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Bankieri No.15, April 2015 Publication of the Albanian Association of Banks
Message from the New AAB Chairman Christian CANACARIS Editorial The Sea of Liquidity does not mean the Sea of Tranquility Elvin MEKA Frontline Excess liquidity in the Albanian banking system The challenge of its management Jola DIMA Suela TOTOKOÇI Risk Appetite and Liquidity Arjan KADAREJA
Dealing with EXCESS LIQUIDITY Bankieri is the official publication of Albanian Association of Banks which mainly focus the Albanian banking industry. Bankieri provide readers with valuable information on the financial industry’s developments in general, and of commercial banks in particular.
ALBANIAN ASSOCIATION OF BANKS Street ‘Ibrahim Rugova’, SKY TOWER, 9/3, Tirana Tel: ‘+355 4 2280371/2 Fax: +355 4 2280 359 E-mail: bankieri@aab-al.org; www.aab.al
Interviews Gent SEJKO, The New Governor of Bank of Albania Gent SEJKO
EDITORIAL TEAM:
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Banking System Lending in foreign currency, a high risk activity or a binding investment for banks? 15 Artiola AGALLIU BANKING, or the People Business 17 Ermira QOSJA Experts’ Forum The Hesitation about Financial Collateral 20 Iva NATHANAILI VAT on financial services - A case to be reconsidered 22 Andi PACANI IT Security Zone Business – oriented information security Adriatik BALLHYSA Economist Corner The role of macro-prudential policies in the financial stability Adrian CIVICI Social capital Bank activities Tech Topics Vidyo - Bringing human touch to online banking Nikolin KOLA Financial Auditorium Bank card payments through smartphones Their importance in e-commerce Erion MAXHARI AAB AAB Activities - Financial Education AAB Trainings
Elvin Meka Editor–in-Chief Eftali Peçi Coordinator Junida Tafaj (Katroshi) Collaborator Andis Rado Photographer Design & Layout: PIK Creativ
Christian CANACARIS AAB Chairman & CEO of Raiffeisen Bank Albania Gazmend KADRIU AAB Vice Chairman & CEO of Union Bank Periklis DROUGKAS AAB Executive Committee Member & CEO of Alpha Bank Albania Seyhan PENCABLIGIL AAB Executive Committee Member & CEO of Banka Kombëtare Tregtare Frédéric BLANC AAB Executive Committee Member & & CEO of Societe Generale Albania
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Bozhidar TODOROV AAB Executive Committee Member & CEO of FIBank Albania
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Endrita XHAFERAJ Secretary General, Albanian Association of Banks
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Hysen ÇELA Chairman of Albanian Institute of Authorized Chartered Auditors (IEKA)
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Adrian CIVICI President of European University of Tirana
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Spiro BRUMBULLI Chief of Cabinet, Ministry of Finance
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Enkeleda SHEHI Chairwoman of Albanian Financial Supervision Authority
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Message from the New AAB Chairman Dear reader, It gives me a great pleasure to share with you my first message as the Chairman of the Albanian Association of Banks. I think we are all partners and I aim for a close, fruitful and transparent collaboration with all the stakeholders. I have been living for more than 10 years in Albania and I think we share the same vision for the developments of the banking system; we are undoubtedly the engine of the economic growth and we should behave as such. The business community, government, Bank of Albania and other important institutions, as the main stakeholders of the big scene, are in the same wavelength as the banking system. We are bound to each other in the success and failure, so I strongly believe that open and honest partnering, my idea of assuring a success story for the Albanian economy and this country, is our idea and it is a goal we should achieve together. Saying that, I would like to stress that I will continue through the AAB to lobby for the rights of the banking system, for improving the environment, rules and procedures where we conduct our business, for more fair court decisions, for more proactivity by all stakeholders. I do believe that we should continue to be focused in promoting the banking sector, the Albanian economy, and Albania itself. We are strong, well-capitalized, liquid, and very well-regulated and I think we will continue to grow, only by supporting more the economy, by financing good projects with a direct impact on GDP growth and employment, by developing and presenting in the market more modern banking products and services and by competing in a fair way. Complying with the EU regulations and procedures is another point made very important recently. I think we should be prudent and careful, in order to smooth the negative effects. I feel more optimistic when I see for the first time in a long time the trend of NPL going down. I think this is a good sign for the country’s economic developments. The last, but not the least, I would like to thank my predecessor, Mr. Pencabligil for the efforts he put to lead AAB in the last years.
Sincerely, Christian Canacaris www.aab.al
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Keni gjetur shtëpinë që ju ka hyrë në zemër? Bëjeni tuajën me kredinë e duhur nga BKT!
deri në fillim të 2017
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për 4 vitet e fundit
Editorial
The Sea of Liquidity does not mean the Sea of Tranquility Banks in Albania have already accomplished successfully the catch-up process of developing a modern banking sector and have arrived at the interchange station, where the road to financial deepening needs to start its construction.
by Prof. Asoc. Dr. Elvin MEKA1 Editor–in-Chief
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he liquidity risk is one of the most closely monitored and properly managed risks in the banking industry for the simple reason of its swift materialization and the devastating effects on the banking business and sector. Therefore, banks put so much effort, by way of employing various instruments and strategies, along with regulatory and mandatory requirements, to ensure that the liquidity level stays above some minimum benchmarks. One of these instruments is the excess liquidity, i.e. the amount of liquidity beyond the mandatory reserves, as imposed by the central bank. But as banks try to avoid potential liquidity problems and funding risk, another issue emerges for them, when the excess liquidity surpasses the limit of the precautionary threshold, thus throwing them into the sea of liquidity. This resembles the actual prevailing situation in the Albanian banking system, where
liquidity is ubiquitous. Several reasons may be counted for such an accumulated liquidity: contraction in businesses’ economic and investment activities, with the respective decline in bank credit, as well as the limited investment alternatives in the domestic financial system, in a time when deposits keep growing, albeit at modest rates. In the frame of actual international, regional and domestic market conditions there is no way that, banks will start using such excess liquidity to expand credit considerably, as they are reasonably prudent at not going to throw money out of the window. On the other hand, they are constrained to expand their exposure to the Albanian government securities and their parent banks, or international correspondents given the established regulatory restrictions. At the end of the day, banks are finding themselves in a perfect deadlock. As a normal business entity they have to produce profit, and therefore, banks will try to reduce the cost of funds. Typically, this is what is actually happening, where time deposits are shrinking and current accounts are expanding. But the low-cost deposits just help banks to keep the net interest margin, intact, whereas the presence of collective investment schemes with bet-
ter returns make the attraction of lowcost deposits a tough endeavor in the long run. Banks are now sailing in the Sea of Liquidity, which unfortunately cannot be called the Sea of Tranquility. Having said that, the unconventional solutions must be considered, like: government credit enhancement mechanisms for borrowers, gradual development of the securities market, and possibly issuance of central bank securities. Banks in Albania have already accomplished successfully the catch-up process of developing a modern banking sector and have arrived at the interchange station, where the road to financial deepening needs to start its construction. However, banks cannot be left alone in this strategic undertaking and now it’s time for the government and financial market regulators to make their part. Banks are and will be here to support the economy, businesses and individuals, but acting at their shareholders’ best interests, in a prudent way, while conducting the business in full compliance with laws and regulations!
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Deputy Dean & Head of Department of Finance, UET-EUT
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Frontline
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xcess liquidity in the banking market may be initially assessed by having a snapshot on loan/deposit ratio of the banking system and, particularly, the trend of such ratio during the last year (31 December 2013 - 31December 2014). A low ratio’s value, as well as the downward trend of this ratio, clearly shows the excess liquidity in the market, which is demonstrated by an increase in customer deposits, but unaccompanied, to the same extent, by the respective increase in loans. If we go a bit deeper and assess the same ratio, but in terms of currency, both local and foreign one, a far more critical situation would be found, with regard to foreign currency. As mentioned above, the excess liquidity is determined by the performance of two factors: the deposit growth and the lack of increase, or decrease, in the lending portfolio. If we could shed light on the components that affect the performance of each factor, we could mention: The deposit’s growth. Despite the historically low levels of deposits’ interest rates we see today, particularly those in Euro (at almost zero level), following the monetary policy and interest rates set forth below by ECB, there is still a growing trend of deposits, that may have come as a result of several components, as follows: a) the declining consumer confidence, which is expressed in their tendency towards reducing expenses and increasing savings, b) the payment by government of arrears to businesses and third parties, during the second half of 2014, c) the increasing confidence in the banking system, as well as a growing trend (albeit slowly) in formalizing the domestic economy (from cash to non-cash), d) the transferring of savings from immigrants in Greece, to Albania. Lack of increase, or a decreasing lending portfolio. The performance of this factor is affected, inter alia, by the following components: a) a weak demand for loans by customers, whether businesses or individuals, directly associated with low rates of economic growth, as one of the most
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Ms Jola DIMA
Ms Suela TOTOKOÇI
Head of Risk Management Division INTESA SANPAOLO BANK ALBANIA
Head of Finance & Capital Market Division INTESA SANPAOLO BANK ALBANIA
Excess liquidity in the Albanian banking system The challenge of its management
Should banks not succeed by investing the liquidity collected from depositors, in loans within the domestic market, whereas the alternative investments are pretty limited than before, whether as a result of tightening requirements of supervisory authorities, or even lower or negative rates in the international market, then all this will affect their performance, adversely. significant weakness of this factor, b) a more orthodox approach by banks during the lending process, as a result of the awareness about the need for proper implementation of lending standards, particularly for businesses, following the gained experience in managing a relatively high level of non-performing
loans. Lack of a wide implementation of the accounting standards, audit of financial statements, the still-improving situation in different sectors, the specific licenses and real estate problems hinder a rapid and clear decision-making for lending. c) a not-so-significant correction level of
bad loans within the banking system, despite legal measures taken and payment of arrears by the government. Also, another element, which complicates their recovery, are measures taken by state institutions for tax collection towards these same debtors. d) a decrease in consumer confidence and high prices of real estate, which have given an effect on reducing the demand for housing purchases, thus reflecting a decline in demand for mortgage loans. However, a third factor, along with deposits’ growth and the meager growth of loans may be the requirement for banks to raise capital, as a result of the high level of non-performing loans, or the tightening regulatory framework, which is translated into an increased liquidity within the banking system. The existence of a high level of liquidity, despite positive effects it may have in stimulating, in principle, lending with competitive rates, does have its own negative effects, by creating a high pressure and no-a-positive effect on bank’s profitability and activity, as financial intermediaries. Furthermore, such liquidity is more prominent evident in foreign currency, where the interest rate scenario in the international markets is totally unfavorable, regarding the alternative lending investments. Mean-
while, it is worth noting that the alternative investments in local currency continue to be represented by the purchase of securities, issued by the Albanian government, despite its limitations, following the internal limits set out by each bank, which aim to control the exposure to the Albanian government, in the frame of managing the concentration risk. However, it can be argued that this window is starting to close, as the government plans to decrease the domestic debt. In short, should banks not succeed by investing the liquidity collected from depositors, in loans within the domestic market, whereas the alternative investments are pretty limited than before, whether as a result of tightening requirements of supervisory authorities, or even lower or negative rates in the international market, then all this will affect their performance, adversely. As per above, the domestic demand for loans remains weak in general, particularly in foreign currency. Meanwhile, given the most recent changes in the country’s regulatory framework, a loan extended in foreign currency requires a higher of capital coverage, compared to a loan in local currency, which would put banks in a challenging position, if they would be close to the upper frontier of capital adequacy. On the other hand, the same regulatory
framework requires banks to reduce their long-term investments in foreign currency abroad, especially with few of the parent banks, thus contributing to a pile up of the excess liquidity. This liquidity amount, that is already bound to stay within the country, has lower investing opportunities in the Albanian government securities, due to the higher risk weight, assigned to them. Notwithstanding the restrictions imposed by the Albanian regulatory framework, foreign banks operating in Albania are subject to the respective regulatory framework of the country of origin of their parent banks and Eurozone, which during recent years have become more conservative and prudent against risk and key performance indicators of financial institutions, including the liquidity indicators. Then, how can banks cope with the challenge of the excess liquidity? The improving non-performing loans indicator, on the one hand, and the improving legal framework, and its respective implementation, would jointly help in revitalizing banks’ lending activity, along with a more optimistic scenario of economic growth. Meanwhile, as regards deposits, especially those in foreign currency, it is the right time for Albanian depositors to tap alternative investments, besides deposit, an approach observed for alternative investments in ALL, where there is a continuously increase of individuals investing in government securities. In this way, the excess liquidity in the banking system would be reduced, as it is quasi impossible to be balanced by the lending activity, at least in the short term.
