starting point to this infrastructure.

Safety and reliability - a continuing challenge for SWIFT

More than 80% of SWIFT investments go for increasing and strengthening basic services and technological infrastructure, given that it handles transactions for more than 10 thousand financial institutions and companies. The upgrade of messaging platform is a multiyear SWIFT initiative, to increase processing capacity, flexibility and security, as well as improving data protection. The securities infrastructure is another market (area) where Albania would support the financial developments. Today, SWIFT is the center of sending/receiving messages to many clearing & settlement systems for payments, securities, foreign exchange and derivatives. The Clearing & settlement infrastructure is a system which is administered by a public organization (e.g. a central bank), or any other public institution, association, or a private entity, that provides trading,

clearing & settlement services for the financial industry, by matching financial transactions and depository functions. A full-fledged market infrastructure includes a set of business rules, obligations and admission rules, operating rules, flows and communication channels. Domestic market is currently in the preparation phase of the project commencement of implementation of this infrastructure. The project to implement such infrastructure within the banking market in Albania is in its first steps.

This project is announced by Bank of Albania and its full implementation is expected to spur a considerable development for this business in the Albanian market, by adding value to partnership with SWIFT. In the frame of current market developments, SWIFT is in position to support and assist with banks with data migration, including SEPA impact analyses, converting bank account numbers, integration, standards, etc. Also, it offers FileAct, a service that allows safely and reliably in transferring files for payment messages, SEPA Plus and IBAN Plus, platforms which are part of SWIFTRef – a reference data service for “databases”, as well as training services related to the use of ISO 20022.

Banking community in Albania is a unique user of SWIFT platform, showing a consolidated and sustainable partnership, a business with mutual and value-added benefits, during the whole time period of joint cooperation, which should be considered, consolidated and expanded, in the future to come. Finally, it is simply a matter of choice.

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AAB SPECIAL

Global Money Week (10 - 17 March 2014) Global Money Week is an annual celebration, organized around the globe under the coordination of the organization “Child and Youth Finance International Secretariat (CYFI)”. During the week, various worldwide activities are held, aiming for children to learn how to take care about money, including savings and income.

The Albanian Association of Banks joined this global movement by organizing several educational activities, in cooperation with Bank of Albania. Both institutions are engaged in public’s financial education by way of organizing numerous activities, publishing educational brochures, elective module for middle school students: “Personal finances in your hands”, as well as the learning package: “1, 2, 3... Çufo the piglet learns to spare.” “Çufo and Tipi - A gold-coined adventure” show was the onset of these activities. This show was put on stage in collaboration with the Puppet Theatre. During the ceremony held on this occasion in the Puppet Theatre, a Memorandum of Understanding was signed between Mr. Ardian Fullani, Governor of Bank of Albania and Mr. Seyhan Pencabligil, Chairman of the Albanian Association of Banks. The purpose of this memorandum is promoting cooperation between the two institutions in the field of financial education.

Students of eight elementary schools in Tirana attended the show: “Çufo and Tipi - A gold-coined adventure, an activity organized by AAB and BoA’s staff. Banka Kombëtare Tregtare sponsored the shows during the whole week and provided amusement for over 1,000 students with those two funny and much-loved characters for them.

AAB, as part of its commitment in the field of financial education, organized in 17 March the open hours with the topic: “Bank and the Money”, at the premises of “Illyria” Non-public University and the Economic & Technical School in Tirana. Lectures were delivered by Mrs. Najada Xhaxha, Head of Payments Department at Tirana Bank.

During the Global Money Week and in the frame of academic practice for the subject: “Personal finance in your hands”, AAB member banks provided high school students with the opportunity to visit the commercial banks’ branches, in Tirana and other cities. All member banks were willing to cooperate with this project. The Governor of Bank of Albania and CEOs visited jointly with students the branches of Societe Generale Bank in Tirana, Credins Bank in Dibra and BKT in Lushnjë.

Another event, organized on the occasion of the Global Money Week was the Drawings contest: “My Money”. Students of First, Second and Third forms of elementary schools were invited to realize their concept drawings on about money. Their drawings were posted on Bank of Albania’s educational website on Facebook. Ten drawings which got most “like” on Facebook were declared winners of this competition. The awards ceremony was organized in 31 March, where symbolic gifts and bank deposits with ALL 10,000 at Raiffeisen Bank were handed over to the winners.

44 • BANKIERI • www.aab.al