The regulatory framework requires banks to reduce their investments in foreign currency abroad, especially with parent banks, thus contributing to a pile up of the excess liquidity. This liquidity amount, that is already bound to stay within the country, has lower investing opportunities in the Albanian government securities, due to the higher risk weight, assigned to them. www.aab.al
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Frontline
Risk Appetite and Liquidity Rather than trying to stimulate the economy through the usual and costly capital investments, the government action should aim the allocation in Albanian economy of private funds that Albanian subsidiaries are keeping mainly as deposits with their parent banks in the euro area.
by Mr Arjan KADAREJA, PhD Professor Business Administration Department CANADIAN INSTITUTE OF TECHNOLOGY (CIT)
FACTS According to updated INSTAT data, Albanian economy posted a growth of about 3.5% during the period 2009-2011 and well below 2% for the period 2012-2014. Unsurprisingly, the developments in the economy as a whole were highly correlated with the nation’s bank credit market developments. In 2011, as Graph 1 shows, the bank credit as a ratio of total assets reached the highest ever level of 47.3%, only to fall precipitously afterwards to a low of 42.6% in 2014. Moreover, the ratio of bad bank loans to outstanding loans reached a disturbing level of 11.5% during the period 2012-2014 as compared with about 6% during the period 2009-2011. On the other hand, for most of the time the ALL denominated bank deposits increased by a rate well in excess of the nominal gdp growth, as Graph 1 shows. These developments were associated with the creation of extra liquidity in the banking system with net claims on foreign res-
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idents (mainly domestic banks deposits with parent banks in the euro area) reaching 16.9% of the total assets, the highest level ever.
So, the Albanian economy is facing the paradox of stagnant bank credit associated with plenty of liquidity in the banking system.
Source: Bank of Albania and Author’s calculations
LOW RISK APPETITE I think the high liquidity in the banking system is a consequence of a low risk appetite by banks and to some extent businesses. This is so for at least two reasons. First, there is a protracted period characterized by a significant fall in the realized average rate of investments return. The realized rate of return can be roughly measured by the nominal gdp growth rate multiplied by one minus the ratio of bad bank loans to total loans. During the pe-
riod 2012-2014, the nominal gdp growth represents only two-thirds of the value it had during the period 2009-2011. Moreover, the ratio of bad loans to total loans almost doubled during the second period as compared with its value in the first period. So, for both reasons, the Albanian economy attractiveness for domestic or foreign investments has been deteriorated. This explains the significant increase of the banking system net foreign assets, the fall in the bank loans as a percentage of the
total loans outstanding, the shaky demand for credit by businesses1 and, partially, the decrease in foreign direct investments. Second, it can be argued that, in Albania, due to low degree of financial development the risk taking is simply not possible for many individuals who possess a lot of savings. So, the development of financial instruments and markets certainly provides a solution to this problem but as we all know it takes a lot of time, as the experience of more developed countries in the region demonstrates. GOVERNMENT ROLE As the data suggest, Albanian economy is going through a protracted period of economic slowdown when lending becomes quite risky and banks become very cautious in extending credit. Moreover, there’s uncertainty about where the economy is going and good businesses are nervous about adding debt to the balance sheet at a time of uncertainty. On the other hand, as Graph 1 shows, there is plenty of liquidity in the banking system, which banks do not know what to do with. Under these circumstances, usually it is the central bank which jumps in and relaxes the monetary policy. While, the central bank has been delivering numerous interest rate cuts with encouraging results in the ALL denominated credit, it cannot exercise any important influence in the important Euro denominated market. 1
What is left is for the government to get engaged through a countercyclical fiscal policy. So, on behalf of its citizens, the government can borrow during a slowdown and pay back in the future during an expansion. Usually, governments are considered a good risk and so they can borrow at all times at reasonably low cost. Unfortunately, the current situation in Albania is more complicated than this.
It looks much easier to lure Albanian originated money to fund investment projects in Albania rather than attract additional foreign direct investments in an increasingly competitive environment.
Under the framework of the agreement with IMF, the fiscal policy in Albania is in consolidation mode. The plan is for the public debt as a ratio of GDP to fall by the end of 2015. This would be the first fall since 2010. While this is a good thing for medium and long term, I think due consideration should be given to the short term developments as well.
One solution is to let the market work. My feeling is that the market solution might take a lot of time to materialize as the recent experience demonstrates. Another possibility is for the government to intervene. The question is how can the government do that given that the risk taking through a countercyclical fiscal policy is limited under the current agreement with IMF? I think, rather than trying to stimulate the economy through the usual and costly capital investments, the government action should aim the allocation in Albanian economy of private funds that Albanian subsidiaries are keeping mainly as deposits with their parent banks in the euro area. Totaling 16.9% of banking system assets, these funds represent a very important financing source for the economy. It looks much easier to lure Albanian originated money to fund investment projects in Albania rather than attract additional foreign direct investments in an increasingly competitive environment. The government could facilitate the allocation of these funds by taking some limited risk itself. Its risk-taking activity can aim important sectors of the economy by means of public-private partnerships, guaranties, subsidies, new rules and regulations, better law enforcement, etc. Finally, the government limited risk-taking could lead to the increase in the expected rate of investments return in the Albanian economy, which I claim is the main culprit for the low risk-taking appetite. CONCLUSION In conclusion, I think there are some facts showing that under current circumstances the business risk by private sector is not worthwhile undertaking. This behavior is likely to lengthen an already long period of low economic growth. I think the situation calls for the government engagement through a controlled risk taking strategy aiming to facilitate the allocation in the Albanian economy of the sizable funds of Albanian origin which are kept mainly as deposits by Albanian subsidiaries with their parent banks in the euro area. The strategy has the potential to work since it looks easier for the Albanian government to attract Albanian originated money to fund investment projects in Albania rather than trying to lure additional foreign direct investments in a very competitive environment.
TENDENCIES IN LOAN-MAKING, by Eriona Suljoti and Sofika Note, Monetary Policy Department, Bank of Albania, January 2015.
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Interview
Gent SEJKO, The New Governor of Bank of Albania Considering the domestic market conditions and our economy’s specifications, our objective will be a continuous alignment with the political and instrumental framework of member banks of the European Union system of central banks.
Mr Gent SEJKO Governor BANK OF ALBANIA
BANKIERI: Firstly, we wish you success in the position of the Governor of Bank of Albania. Getting back to Bank of Albania how do you find it now, from an institutional, professional and human perspective? I thank you for the wishes and I would like to express my appreciation to BANKIERI magazine. I really deem, such forums of analysis and information on economic and financial developments in the country and beyond, as useful and necessary. Going back to your question, the comeback to Bank of Albania as its governor, gives me a particular pleasure, especially after recent experiences as an administrator in the banking sector. Personally, I appreciate this as the apex of my professional career, whereas it is undoubtedly seen as a great public accountability, which should be accomplished quite successfully. During the whole historic path of its own activity, Bank of Albania has been a highly appreciated institution. All international institutions’
reports express praise and appreciations for its work, which have all a common denominator: its staff’s professionalism. It is a privilege to work with such a staff and I have expressed it since the day one of my job as the Governor of Bank of Albania. At the same time, and frankly speaking, it's a special feeling to go back in such a work environment, among colleagues and good friends.
Currently, we have a stable and liquid banking system, but for the first time, it faces with the consequences of a downward financial cycle, followed by the activity of foreign bank holding groups and country’s sluggish economic growth.
BANKIERI: Since the appointment and approval of the Governor of Bank of Albania has gone through a complex process and debate, however consensual, do you see this position as a personal challenge? The events of the second half of last year have damaged the reputation and public confidence in the institution. That was simply unavoidable. In his regard, the consensual support for my candidacy to head the institution is highly regarded as an expression of political responsibility. This
multilateral consensus is as encouraging as it is challenging. It is just for the institution which guarantees the solidity of two of most important pillars of any economy: macroeconomic equilibrium and financial stability; it is just for our central bank: the Bank of Albania. I do believe that, with the positive energy, every change produces, we will soon restore the reputation of Bank of Albania at the level it deserves. This is my first challenge which, together with the Supervisory Board and the staff of Bank of Albania, I want and will deal with. Naturally, my challenge carries the aspiration of being in line with public expectations, not only for the return of confidence, but rather, to move forward an institution that has a real tangible contribution for all citizens. BANKIERI: Given the current situation and moment, the banking system and the national economy are going through, can you describe which are the main challenges and issues you deem as being the absolute priority for the Bank of Albania? I can affirm that, the challenges we will face are primarily embodied in the Law "On the Bank of Albania", the country's sustainable orientation towards European integration, as well as the successful accomplishment of institutional commitments, arising from the agreement with IMF and WB. Summing up, I would like to mention some of them: • Strengthening the institutional frame-
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work of the Bank of Albania, as an important headway. My ambition is for a simpler, more responsive and more opened central bank. Should we succeed in these three directions, then I am confident we will have a stronger and more independent central bank and certainly with a high degree of public confidence. • Strengthening the internal control, specifically, as one of the utmost priorities. Strengthening its role in risk management activities of the institution would be a guarantee to prevent irresponsible and abusive actions in the institution’s daily activity. A further perfection of the monetary policy framework, including relevant instruments, is a constant priority of Bank of Albania. By considering the domestic market conditions and our economy’s specifications, our objective will be a continuous alignment with the political and instrumental framework of member banks of the European Union system of central banks. • Approximating our financial stability standards with international standards, including those of financial institutions’ supervision and the implementation of macro-prudential policies. The orientation of our activity in this area will have a focus on the future, towards a timely identification and effective addressing of risks of banking and financial system activity. In this regard, we will be active in cooperating with the banking sector and other authorities in the country. • Improving the by-laws framework of all practices that regulate the institution’s daily activity, which means a partial or complete revision of all activities related to the procurement of goods and services, staff recruitment and its compensation, security and management of monetary values, maintenance and operation of BoA buildings, as well as enhancing the security of the payment system and its supervision. BANKIERI: Since you come directly from the banking sector and based upon your rich professional and management experience, how could they be of help for banks in Albania to overcome, successfully, the national and international realities? The country’s banking sector has witnessed and experienced important developments over the years. Several moments to be mentioned are the privatization of banks, the improvement of banking products and
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services, as well as dealing with the consequences of the international crisis of 20072008. The dynamics of developments in the banking sector is also reflected in the changing expectations of economic agents about the contribution of such sector to the economic growth. For example, after significant privatizations in the banking sector and the entering of foreign banks in the country, strong expectations were built for a rapid development of banking activity and its respective standards. The obvious reality witnesses that it has almost really happened, if we consider the expansion of banking activity and economic growth, during 20042007. On the other hand, we must admit that management standards of banking institutions, despite improvements, should be at higher levels. The focus of foreign banks on activity risks, especially during boom peri-
During the whole historic path of its own activity, Bank of Albania has been a highly appreciated institution. All international institutions’ reports express praise and appreciations for its work, which have all a common denominator: its staff’s professionalism. It is a privilege to work with such a staff. ods, must be more concentrated. It because of those periods when running after high profit targets is associated with risk factors, which do materialize and emerge later on. Coping with the impact of the financial crisis of 2008 by the Albanian banking sector and Bank of Albania, shows the importance of what I said above. Currently, we have a stable and liquid banking system, but for the first time, it faces with the consequences of a downward financial cycle, followed by the activity of foreign bank holding groups and country’s sluggish economic growth. These consequences are obvious in a slowdown of lending activity, the decline of its quality, the overall decline of financial intermediation in the economy, by the banking sector. Such effects are easily expected for anyone who regularly watches the economic developments in the country and the world, not to mention field experts and those who know the Albanian reality. Now the chal-
lenge lies in the need to contain them and to act dynamically, to address them effectively. In this regard, I think that, pursuing quick steps towards alignment with international standards, in all aspects that affect banking activity, contributes to a better addressing of current risks and preserving the stability and banking sector contribution, in the long term. BANKIERI: How do you see the role of Bank of Albania within the Albanian financial system and economy, in the near and distant future? Do you think it is time for a redimensioning of its role and objectives? Based on the existing legal framework and the functioning experience of the institution since its creation, it is clear that, there are no doubts about the role and contribution of Bank of Albania, as the central bank of the country, in its economic development and maintaining the banking sector’s sustainability. I think that, generally, this contribution has been up to the developments and challenges faced by the economy and banking sector, during all these years. Certainly, there is room to improve such contribution qualitatively, relying to the institutional independence, professionalism and standards of a modern central bank. My opinion is that, following the legacy the financial crisis of 2008 left anywhere in the world, there are two directions where we could develop our institutional contributions, as follows: a) the development of macro-prudential policy framework, to clarify and strengthen the supervisory role of Bank of Albania per se, and in coordination with other authorities, in regard to risks’ prevention in the banking sector and financial system; b) a significant commitment of the institution on discussions about economic development policies in the country. Some of the issues that we are interested, in the frame of the effective exercise of our legal functions, include: financial market development; structural measures for the country’s sustainable economic development; developing the framework of economic and financial statistics; improving the legal framework of financial reporting, the handling of the financial relationship between debtor and creditor, etc. I believe that, together with the Supervisory Board members and staff of the institution, we will successfully accomplish all our legal responsibilities and other objectives related thereto.
Banking System
Lending in foreign currency
A high risk activity or a binding investment for banks? Banks can, of course, invest their foreign currency funds in other forms of non-loan investments, but in doing so they face various difficulties (including issues related to the profitability of these investments) and limitations from regulator’s tightening policies, or even internal banks policies restrictions
by Ms Artiola AGALLIU Risk Management Department Manager UNION BANK
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he currency risk is one of the typical risks the Albanian banking system is exposed to. In fact, there have been held different discussions about lending in foreign currency and the potential losses the Albanian borrowers may suffer from exchange rate fluctuations. Meanwhile, the Albanian economy, as a whole, is exposed to such risk, following the country’s geographical positioning in the international trade map, its dependence from migrants’ remittances, as well as a variety of other factors. The currency risk is defined as the possibility of looses of an entity from any exchange rate fluctuations. For example, if the entity has borrowed euros, while its revenues are in ALL (Albanian Lek), then under an ALL devaluation scenario, the portion of income in ALL, disposable for the same loan installment payback in euro, is higher. Let's take an example: in January 2007, an individual borrowed a 20-year mortgage loan, with a monthly installment of EUR
200. Given that his monthly income are ALL 80.000, the loan installment, converted with the FX rate of January 2007 (ALL/ EUR = 125), is ALL 25.000, or 31.25 percent of its monthly income. Assuming the same situation in January 2015, the loan installment value now becomes ALL 28.000, or at 35 percent of monthly income. The exchange rate fluctuation imposes the individual to "set aside" more of his income for the same loan installment (in FCY). In the case of businesses, the situation is even more complex, due to foreign currency operations, the size of sales/purchases exposure with foreign clients/suppliers, etc. But what is the best hedging in this situation? Risk managers advice on "matching" the currency of their inflows with the one of their payment obligations. But how easily can this advice be followed considering the diversity of factors affecting the decision-making process, is an issue which needs a deeper analysis. TO WHAT EXTENT IS THE BANKING SYSTEM EXPOSED TO FLUCTUATIONS IN EXCHANGE RATE? The effect of currency risk is the result of two factors: (1) the exposure balance and (2) exchange rate fluctuation. Generally, the exposure balance corresponds to the outstanding loans granted in foreign currency. At the end of 2014,
the banking system’s outstanding stock of loans was ALL 549 billion, out of which, approx. ALL 225 billion were in ALL, ALL 283 billion in euro and ALL 41 billion in US dollars. In relative terms, loans in local currency account for 41 percent of total loan portfolio, whereas those in foreign currency approx. 59 percent. Foreign currency exposure is higher for businesses, compared to individuals. In December 2014, about 62 percent of outstanding loans for businesses were granted in foreign currency, while this figure for individuals was at the level of 51 percent. The currency risk exposure remains high for both categories, although at lower levels for individuals. If we analyze the exposure amount through years, it is noted a positive development, in terms of reducing the weight of loans in foreign currency. So, in 2011, lending in local currency accounted for about 34 percent the outstanding loans, while in 2008 just 28 percent. Graph 1 shows the structure of the outstanding loans through years. The increasing weight of loans in local currency is determined mainly by new loans. Bank of Albania’s policy has played a stimulating role in this regard. Thus, the new loan, granted during 2014, was 48 percent in ALL and 52 percent in foreign currency, whereas the percentages of new loans in 2011 were 39 percent and 61 percent, respectively. The stimulating policy has been
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Source: Bank of Albania
Source: Bank of Albania
Source: Bank of Albania
more effective for new loans to individuals, compared with those for businesses. Besides new lending, the loan portfolio’s structure is affected, especially during recent years, by restructuring of existing loans, some of which are converted into local currency. WHAT ARE THE FACTORS THAT CONTRIBUTES IN THE WEIGHT OF FOREIGN CURRENCY LOANS The current structure of Albanian banking system’s outstanding loans is affected by factors that can be grouped into three categories, as follows:
(i) factors related to the demand for loans, (ii) factors related to sources of funding for these loans (deposits), (iii) other factors, related primarily with benefits from interest rates. The first group has been the determining factor in the actual structure of banking system’s loan portfolio. Since a large part of trade and investment transactions are effected in foreign currency, businesses are prone to borrow in foreign currency; meanwhile individuals are affected by the real estate market. Apartments and houses are sold in euro and as a result, individuals seek to be financed in this currency. Notwithstanding banks’ advices, approximately 62 percent of outstanding real estate loans to households are lend in euro, thus exposing them to exchange rate fluctuations. Another important factor is deposits in foreign currency, which accounted for about 46 percent of total bank deposits in the end of 2014. Considering that this item represents over 80 percent of total liabilities, deposits in
foreign currency are a determining factor in the investment structure, on the assets’ side, including loan portfolio itself. Banks can, of course, invest their foreign currency funds in other forms of non-loan investments, but in doing so they face various difficulties (including issues related to the profitability of these investments) and limitations from regulator’s tightening policies, or even internal banks policies restrictions. There have been also many discussions about the advantages of interest rates. There is a public perception that a loan in foreign currency is cheaper than that in ALL. However, banks have made their calculations and the difference between interest rates (including factors affecting interest rates) is not as simple as the difference between their respective nominal interest rate. EXCHANGE RATE FLUCTUATION As above mentioned, the impact of currency risk is determined by the change in the risk factor itself, namely the exchange rate fluctuations. Having a look on the 11-year time series of foreign exchange rate against euro or dollar (Figure 2 and 3), it is obvious that exchange rate movements, during the last 4 - 5 years, have not been quite significant. The euro seems to be more stable during this period, which comprises practically the bulk of loan portfolio in foreign currency. Specifically, the ALL/EUR has fluctuated, over the last 11 years, within the range of 120.9 - 141.97 (referring to the monthly average rate, published by Bank of Albania). Fluctuations for the period 2011 - February 2015 has been, for the most part, close to the 139-140 level (ALL/EUR). For US dollar the
exchange rate has ranged between 77 - 130 (ALL/USD), and its movement over years, has been characterized by significant fluctuations. By calculating the average annual percentage change (a month-to-month comparison), the euro has had an average annual change of 2.5 percent during the period, while the dollar has scored a yearly average change of 8 percent. REGULATORY MEASURES FOR MANAGING CURRENCY RISK IN BANKS Bank of Albania has undertaken a set of measures to manage currency risk. The regulation "On Credit Risk Management" defines the exposure to currency risk, cases of borrowing in foreign currency where revenues are different from the currency of the granted loan. The regulation "On capital adequacy ratio" prescribes an additional capital requirement by 50% for such loans. Thus, the risk coefficient for a mortgage loan is therefore increased from 35 percent to 85 percent, in cases when the borrower is exposed to currency risk. Consequently, the amount of "available" capital to this loan, due to currency risk, is typically higher. Banks have taken internal measures, beyond regulatory requirements, for ensuring an effective management of such risk; they have set limits on the structure of loan portfolio by currency, aiming at a gradual increase of the share of ALL loans to total loan portfolio. Also lending criteria vary. Generally, banks set tighter requirements for debt-to-income ratio, or a higher collateral coverage ratio for borrowers who are exposed to currency risk.
Banking System
BANKING, or the People Business Banks must increasingly plan the adequate and appropriate personnel, in terms of skills, habits and roles, clearly defined from them. Human resource planning should follow the life-cycle approach, which starts with recruiting and ends with employees’ retirement.
by Prof. Asoc. Dr. Ermira QOSJA Lecturer EUROPEAN UNIVERSITY OF TIRANA (UET)
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anking is a service industry and as such, the human resources’ management is quite important. Risk and people management are the two main challenges banks are faced with, and in this regard, their success in the market is strictly determined by the way how they manage people and the risk. Efficient risk management cannot be possible without skilled and effective people. Banking has been and will be a "people business", beyond all technology developments that certainly have affected its operations, whereas people choose or continue to work in a bank for reasons which go beyond compensation, only. In their capacity as employers, and in most cases as large employers, banks should try to differentiate themselves by creating their image, especially in situations of high competition within the market where they operate. Nowadays, banks’ survival will depend on customer satisfaction where the failure to meet its expectations will complicate hinder their survival. In the course of man-
aging public relations, banks continuously articulate and emphasize their fundamental values, to keep and attract certain segments of customers. Certain values such as: "reliable", "innovative", "international", "social responsibility", "Albanian", etc., should be highlighted through practical “on-site” actions, and this is accomplished by bank employees, on a daily basis. Banks’ executive directors consider human resources as a short-term offer, and moreover they affirm that, the quality becomes increasingly questionable. However, it is quite clear that, as any resource in short supply, it must be carefully managed for the benefit of society and therefore must draw attention from all stakeholders. If banks have to survive, they must carefully assess the whole continuum of human resource practices, and based upon this logic, people management will remain a challenge for them. The main challenges, banks face during human resource management, consist in planning, finding the right people, keeping and developing them, as well as managing their break up with and departure from banks. Naturally, banks today are faced with an offer in the labor market that is culturally different from that of 10 years ago. Banks must increasingly plan the adequate and appropriate personnel, in terms of skills, habits and roles, clearly defined from them. Human resource planning should follow the life-cycle approach, which starts with recruiting
and ends with employees’ retirement. Furthermore, it should be integrated with the bank’s business plan and strategy. People’s planning is a very important requirement for banks, in order to develop their own "brand" as employers; consequently, it brings attracting, engaging and retaining talents in the organization. Banks need to draw plans for a sustainable recruit-
For the era we live, the front of talent management and "knowledge workers" seems to be faced with many striking challenges, where banks and universities have pretty much to reflect and to perform. In this context, it’s getting continuously reinforced the idea that universities are not only "factories" of knowledge, but are "factories" of skills and educated workforce, so it is increasingly discussed about the fact of entrepreneurial universities and education driven by market demand. www.aab.al
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ing program, adapting skills and capabilities with rapid technological changes and change management, due to the work of generations, who different from each other culturally, but must work in group. But what kind of talent do banks require? Do they need qualified people or for people who adapt quickly? Often, we hear banks’ human resources executives talking about facing difficulties in finding relevant people in interurban areas, or small towns. Perhaps, it is time for banks to think differently about recruiting people and here universities could be of help by bringing a significant contribution, as they often do. A question comes out naturally: How to find talents, in a time when their number is limited and they are targeted by banks, financial institutions, insurance companies, phone and other industries, which are on the fast track of growth and need talented employees? While human resources ask for online employment applications, organize tests and interview people, a frequent question is commonly made: Do they find the right people? It’s a common practice that, due to lack of psychological tests, the selected people have bright mind, but not a suitable one to perform jobs that were assigned to them. Finding the right people is only one side of the story, instead the challenge is to keep and develop them further. This issue includes several dimensions, spanning from training and staff development, performance measurement, promotion policies, transfer policies, talent management, communication, etc. The nature of banking business requires massive training/development of existing employees and skills, which must be continuously improved. Actually, most training at banks are "in house", of course this applies to trainings which pertain to technical platforms/programs and IT. Meanwhile, other trainings/developments could and should be based on requirements of each employee, on one hand, and on the other, on institution’s needs, but not to be considered as the same reward for all and, moreover, may be part of cooperation with other operators in the market, including universities. For the era we live the front of talent management and "knowledge workers" seems to be faced with many striking challenges, where banks and universities have pretty much to reflect and to perform. In this context, it’s getting continuously reinforced the idea that universities are not only "factories" of knowledge, but are "factories" of skills and educated workforce, so it is increasingly discussed about the fact of
Banks play a very important role, in terms of professional practices, internships, where students learn how they function and also in creating the opportunity for them to implement their theoretical knowledge, without forgetting that finding and getting a job today, for a graduate student, is undoubtedly one of his/ her greatest goals. Innovative ideas and research projects are often generated from research at universities, and this is another axis of bank – university cooperation. entrepreneurial universities and education driven by market demand. Universities are leading manufacturers of graduates in the labor market; they are constantly required to bridge the gap between graduates' skills and abilities required by the labor market. In this regard, programs’ redesign has become a new objective for universities, enabling graduates to be ready to enter the labor market. The development and improvement of university programs should be influenced by the demand of organizations in the market, which are differentiated by size and type of activity. In this regard, three types of organizations could be differentiated, as
follows: (1) matured organizations, which provide structured jobs for graduates and have the power to lobby with universities for improving curricula, based on their needs (which also include banks); (2) developing companies, which may be regarded as inexperienced and as not having the power to change the curricula of universities and (3) small companies, which do not have the ability to train graduates, but require highly skilled and ready-to-work employees. Additionally, banks play a very important role, in terms of professional practices, internships, where students learn how they function and also in creating the opportunity for them to implement their theoretical knowledge, without forgetting that finding and getting a job today, for a graduate student, is undoubtedly one of his/her greatest goals. Innovative ideas and research projects are often generated from research at universities, and this is another axis of bank – university cooperation. The country’s economic and social development is naturally affected by the cooperation between banks and universities, and therefore, they should and could aim more interaction and communication between them, in terms of "people business", labor market stakeholders and as social responsibility. This has been the philosophy of the European University of Tirana (UET), recently formalized by the cooperation with the Albanian Association of Banks, AAB. The latter, and specifically its Human Resources Committee, have undertaken a cooperation and communication process with universities, which apparently seems to be on the right track for all stakeholders involved in this interactive process.
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Experts’ Forum
The Hesitation about Financial Collateral Contrary to European Union countries, which amended all at once their domestic laws, in the time of adopting the Directive on financial collateral, in Albania this process was partial. The financial collateral presentation in Albania has not been associated with a widespread legal reform.
by Ms Iva NATHANAILI Senior Legal Consultant PRICE WATERHOUSE COOPERS ALBANIA
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n the year 2013, legal provisions on financial collateral arrangements were adopted for the first time, with the initiative of the Bank of Albania, as part of the Law No.133/2013 “On payments system”. Financial collateral arrangements, fully harmonized with the Directive 2002/47/EC of the European Parliament and the Council of the European Union, as amended by Directive 2009/44/EC, are designed to create a security interest over cash pledged in bank accounts and financial instruments, such as: shares, bonds or other similar negotiable securities, used in a financial transaction entered into between professional financial market participants and a legal person. Notwithstanding the advantages of the financial collateral, compared with other forms of guarantees, today, less than two years from its adoption, the financial collateral is rarely used in practice. THE ADVANTAGES OF THE FINANCIAL COLLATERAL (FROM A LOAN TRANS-
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ACTION PERSPECTIVE) The European financial market has highlighted the advantages of the financial collateral scheme such as: reduced formalities in creating and enforcing the collateral, credit risk mitigation effect and the unified application of the financial collateral in different jurisdictions in case of cross-border transactions. Firstly, bureaucracies related to the creation and enforcement of a financial collateral arrangement are reduced, as for the purpose of validity, enforceability and admissibility, it is unnecessary the involvement of a public notary, bailiff officer, court, register or any other public authority. Therefore, the bank in the capacity of collateral taker, in case of counterparty’s default, is entitled to immediate appropriation of cash collateral, or appropriates or sells the financial instrument. With reference to the securing charge and mortgage, these guarantees are overburden, due to legal requirements for signing the mortgage contract before a public notary and registering it before the local Register of Immovable Properties. Also, the registration cost, especially for loans over ALL 10,000,000 (approx. EUR 71,000) is very high, since the registration fee is applied for each of the mortgaged properties, separately. The operation of such system hinders elasticity of and transaction’s flow on the financial market. Secondly, the financial collateral arrangements are found to mitigate the counterparty credit risk. The Bank shall be the first ranking
creditor to enforce the collateral, even if the debtor is subject to winding-up procedures. Also, the bilateral close-out netting, whereby parties to a financial transaction covered with financial collateral net their mutual obligations, shall remain equally valid in a winding-up procedure. This produces a single obligation payable from one party to the other one, reducing thereby significantly the necessary collateral volume to cover up the transaction and consequently, creditor’s exposure towards its counterparty. Thirdly, considering that the Albanian legislation on financial collaterals is harmonized with the European Union laws, the foreign investing entity would be able to enforce the financial collateral consisting on a bank account, pledged in an Albanian bank, or shares/bonds of a joint-stock company similarly to the enforcement procedures it would have otherwise pursued in any other European Union country. This constitutes legal stability, highly demanded in cross border transactions. DOUBTS DO NOT JUSTIFY THE FAILURE OF FINANCIAL COLLATERAL APPLICATION Contradictory debates arose during the post-adoption period of the financial collateral legislation by academics and professionals in the banking and legal field, although the obvious advantages of financial collateral agreement in covering the risk associated with financial transactions. The main argu-
ment was that Albanian financial and collateral market is still fragile and negligible to accommodate such a system, designed mostly to respond the needs of an active cross border transactions market. In the frame of current situation, when Bank of Albania reports that corporate lending activity has shrank from year to year, banks’ request for collateral has remained consistently high. Until the second half of 2014, approximately 80 per cent of non-performing loans were covered with mortgage collateral. However, a collateral diversification process is noticed from banks’ side, which comes as a response to recent years’ difficulties faced in the immovable properties’ management, which falls beyond a commercial bank’s expertise. Thus, in January 2015, banks report a high cash collateral coverage of their exposures, compared with other forms of guarantees. However, banks’ efforts to diversify their collateral towards cash collateral are not correctly implemented in practice. The Register of Securing Charges and the legal practice confirm that banks continue to apply the system of creating a securing charge over cash collateral or shares even though, according to the law, the financial collateral system shall be used instead. In case of any enforcement event, this practice may result into an operational risk factor (legal risk) for some of bank exposures, because any securing charge agreement concluded after the entry into force of the financial collateral system is threatened by the risk of not being recognized in court, as long as the collateral is cash and financial instruments. The financial collateral presentation in Albania has not been associated with a widespread legal reform. This is believed to have caused insecurity for its implementation. Contrary to European Union countries, which amended all at once their domestic laws, in the time of adopting the Directive on financial collateral, in Albania this process was partial. The Albanian law does not yet comply with the scope of financial collateral system, whereby there shall be no formality related to the publicity and registration with any institution or public register. Joint stock companies are still obliged to register with the National Registration Centre their guarantees over shares, including the financial collateral. Furthermore, the bankruptcy law needs to be amended to guarantee financial collateral enforcement priorities in several aspects. Firstly, bankruptcy law allows treating financial collateral takers in two ways: either as secured creditors or creditors having 1
segregation rights over the collateral from the bankruptcy assets1. However the bankruptcy law shall deliberately recognize the preferential treatment of financial collateral takers against any creditor with competitive claims, for the purpose of avoiding contradictory interpretations and actions from the bankruptcy administrator. Secondly, the contradiction between the financial collateral law and bankruptcy law has brought about a conflict of powers between the bankruptcy administrator, on one side, who
Banks’ efforts to diversify their collateral towards cash collateral are not correctly implemented in practice. The Register of Securing Charges and the legal practice confirm that banks continue to apply the system of creating a securing charge over cash collateral or shares even though, according to the law, the financial collateral system shall be used instead.
collects creditors’ claims and distribute/segregates properties on their account from the bankruptcy assets, and on the other side, the financial collateral taker, who is entitled to appropriate/sell the collateral without the intervention of any authority, including the bankruptcy administrator. In this case, the
bankruptcy law shall guarantee the financial collateral taker entitlement to enforce his collateral as freely as no bankruptcy procedures were under way. Thirdly, the bankruptcy law shall clarify the bilateral netting of transactions covered by financial collateral is irreversible and it is not subject to the exemption cases provided in the bankruptcy law whereby netting agreement could be challenged on such grounds. The Regulation of the Bank of Albania “On capital adequacy ratio”, in force as of January 1, 2015, constitutes the commencement of a new system of credit & counterparty risk assessment for Albanian banks. The Regulation, drafted according to Basel II capital adequacy requirements, not only presents the financial collateral and bilateral netting (including balance sheet netting) as credit risk mitigation techniques, but also requires explicitly from banks to comply with contractual and legal requirements and undertake necessary steps to guarantee the enforceability of financial collateral agreements based on the law in force. It remains to be seen, until the end of this year, what would be the impact of the new Regulation in channelling the banking practice towards the accurate legal path towards the enforcement of cash and financial instruments. In conclusion, the Albanian legal system still needs to be harmonized with the financial collateral in order to give security to transaction parties and to benefit from its advantages. The bankruptcy law in particular shall acknowledge the favorable treatment of the financial collateral so it can be safely used as a credit risk mitigation technique by banks/credit institutions. Nevertheless, it is a fact that the law on financial collateral is in force and it is binding similarly as any other law.
Considering that the financial collateral may be completed by way of transferring the cash or financial instruments ownership to the collateral taker.
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Experts’ Forum
VAT on financial services
A case to be reconsidered Unlike the law, the respective Instruction seems to restrict the exemption on the basis of the status of the service provider. Such restriction would go beyond the prescriptions imposed by the law, which refers to the service provider as a lender, rather than a financial institution, let alone licensed in Albania.
by Mr Andi PACANI Senior Associate BOGA & ASSOCIATES
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n 1 January 2015 entered into force the new law on VAT (Law no. 92/2014 “On Value Added Tax in the Republic of Albania”), which is partially aligned with the Directive of the European Parliament and Council 2006/112/EC, dated 28 November 2006: “On the Common System of Value Added Tax”. The previous Law on VAT provided VAT exemption of the following services: “transactions concerning credits, loans, credit guarantees and any other guarantee over money, including loan, credit or guarantees management, bank accounts, payments, transfers, debts, cheques and negotiable instruments, except debt collection, and transactions concerning coin, banknote and money used as legal tender, except items used only for collections etc.” Similarly, the article 53 (ç) and (d) of the new law prescribes the following VAT exempts: transactions, including negotiation, concerning exchange operations, deposit accounts, current accounts, the supply of
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liquidity through payments, transfers, debt relations, cheques and other negotiable instruments, except debt collections; and transactions, including negotiations related to the currency, banknotes or other currency used as legal tender, except collectors’ coins and banknotes, that is to say, gold, silver, or other metal coins or banknotes no longer used. From the category of the above listed services, it results that the new law has expanded the range of exempted transactions, as a consequence of recent developments in the financial market; but essentially the legal framework remains the same. Generally, the services provided by banks and financial institutions are VAT exempt ones. The Instruction of the Minister of Finance (Instruction no. 6, date 30.01.2015 “On the Value Added Tax in the Republic of Albania”), released for implementation of the Law on VAT, has set forth additional explanations on exemption of financial services. According to the Instruction, certain services are subject to VAT, although they are provided from financial institutions. It is worth mentioning that unlike the law, the Instruction seems to restrict the exemption on the basis of the status of the service provider. Typically, in its article 41, first paragraph, the Instruction states that: the service provider is required to be a financial institution, which is created and licensed by
the competent authority in the Republic of Albania and is permitted by law to carry out these transactions. Such restriction would go beyond the
Although the exemption of financial services has been considered as a case of technical exemptions, under present conditions, the exemption of financial services should be considered as of a public interest and social benefits.
prescriptions imposed by the law, which refers to the service provider as a lender (in letters b and c), rather than a financial institution, let alone licensed in Albania. Financial transactions are far wider than those occurring between, or that are supplied by, licensed institutions. A literal reading of this provision creates the impression that loans or debts granted between commercial companies or individuals constitute a VAT taxable transaction, or a loan taken out by
these services might have on the banking system in Albania. Despite the definition, in essence, the value added tax is a tax on the final consumption of goods and services, and as such, businesses should not bear, or have additional costs from this tax. Consequently, persons/businesses considered exempted in reality pay VAT (the same as a final customer) and those who are taxable persons in reality bear no costs from VAT. Banks constitute a typical case of persons that pay VAT as final customers, since they are not allowed to deduct the VAT paid on their purchases.
a company, even from a financial institution not licensed in Albania, is a taxable transaction in the country. Referring to article 41, paragraph 4of the Instruction, and to the subsequent example it is clear that the reference to the financial institution in fact intends to clarify the taxability of the intermediary, in case of lending. Thus, it becomes necessary a change to the aforementioned Instruction, keeping in mind firstly, the need for clarification on more specific cases which occur randomly in Albania, and secondly, a reference correction for financial institutions licensed in Albania (by using the term “lender”, as foreseen in the law). So far, a more extensive list of financial services has been outlined through a letter, issued by the Minister of Finance in 2009; which prescribed services rendered from specific operators (SWIFT, Reuters, MasterCard, Visa, etc.), closely connected to what is offered to bank’s clients, as falling within the category of financial services and as such non-taxable ones, thus reducing the VAT cost for beneficiaries of these services. In fact, such classification pertained to a series of services connected inextricably with supplies offered to banks’ clients. These services are not limited only to the technical part of the transaction; instead they become part of the financial transaction and assume a greater financial responsibility, in regard
Albania is in a not-sofavorable situation, regarding the use of banking institutions for domestic and foreign transfers, use of debit or credit cards, online or mobile payment services, as well as for money circulation, outside the system. The benefits the society will have from the expansion of the user base of these services are quite clear; but it is crystal-clear fact that this cannot be achieved with the endeavors by the banking system, only.
to the security, authenticity and accuracy of the transmission of financial information. In addition, they guarantee financial transfers, and as such cannot be considered as simple technical services. On the other hand, it is important to assess the effects the potential taxability of
VAT EXEMPTIONS, AN IMPORTANT PART OF THE WAY VAT IS APPLIED In principle, VAT exemptions are categorized in two groups: (i) advantageous exemptions, e.g. donations, sponsoring, health/medicinal supplies, educational services, cultural activities etc., and (ii) technical exemptions, which include: real estate supply, financial and security services. The first group includes activities of public interest, so these exemptions can achieve social objectives and ensure the distribution of wealth, i.e. to have an impact in reducing VAT “regressive effects on supplies” value and, in the same time, to increase the consumption of these products and services (e.g. sports, cultural or educational activities). The second group includes such activities which in their very nature are difficult to fit into the VAT system. In this context, despite the fact that financial services are included in the second group, a particular attention should be directed towards the actual situation in which such services are offered in Albania. Albania is in a not-so-favorable situation, regarding the use of banking institutions for domestic and foreign transfers, use of debit or credit cards, online or mobile payment services, as well as for money circulation, outside the system. The benefits the society will have from the expansion of the user base of these services are quite clear; but it is crystal-clear fact that this cannot be achieved with the endeavors by the banking system, only. So, although the exemption of financial services has been considered as a case of technical exemptions, under present conditions, the exemption of financial services should be considered as of a public interest and social benefits. Reducing the tax burden for new, innovative services and incentivizing them in every possible way should be part of the fiscal package.
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Zgjidhni mes tre ofertave me karakteristikat e mëposhtme! 1. Depozitë me afat 3-mujor me interesa progresive, e vlefshme për individë dhe biznese, e ofruar në monedhat Lek dhe Euro me interes deri në 3% në Lek. 2. Depozitë me afat 12-mujor me mundësi shtim kapitali deri në 200% të vlerës me interes 2.5% në Lek. 3. Llogari kursimi me interesa mujore e ofruar ne Lek dhe në Euro, me interes vjetor 1.5% në Lek.
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IT Security Zone
Business – oriented information security Strengthening security measures for products and services offered through internet constitutes a competitive advantage in the market, which could be positively advertised by banks, in order to attract skeptical clients towards these types of products and services
by Mr Adriatik BALLHYSA Deputy Chief Information Officer, Chief Information Security Officer SOCIÉTÉ GÉNÉRALE ALBANIA
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very day, more and more people are faced with new words and terms, such as: cyber security, internet fraud, cards’ skimming, account theft, password breach, advanced persistent threats (APT), targeted attack, etc. If yesterday these fraud words, terms and methods seemed a bit distant for Albanian individuals, businesses and financial institutions, currently they are becoming more tangible for us. Now we see a tendency and shift of threats from those with minimalist purposes (e-mail or social network account theft), to those with monetary benefits. It will not be quite distant from now that even in Albania the general public will routinely hear about successful threats or attacks. A greater use of electronic communication channels in Albania has enabled banks to increase their offers bid for internet banking, and therefore, the increase supply and demand for internet services will simultaneously increase the
attention of criminals who use these channels for their own purposes. The preparation of Albanian business and banks against such attacks should be in parallel with growth of demand and supply for these services. According to the 2014 Consumer Security Risks survey, conducted by Kaspersky Lab, there is a decrease in consumer confidence of the security
Internet banking is one of the weakiest points of information security, but it is not the only service which uses the internet, and therefore, the only to bear risks. Benefits and facilities offered by internet are as great as the risk, associating it. Banks must, more than any other business, be attentive towards any type of information in internet, as well as any communication link through it (e-mail, browsing, etc).
around online financial transactions. The survey results showed 49 percent of participants worldwide felt vulnerable while shopping online or making online transactions, and 42 percent would utilize online payment systems more often if they felt they were protected from cyber fraud. The level of protection against cyber fraud is an important factor for consumers when choosing an e-store or a financial service operator. Approximately, 60 percent of respondents said they would prefer companies that offer additional security measures to protect financial data. Moreover, 75 percent of those surveyed expect banks, online payment systems and online stores to protect their computers and mobile devices from financial fraud.
As per above, an important conclusion draws for the Albanian market: Strengthening security measures for products and services offered through internet constitutes a competitive advantage in the market, which could be positively advertised by banks, in order to attract skeptical clients towards these types of products and services. The European Central Bank (Secure Pay Forum), by assessing risk and the need for a new approach against increasing advanced attacks, published in January
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2013 a list of recommendations for internet transfers security1. Given the fact that Albania is a candidate country for EU membership, this legislation (including banking regulation), will be aligned according to the European one, in a near future, and in this regard it is advisable that these requirements be addressed a priori. Some of the recommendations of this document, which shows how financial institutions can better address threats arising from the provision of products and services through internet, are: • “Strong customer authentication” measures for all internet payments, • Multiply layers of internet defenses and a dedicated and documented security policy framework, • Adequate security tools enabling near real time monitoring, screening and blockage of transfers, • Sound customer due diligence, identification and verification procedures pre account opening, • Clear contractual agreements between Payment Service Providers (PSP) and e-merchants as well as outsourcing providers on security standards. HOW CAN WE REACH AN ACCEPTABLE LEVEL OF INFORMATION SECURITY WITHIN FINANCIAL INSTITUTIONS?
Here below there are some guidelines that can be helpful to ensure a satisfactory level of information security within financial institutions. Implementation of standards and risk analysis. Any requirement imposed by
standards, recommendations and various regulatory obligations, is a result of conclusions and lessons learned from studies, real threats and best practices. There are numerous standards that should be considered, some of which may not be mandatory, but are an added value during analysis (ISO 27001, PCI DSS, etc.), whereas regarding the mandatory regulatory framework, could be mentioned BoA regulations, Guidelines of the Commissioner for Personal Data Protection, AML, etc.
Any requirements, arising from them should be translated into an action plan and often in investments for banks. In order for these to be effective, acceptable, viable and realistic, the first step to be taken is the creation of a risk assessment program. Audit (internal or not) could play a major role here. Findings and weaknesses, mentioned in audit reports, may be included in this analysis.
Companies spend millions of dollars on firewalls, encryption and secure access devices, and it is money wasted, because none of these measures address the weakest link in the security chain.
Management Group Support. Without senior management support, no plan can be realistic. Senior management of financial institutions (and not only) must have full information about the risk level faced by the institution and to support the action plan for addressing the risk from its onset. The management support does not mean simply signing the document and kick starting the action plan implementation to address the risk. When addressing risk, the management is faced with four choices: 1. accept the risk and continue business, 2. avoid the risk, e.g. by not launching a product or service, 3. transfer the risk, e.g. buying a product from any insurance company, 4. mitigate it. Layered security, deep defense. Risk
mitigation means establishing controls that must exist at every layer, as they must compensate each other. There is no perfect and very functional control. Technically, these checks may be in the form of: encryption, hardening, patching, network segmentation, network firewall, application firewall, proxy, reverse
proxy, internet gateways, vulnerability assessment, IPS/IDS, SIEM, antivirus, backups, access control, access rights, logs, business conciliations level, etc. A very valuable list of controls is that of 20 critical security controls, by SANS2 . Security operations. Controls must be monitored and tested, on a regular basis. This is the daily job of information security officers, who must propose checks on each layer and control them, ensure that they are effective and be capable to prevent, or detect potential attacks in time. It is up to them to create and manage an action plan and a recovery one, in case of incidents; it is for them to conduct risk analysis and propose measures to increase the security level; it is for them to enable the integration of information security on very initial phase of projects which guarantees that the security will cost less. Information security officers are also those who have to deal with education and demonstration of a desirable behavior for employees and also cultivating, within an organization, a culture of carefulness in favor of information security. Users’ education and awareness. When surveyed several years ago, and asked: "What is the biggest challenge facing your company?" many security professionals responded: "Internal users/employees". During recent years, this response has been replaced with "cyber threat", but the part of risk, produced by employees, still appears to be considerable3. The user/employee is still considered as one of the weakest points of information security. Users, whether technicians or not, are those who have direct access to data and perceive less risk for the information they use, or maintain. In order for users to become partners in our goal to protect the information (and not only), every organization should implement a training and awareness program. If the continuous training leads to acquired new technical skills, the awareness positively alters users’ perception, behavior and culture, in favor of protection of information security.
http://www.ecb.europa.eu/pub/pdf/otherrecommendationssecurityinternetpaymentsoutcomeofpcfinalversionafterpc201301en.pdf?ea09bd2b9f5008bf6308c8ebd5a74156 http://www.sans.org/critical-security-controls/ http://www.ey.com/Publication/vwLUAssets/EY-global-information-security-survey-2014/$FILE/EY-global-information-security-survey-2014.pdf
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Economist Corner
The role of macro-prudential policies in the financial stability In the current context, under which monetary policies have already exerted their role in supporting the economic activity and when budgetary policy have exhausted their fiscal stimulus, it seems that macro-prudential policies have remained as the only policies capable of weathering asymmetric shocks.
by Prof. Dr. Adrian CIVICI President EUROPEAN UNIVERSITY OF TIRANA EUT - UET
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he global financial crisis and the developments with a macroeconomic nature that followed during the years 2009-2014 have witnessed the need for substantial improvements, in the area of regulation of financial systems, especially in completing them with macro-prudential measures and policies. In order to make the macro-prudential policy more operational and efficient it is necessary to set and define clearly its objectives, instruments and measures that can be implemented in this context. During recent years, these issues have drawn much attention from central banks, ministries of finance, international financial institutions, university and academic circles, etc. Although the "macro-prudential policy" term is not finding a unique definition yet, it is generally conceived as a "macroeconomic oversight perspective for the financial system", which was con-
ceived, during these years, at the "micro" level. Most economists, financiers and bankers agree that "the ultimate objective of macro-prudential policies should, more than barely the management of financial crises, be the promotion of financial stability, whereas the main focus of its work is to strengthen the resistance of financial system and preventing the accumulation of systemic risks".
Numerous studies prove that the interaction problem of macro-prudential policies with other economic policies is very important. The central banks’ involvement in this area must be conducted in such a way that, the implementation of macro-prudential policies do not interfere with monetary policy and in the same time to reduce, at best, the conflict of their objectives, because the transmission channels of such policies are similar.
However, the crisis and its aftermath showed that "the financial stability depends not only on the stability of specific components of the financial system, but also on the connectivity and interaction among these components". The "macro" viewpoint leads exactly to connectivity between the real economy and financial sphere, at the systemic risk, which makes imbalances and financial shocks so instrumental in having a serious impact of real economic activity. Another feature of macro-prudential policy is "their pre-emptive nature" in the sense that their implementation should prevent the emergence of financial imbalances, pro-cyclical phenomena or systemic risk, by limiting the excessive credit growth and leverage of economic agents, as well as increasing absorptive capacities of "shocks" against financial institutions and structures. Unlike general and prevailing thought, macro-prudential policies are not established to manage financial crises when they outbreak, but precisely to avoid their occurrence. The analyses and experiences of central banks in Central and South-Eastern Europe, the Eurozone or even beyond, witness that the efficient implementation of macro-prudential policies depends on three essential ele-
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ments, as follows: 1. macro-prudential policies’ governance, 2. the accurate identification of financial markets failures and selecting the appropriate instruments for their neutralization, and 3. understanding the mechanisms of transmission and interaction with other economic policies, especially the monetary, budgetary and micro-prudential policy. 1. GOOD GOVERNANCE OF MACRO-PRUDENTIAL POLICIES. The necessity of good governance is faced with three major challenges, banking and financial authorities must resolve: (i) specifying the mandate of macro-prudential policy, (ii) their institutional organization, and (iii) authorities’ rules of governing, which are entitled to define and implement such policies.
The mandate of macro-prudential policies should define, clearly and coherently, the objectives, functions and powers of macro-prudential authorities. The objectives should be precise, achievable and, above all, measurable. In the area of financial stability, central banks, ministries of finance, specialized institutions, or field experts continue to face serious difficulties, because: there is still no clear and widely accepted definition about "the content of financial stability", furthermore there is the same problem to express and measure it by a single indicator, respectively. The content and structure of financial stability reports, prepared by central banks or ministries of finance, is in a continuous development and completeness. The institutional organization, in different countries is implemented in various forms and architectures. Macro-prudential authorities differ, with regard to their institutional involvement and integration between central banks, the institutions which are responsible for prudential controls and macro-prudential policies in the ministries of finance, etc. Currently, there is still no "model", considered as recommendable and efficient, to be implemented on a large scale by different countries. If we analyze different countries, various experiences are found: in Czech Republic and Ireland it is the central bank, where micro and macro-prudential functions are concentrated; in Great Britain, Greece, Hungary, Portugal, Croatia, the Netherlands, Poland, etc., it is the Cen-
tral Bank, where a special committee is established, in charge of macro-prudential policies; in U.S.A, France, Albania, Austria, Bulgaria, Germany, Italy, etc., the Central Bank plays the direct role of main macro-prudential authority; in Sweden and Finland, the central bank has no macro-prudential responsibilities, thus delegating this function to another supervisory institution, etc.
Another feature of macroprudential policy is "their preemptive nature" in the sense that their implementation should prevent the emergence of financial imbalances, pro-cyclical phenomena or systemic risk, by limiting the excessive credit growth and deepening debts of economic agents, as well as increasing absorptive capacities of "shocks" against financial institutions and structures.
Notwithstanding various forms of organization, the basic goals consist in: maintaining the independence of central banks, avoiding conflicts between micro and macro-prudential policies, ensuring coordination with other economic policies, especially with monetary and budgetary ones, a clear positioning of macro-prudential authorities, in relation to the complexity of objectives of financial stability, etc.
Management and operation of macro-prudential authorities. In this regard, the key to success is considered "guaranteeing autonomy or independence of macro-prudential policies", even in cases when they are unpopular, or contested by economic agents, banks or other financial and monetary institutions. The operating rules clearly define the relationship between different structures or institutions that directly or indirectly aim at financial stability and contribute to a better shaping of macro-prudential policies. Central banks, which are in charge of monetary policies, as well as macro-prudential ones, ministries of finance when they are in charge of financial stability, and the macro-prudential authority, etc., could be named as are typical cases in this regard. 2. IDENTIFICATION OF FINANCIAL MARKETS FAILURES AND SELECTING THE APPROPRIATE INSTRUMENTS FOR THEIR NEUTRALIZATION.
The need to identify failures in the financial markets becomes evident, in the frame of establishing macro-prudential policies, despite the difficulties of defining clearly the objective of financial stability. Field experts and specialized institutions have defined a set of indicators, which identify market "failures", such as: the excessive credit growth, the increase of non-performing loans and leverage of economic agents, liquidity risk of financial institutions, elevated levels of risk exposure, increased off-balance sheet transactions and derivative products, etc. However, unlike the traditional behavior of monetary policy, which are based on the "Tinbergen principle", which provides an instrument for each objective, in
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case of financial stability is becoming an imperative the simultaneous use of many instruments to achieve a single objective. Recent years’ experience shows that, the use of macro-prudential instruments may display collateral effects on the financial system, or the economy in general. In this context, it is recommended the analysis and better knowledge about transmission channels of macro-prudential policies, which means among other things, solid analytical studies on the interaction and mutual effects of macro-prudential policies with other financial and monetary markets’ stabilizing policies. 3. TRANSMISSION AND INTERACTION CHANNELS WITH OTHER ECONOMIC POLICIES
The financial crisis also provoked a great debate among economists, financiers and generally within the economic theory, regarding the issue of financial stability. Various authors affirm that, "in the capacity of decision-making, currently there is not any adequate and solid analytical framework in place, capable to analyze the efficiency of macro-prudential policies and the respective understanding of their transmission channels". The main difficulty lies in integrating different types of market failures into the focus of action of a single financial and macro-prudential institution. In the current context, under which monetary policies have already exerted their role in supporting the economic activity and
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when budgetary policy have exhausted their fiscal stimulus, it seems that macro-prudential policies have remained as the only policies capable of countering asymmetric shocks. For this reason, "the European Union countries have adopted a special law, which vests national macro-prudential authorities with large responsibilities", despite existing laws and coordinating structures of control at European or international level, which ensure that national macro-prudential measures have no adverse effects on other countries. Numerous studies prove that the interaction problem of macro-prudential policies with other economic policies is very important. The central banks’ involvement in this area must be conducted in such a way that, the implementation of macro-prudential policies do not interfere with monetary policy and in the same time to reduce, at best, the conflict of their objectives, because the transmission channels of such policies are similar. The interaction with budgetary policies stems from the quasi fiscal nature, some macro-prudential instruments exhibits, such as: "systemic taxes", whose objective is the payment by financial institutions of taxes proportional to their contribution to systemic risk. Such instruments are based on transfers or redistribution of resources among different economic agents. In this regard, a consistent implementation of "understanding and mutual information agreements"
between macro-prudential and budgetary policies is recommended, in order to eliminate conflicts that could threat the financial stability. In summary, the necessity of a simultaneous articulation of micro and macro-prudential policies appears as the main challenge, in terms of avoiding the "conflict of objectives". The new fundamental principles, adopted in the frame of Basel Committee in September 2012, highlight the importance of consolidating the "macro-prudential" perspective, i.e. the inclusion of the financial system as a whole, in the micro-prudential supervision of banks, in a way to contribute to the identification, analysis and forecasting of systemic risks. From this perspective, it seems that we are dealing with a fundamental change in the prospects of banking supervision, with the clear intention of minimizing the conflict of objectives between different policies. Even in this regard, the recent financial crisis has taught us that "when such conflicts do exist, it is necessary to give priority to macro-prudential policies, which could easily absorb risks with macroeconomic and social consequences". To close, it may be concluded that, "complementarity, prioritization and interaction of objectives, are three basic principles that should guide us to ensure maximum effects on coordinating macro-prudential policies with monetary, budgetary and micro-prudential ones, respectively".
Social capital ALBANIAN ASSOCIATION OF BANKS (AAB) AAB and its member banks, following the flood situation and the damages it has caused to many families in Southern Albania, offered their support, particularly to those most in need. Specifically, AAB donated ALL 6 million, to help farmers and families affected by this natural disaster, in addition to the individual initiatives of member banks, which showed their solidarity to the affected families and to the authorities involved in improving the situation.
ALPHA BANK ALBANIA
CREDINS BANK
Alpha Bank Albania, during the first quarter of 2015, undertook several initiatives in term of CSR, such as: • Sponsorship of “Mother & Child” Foundation. • Donation of EUR 10,000 in the form of 23 packages in food and industrial items, to the families affected by floods in Southern Albania, • Sponsorship of “Kalo ART” Gallery • Sponsorship of the event organized by the Greek Embassy, in occasion of Greece's National Day on 25 March.
During the first quarter of 2015, Credins Bank contributed in different areas, such as:
BKT Donation for families affected by floods in Southern Albania Banka Kombëtare Tregtare showed its solidarity with the families affected by floods in Southern Albania and supported the authorities engaged in improving the situation. Given the emergency in addressing the damages and losses caused by floods and in frame of bank’s CSR regarding natural disasters, BKT donated EUR 50,000 to the most affected families in the region.
• Health The bank, invested in the laboratory of Durrës Regional Hospital with laboratory kits and in Hospital No.5 in Tirana, in terms of improving working conditions. • Education The bank sponsored the laboratory of physics at “Petro Nini Luarasi” high school. • Envoirnment The bank sponsored the planting in the area near Lapraka. • “Youth Week 2015" Credins Bank supported the five-day event, organized by the Ministry of Social Welfare and Youth on the occasion of "Youth Week 2015" and various initiatives and ideas of young people, as well as many cultural activities, such as: films, discussions, debates and discussions about current issues of concerns for Albanian youth.
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Social capital FIBANK ALBANIA
INTESA SANPOALO BANK ALBANIA
Solidarity for Albania
Staff Donations for the families in the south flooded areas
With regard to donations that Fibank contributes each year for different social issues, due to the heavy floods from rainfall, the bank donated a considerable amount in humanitarian aid for affected residents of Vlorë, Fier, Berat and Gjirokastra. The aid fund was well-managed from the Ministry of Youth and Social Welfare, exactly from the State Social Service and it was much appreciated from the Prime Minister and Minister Veliaj.
Following the initiative of Head of Operations Division of Intesa Sanpaolo Bank Albania, the bank’s staff collected a considerable amount of money which was used to buy blankets for families situated in the flooded areas of Southern Albania. This all-volunteer initiative was supported by many colleagues, who also donated winter clothes for children and adults, to support them in their difficulties during the first weeks after the floods. Aids for information technology equipment to local offices of institutions
Having in its focus the specific needs of localities and cities where it operates, the
Awareness campaign for blood donation
FIBANK, in cooperation with the Albanian Red Cross, organized in its headquarters’ premises the campaign for voluntary blood donation from its employees, in order to help to all people in need of blood transfusion
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bank, donated office equipment to local offices of OSHEE in Gjirokastra and the General Prosecutor Office, in Fier. Children Carnival Party, an added value to the work/life balance
The bank organized the Children Carnival Party, already a tradition for the last 4 years, by reinforcing the message of the life/work balance importance to one of its main and long-term stakeholder, the bank’s employees. This event provided children, dressed up as their favorite characters, with the opportunity to play and have fun in the company of professional animators and mascots, as well as learning ice skating in an ice skating floor exclusively reserved for them, at the premises of one of the main commercial centers in Tirana
PROCREDIT BANK
RAIFFEISEN BANK ALBANIA
Promotion of cooperation among regional businesses
Raiffeisen Bank to sponsor the first youth center in Albania
Businesses from Albania and Serbia were invited to a regional joint meeting, organized in Tirana. The focus of the meeting was promoting and developing regional relationships of businesses operating in Albania and Serbia. The meeting was attended by 80 businesses from food industry, manufacturing and distribution sectors & services. Procredit Bank is committed to continue its maximal support for its clients, by implementing the best German banking practices. Last year, ProCredit group began organizing such activities for businesses and this meeting is the fifth in the region, organized by ProCredit banks, which follows a meeting in Prishtina and others previously held in cities such as Tirana, Nish and Struga.
Raiffeisen Bank Albania supported the establishment of the first youth center in Albania, an initiative of the Ministry of Social Welfare and Youth, for establishing Youth Centers, throughout the country. The opening of these centers aims at providing facilities and specific programs that help cultivating productive individuals for the society and their future. The inauguration ceremony of the center was attended by Mr Christian Canacaris, CEO of Raiffeisen Bank, Mr. Edi Rama, Prime Minister of Albania, Mr. Erion Veliaj, Minister of Social Welfare and Youth, young people from schools of the capital, etc. Donation of home appliances to families affected by floods in Southern Albania
Raiffeisen Bank, following the grave situation of families affected by floods in the south of the country, decided to join the initiative of the Albanian Government to help these families. As a bank that serves to the community and thus highly committed to its social responsibility, Raiffeisen Bank donated home appliances at a value of EUR 10,000, to help the affected families.
Raiffeisen Bank finances the waiting rooms at Tirana police stations
Mr. Christian Canacaris, CEO of Raiffeisen Bank, and Mr. Saimir Tahiri, Minister of Interiors, inaugurated the refurbished waiting rooms at the premises of Police Station No. 1 in Tirana. The refurbished premises will provide modern conditions and high standards for local citizens. This inauguration concludes the project for rehabilitation and refurbishment of waiting rooms at police stations No. 1, 3, 4 and 5 in Tirana, realized with the support of Raiffeisen Bank.
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Social capital SOCIETE GENERALE ALBANIA Societe Generale Albania supports families affected by floods Societe Generale Albania contributed by providing 30 families in the Frakull village with: mattresses, pillows, sheets, blankets and food. In collaboration with "Civil Emergency Volunteer Center", bank' volunteers, travelled to Frakull to help distribute aids to the families.
VENETO BANKA Financial Partner of NEC in Milan EXPO 2015 The National Exhibition Centre (NEC), subject of the Ministry of Economy, is the institution that organizes for the second consecutive year the Moving Fair in Albania. Also, this year, Veneto Banka was the financial partner of NEC, for the second consecutive year, by travelling together whenever the exhibitions were organized. Part of NEC this year is the EXPO Milano 2015, in which Albania’s section is expected to raise the interest of many visitors from around the world.
TIRANA BANK
Tirana Bank embraces the initiative “Solidarity Albania” In response to the call for action discussed with Mr Edi Rama, Prime Minister of Albania, the bank launched an awareness campaign related to the floods that happened by end-January and beginning of February, in Southern Albania. Through its Corporate Social Responsibility projects the bank donated EUR 50,000 and opened bank accounts in this regard, in order to enable donations from citizens. “Money Week” at European University of Tirana The bank supported one of the activities, organized by AAB, on the occasion of the “Money Week”. In the workshop (contest) organized with students of Finance Department of UET Economic Faculty, Tirana Bank awarded a symbolic prize of ALL 50,000 ALL, which was given to five students of the winning team, in the form of Student Debit Cards, with 10,000 ALL each. Moreover, all 10 participating students in this contest obtained the Student Debit Cards by Tirana Bank. ing the vocational education. In collaboration with "Dental Leader Corsi", a professional dental center, the bank offered scholarships to students of stomatology, as well as offering favourable financings for opening new dental centers from these students.
Bank and the students of “Neranxi” Culinary Institute Veneto Bank offered scholarships to students of "Neranxi" Culinary Institute, thanks to the agreement signed recently with the professional institution. Also, the bank will finance new businesses opened by these students.
Supporting young dentists The bank has consistently supported young students, especially those attend-
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Tech Topics
Vidyo - Bringing human touch to online banking In today’s digital age online businesses are looking for ways to recover the personal touch, typically associated with local retail locations, and include it into the online experience. They want both efficiency and convenience of online, but with the customer service and personal relationship of a brick and mortar presence.
by Mr Nikolin KOLA Indipendent Consultant of Information Technology
ONLINE BUSINESS CHALLENGE Many consumer-facing organizations have moved services online for customer convenience. Retail stores provide their full inventory available online for consumers to shop and purchase. Banks provide customers with the ability to pay bills, check account balance, and even apply for loans, online. Insurance companies allow policyholders to file claims and check status, or check policy coverage. Putting these services online has greatly improved efficiency, by allowing customers to take care of routine tasks from the convenience of an internet connected device and at times that work for their busy schedules. However, the convenience of online services has come at a cost. Personal touch and the relationship with the customer have been affected. Putting services online sends the customer directly to a website that is faceless and impersonal, frequently
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inflexible and sometimes unable to address all customer needs. While companies often have phone centers and online chat for assistance, these communication modes lack necessary visual cues to gauge customer frustration level, or see valuable details to help resolve a customer’s issue or provide them with the right advice. More organizations are looking for ways to recover the personal touch, typically associated with local retail locations, and include it into the online experience. In short, they want both efficiency and convenience of online, but with the customer service and personal relationship of a brick and mortar presence.
The convenience of online services has come at a cost. Personal touch and the relationship with the customer have been affected.
VIDEO ENABLED FINANCIAL SERVICES The world of finance lives and breathes online. Every day, more transactions happen online; clients today are simply too busy to visit their financial institution to conduct business. The high net-worth clients are plugged in and on the go, and they won’t settle for anything less than impeccable service, whenever and wherever they need it. In order to invest, borrow and manage their portfolios with confidence, they expect a financial services firm to be accessible, providing immediate expert consultations and a seamless way to make decisions and manage wealth. Vidyo Inc., a leading innovator company provides a solution that bridges the gap between online convenience and face-to-face customer communication. Utilizing Vidyo’s technology organizations have all the tools necessary to deliver high quality, easy to use communications to their customers, thereby improving the customer experience and satisfaction. Vidyo’s software platform video enables the high-value client services, and is easily integrated with financial services infrastructure, applications and workflows. Top players of financial industry such as: Barclays, IndusInd, Raiffeisen, Merril
Lynch have turned to Vidyo to meet these challenges, and adopted its platform to deliver video-enabled financial services that cultivate stronger, longer lasting relationships with clients. BUILDING LOYALTY WITH MORE PERSONAL ONLINE SERVICES Vidyo’s software platform can be used to add a video channel to an existing contact center system, or used stand alone to create a live video assistance component built right into a website. With a video enabled contact center, financial organizations can realize a number of benefits: Provide Access to Experts – When assistance of a subject matter expert is required to address a customer’s needs, it is quick and convenient to escalate the call to include an expert. This resolves the customers concern quickly and leads to improved customer satisfaction. Increase Loyalty – Relationships are key to customer loyalty. Video services can be used to provide the personal high-touch interactions necessary to establish and maintain strong relationships with the most important customers resulting in stronger brand loyalty. Increase Efficiency – Time is money when it comes to contact center operations. Shorter time per interaction equates to cost savings and happier customers. Given that 70% of human communication is visual, video-enabled contact centers enable more efficient and effective communication which results in problems being resolved more quickly and reduced time per interaction for each agent. Upsell Opportunities – Face-to-face interactions provide opportunities to offer additional products and services to the customer. The ability to demonstrate products, share documents and guide the customer through the experience, combined with the highly personalized service inherent in a face to face interaction
Vidyo Platform for Contact Centers offers: •
A web portal with one-click access to secure, HD video consultations with a personal banker. • The power to include subject matter experts and resources at any point during a video consultation. • The ability to connect with an investment advisor for scheduled meetings, simply by clicking on a link in their Outlook or Google calendars. • A convenient way to see and review portfolio account summaries and reports while meeting together online. • Speedier transactions using electronic document signing software. • Video communication from any web browser using any mobile or desktop device and a simple internet connection. • Access to recorded and archived consultations, analyst presentations and other resources for later reference.
creates the optimal environment for add on sales.
to interact over video. They simply click, join and have highly personal and effective interactions with the organization’s customer care professionals. Vidyo, Inc. is the leading platform for enterprise video conferencing that powers HD multipoint video collaboration solutions for enterprise, SMB, healthcare, government and education customers. Vidyo is the pioneer on Personal Telepresence enabling natural, HD multi-point videoconferences on tablets and smart phones, PCs and Macs, room systems, telepresence solutions and affordable cloud-based video conferencing as a service solution. Vidyo has more than 80 patents issued, and many more patents pending, in more than 65 patent families, in various jurisdictions around the world. www.vidyo.com Communication Progress Ltd is an authorized company with an extensive experience on implementing Vidyo’s technology. Communication Progress brings more than fifteen years of experience in the field of Information and Communication Technology - ICT. Positioned as a provider of horizontally and vertically integrated ICT solutions, the company aims at consistently enabling the region’s access to the most advanced technologies, through persistence for quality and support for innovation. www. commprog.com.
High-touch service for the high-value clients Providing live online video interaction to customers enriches the customer journey and builds trust and brand loyalty. Using Vidyo software platform contact center reference design, one can video-enable the high-valued client services in as little as a few weeks, without in-house video technology expertise. Ease of use and convenience flatten the adoption curve. Employees are quickly proficient and there’s no intimidation factor for clients
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Financial Auditorium
Bank card payments through smartphones Their importance in e-commerce
The technology of payments through smartphones has already arrived in Albania and we do believe that such technology will continue to be into the limelight even during the next decade. by Mr Erion MAXHARI Head of Card Department FIBANK ALBANIA
T
he term e-commerce defines the act of sale of goods or services by businesses via electronic devices, such as: computer or phone and here we will write about mobile commerce, only. It is an important fact that, the global increase in the number of smartphones and their global penetration, and also their respective penetration in Albania, is running very fast. Although e-commerce is conducted via other forms of payment, such as: bank transfers, prepaid cards, or other parties as transfer agencies, will be focused on e-commerce with bank card payments, which is going to be transformed into a new form of payment, by jumping from computers or laptops in smartphones and tablets. In many cases, bank card purchases via smartphones can be almost identical to those done through computer purchases, i.e. the standard purchase process, by placing the card data, such as: card number, customer name and surname, expiry date and unique three-digit security code, located
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on the back of the card. So what is the difference between a purchase via smartphones and a normal purchase through computer? The answer to this question is rather complex, as the new forms of cards’ use for purchases via mobile devices are evolving every day, in quite different ways and directions. According to new technologies purchases via smartphones can be divided now in three ways: • Standard purchases, by placing card details, in the same way as in case of computers, • Purchases where card data are stored in the seller's account, • Purchases which card details are stored in a special application, or a "virtual (digital) wallet". Usually mobile versions of websites or mobile applications enable a user friendly approach and an easy use from the customer and various mobile applications significantly increase customer loyalty, by presenting more sales and different offers. Now it is quite possible that mobile sites and applications could store card data safely, along with the rise of technologies, and also the data transmission speed and storage capacities. Putting card data on every purchase is not only a cumbersome process, but above all, it is not a secure action. In this way the use of a sole password, instead
of many card data, enables the purchase process via smartphones to be easier, and far more secure. According to recent statistics, it is noted that card purchases through smartphones is largely comfortable and has led to an increase in the volume of purchases, as well as an increase in the customer loyalty, who are spending more
The term "wallet" gets an even more important meaning, when using smartphones, since all credit cards a customer owns can be used from a single portfolio; therefore, there is no longer necessary to remember all cards’ data and details. Practically, it is more than sufficient of having a username and password for the digital wallet’s account, and then, all cards owned by the client are accessible and usable by this portfolio.
and more in purchases. The growth of such phenomenon is induced from several reasons, which are closely related to the explosive expansion of population access to internet, through smartphones, as well as important developments, occurred in the applications’ technologies. The main causes this phenomenon is showing a higher efficiency, compared to purchases on computers, may be: • The high number of smartphone users, as well as their use throughout the day, by offering the opportunity that the time spent on-line to be longer, compared with the time spent on computers, • Buyers have more convenience during purchases, as smartphone offers online purchases when needed, and is more easily accessible than a personal computer, • It provides more security, as it is thought that phone is used by the client, whereas the viruses, malwares, etc., are fewer in these type of phones, compared to computers, • More interaction and opportunities for push notifications are offered when using smartphones, through which customers are notified of sales, or various discounts. The information firms receive through smartphones is higher than in case of computers. But how card data are stored and what is their use afterwards for on-line purchases? Confidential card data are simple and safe to be stored, by way of using smartphones, as they provide the opportunity for encryption. Many large companies that sell on-line, provide the ability of opening the account via smartphones, where card data can be scanned, by using cameras, thus obtaining card data, automatically. This is an advantage and facility for cardholders, because there is no need to use the card, when conducting a purchase, instead card data are in his/her account with the seller, or these data are stored in a certain application, in the customer’s phone itself. The term "wallet" gets an even more important meaning, when using smartphones, since all credit cards a customer owns can be used from a single portfolio; therefore, there is no longer necessary to remember all cards’ data and details. Practically, it is more than sufficient of having a username and password for the digital wallet’s account, and then, all cards owned by the client are accessible and usable by this portfolio. The process
Smartphones and the internet are the main tools which have fueled the e-commerce. Bank cards will also continue to form the basis for payments via mobile phones, but even they will evolve into other forms, where one of them seems to be the digital wallet.
runs in a way that, the company which provides this service is linked with many other retailers, offering them to sell their goods/services, through the use of wallet system, created with the company, itself. Some of these companies, such as: PayPal or Scrill, provide links to many online markets, such as: eBay, Amazon, etc., and create direct links to these pages and also during the "check out" payment process, where the password and user details are required to be placed, in order to finalize the purchase of goods. The process is quite simple, especially for those who own bank
cards, from different banks. Digital wallet provides maintenance and management of these cards from a single account, by offering additional services, too. For example, one of these services is customer notification, when one of these cards is approaching expiry date; in this case, the client is notified by a message (e-mail). It is believed that in the near future, these wallets will occupy a greater place in the online trading, because of their greater efficiency, but also because they provide flexibility for all parties joining the e-commerce. Bank card payments through smartphones have scored record highs, especially during the last year, where B2C (business-to-consumer) e- commerce has reached the level of US$ 1,500 billion, from US$ 1,000 billion that was in 2012 (where payments through smartphones and tablets, comprises over 20 percent of the total). Obviously, smartphones and the internet are the main tools which have fueled the e-commerce. Bank cards will also continue to form the basis for payments via mobile phones, but even they will evolve into other forms, where one of them seems to be the digital wallet. One thing for sure, now and in the near future, is that more and more customers and the cardholders will be driven to use their cards more often through smartphones.
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KREDIA PERSONALE ME INTERESAT ME TE ULTA FIKSE 10% NE LEK
KREDIA PERSONALE PER ÇDO QELLIM ard
University Aw
Pa garanci Me afat deri në 7 vjet Deri në shumën max. 1.000.000 lek / 10.000 euro
NJE BOTE MUNDESISH REALE
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CALL CENTER 08006000 (FALAS) +355 4 2276000/222/223 +355 692080903
www.intesasanpaolobank.al
AAB Activities
Financial Education
2015
MONEY WEEK (9-13 MARCH 2015)
Albania, again this year, was part of the activities organized around the world, as part of the Money Week, with the aim of raising public awareness on financial literacy. This year, the week of March marked both the European Money Week, organized for the first time by the European Banking Federation (EBF), and the Global Money Week organized by the “Child & Youth Finance International (CYFI)”. AAB, collaborated this time with the Ministry of Social Welfare and Youth, in organizing several educational activities on finances for children and youth.
MONEY WEEK ACTIVITIES
9 March Talk on personal Finances The Money Week was opened with an activity organized in Tirana Youth Center, where representative of AAB, Ministry and banks discussed on the importance of financial education and specific banking products.
11 March The educational puppet show, “Çufo and Tipi in a money adventure” At the Tirana’ Puppets Theatre, was staged the show “Çufo and Tipi in a money adventure, based on the educational package “1,2,3..Cufo piglet is learning to save”, published by Bank of Albania.
Seminar on the new Pension Fund Scheme The Ministry of Social Welfare and Youth and Youth Policy Office organized a seminar to present and promote the new social security and pension scheme to the high school students.
10 March Visit at a commercial bank’s branch Students of the Economic High School visited the premises of a commercial bank, to understand how a bank branches operate during a working day.
Open Lecture with the Economics Students Club Seminars on Bank’s Interest rates and Loan Categories were delivered to the Economics Students’ Club.
12 March Seminar “Startup Life Tirana” The interactive seminar on youth business startup was organized at Tirana Youth Center.
Launch of the Quiz on Banks and Finances at the AAB FaceBook page
The followers of AAB Facebook page, tested their knowledge on finance and banking system. 10 winners recived a symbolic prize, the special publication of AAB: “Historical View of Banks in Albania”.
Launch of the Video on “Consumer Loans” at AAB YouTube/FaceBook page.
13 March Workshops with Economics students AAB, in cooperation with the Finance Department of the Faculty of Economic at UET organized the activity entitled "If we were bankers!". The best students in Finance-Banking, presented to the jury the project of their improvised bank to finance two different businesses. The members of the winning team received an award from Tirana Bank
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AAB Trainings WORKSHOPS ON THE RECENT CHANGES TO THE "FISCAL LEGISLATION", 19–20 JANUARY 2015 AAB organized two workshops on the updated Tax Legislation, which came into force in January 2015. 19 January - The changes in the Law no. 9136, dated 11.9.2003 “On the collection of the mandatory contributions of social security and health insurance in the Republic of Albania”, as amended. The workshop was attended by 25 participants of 13 member banks. 20 January - The "Law no. 8438, dated 28.12.1998 "On income tax" as amended. The workshop was attended by 27 participants of 13 member banks.
WORKSHOPS ON THE CHANGES AND AMENDMENTS TO LAW ON SOCIAL INSURANCE, 24 FEBRUARY 2015 In cooperation with the Social Insurance Institute was organized one day training for banks’ representatives. The issues addressed were: The changes to the Law No.7703 date 11.05.1993 on “Social Insurance in Albania” regarding short term benefits; types of contribution for these benefits, legal criteria required, calculation, procedures; the pension reforms, the new terms; etc. The workshop was attended by 21 participants of 14 member banks.
SEMINAR ON "THE ELABORATION OF THE PERSONAL DATA OF EMPLOYEES IN THE BANKING SECTOR", 4 MARCH 2015 AAB, in collaboration with the Office of the Commissioner for Personal Data Protection organized a seminar entitled "The elaboration of the personal data of employees in the banking sector". The representatives of the Office of the Commissioner updated the participants about the recent changes and bylaws, and discussed various problems faced by the banking system in the frame of the implementation of the law on personal data protection. The seminar was attended by by 25 participants of 14 member banks.
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DELOITTE - DEDICATED SEMINAR ON VAT FOR BANKS, 12 MARCH 2015
Deloitte organized at AAB premises a dedicated seminar, having in focus the impact of the new VAT Law in the banking industry. Deloitte’s VAT Experts presented and discussed the changes on the new VAT Law and its recently published Instruction, emphasizing the issue related to the VAT on some services provided by foreign suppliers. Deloitte representatives introduced practices in EU countries. TRAINING ON “LEADERSHIP SKILLS” AND “CREDIT COLLECTION SKILLS AND TECHNIQUES”, 24-25 MARCH AND 26-27 MARCH 2015 AAB offered two trainings with its new training partner SBPST. 24-25 March - The first one was headed by Mr Cüneyt Erigüç, ex-banker, and was attended by 10 participants of 5 member banks. 26-27 March - The second training was headed by Mr Ayhan Akay, Credit Analytics Manger and focused on the fundamentals of credit collections that cover the key drivers of successful collections and show their contribution to overall success. The training was attended by 10 participants of 3 member banks. TRAINING ON AUDIT REPORT WRITING, IN COOPERATION WITH AUDITING INTERNAL INSTITUTE OF ALBANIA, 26-27 MARCH 2015 The two-day training designed for internal auditors, was leaded by Mr Jean Pierre Garritte, international internal audit trainer and attended by 11 participants from 6 member banks. The purpose of this training was to make auditors understand the importance of developing informative and persuasive documents and writing them clearly and concisely.
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