Bankieri No. 17 - October 2015 by Shoqata Shqiptare Bankave

Publication of the Albanian Association of Banks

A new approach or business as usual?

No. 17, October 2015

Bankieri

IT'S TIME TO CHANGE THE WORLD

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Bankieri

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Publication of the Albanian Association of Banks

No. 17, October 2015

Bankieri

Bankieri No.17, October 2015 Publication of the Albanian Association of Banks Editorial Local Borrowing A market to be developed and to jump in Elvin MEKA Frontline Local Borrowing, an instrument for development Erjon VELIAJ Territorial Reform, some new opportunities for local borrowing Majlinda KULLAJ Financing Local Government An Oportunity for Banks Admira MLIKA For an efficient borrowing of local government Sabina LALAJ, Ened TOPI

A new approach or business as usual?

LOCAL BORROWING

A new approach or business as usual?

. Bankieri is the official publication of the Albanian Association of Banks which mainly focuses on the Albanian banking industry. Bankieri provides 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

Interview Procredit Bank Albania German experience in the Albanian banking market Adela LEKA Banking System SMEs in Albania Who will credit them? Anila MUÇMATA Electronic Signature Its importance and advantages Edlira LLANGO New ways to facilitate online services Adrian HASA Experts' Forum Loan write-offs in the Albanian banking system What's next? Alexander ZSOLNAI

EDITORIAL TEAM:

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Printed by: EDITORIAL BOARD: Christian CANACARIS AAB Chairman & CEO of Raiffeisen Bank Albania Gazmend KADRIU AAB Vice Chairman & CEO of Union Bank

16 18 21

Economist Corner Greek banks in front of crisis Effects and measures taken in Balkan and Albania Adrian CIVICI

Social Capital Banks' activities

Tech Topic How Credit Card Work How to benefit from an Installment Plan Monika BALLTA

Financial Auditorium Asian Infrastructure Investment Bank (AIIB) A new factor for regional and global economic development Roberto RUOZI

Elvin Meka Editor-in-Chief Eftali Peçi Coordinator Junida Tafaj (Katroshi) Collaborator Andis Rado Photographer Design & Layout: FCB Afirma

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 Bozhidar TODOROV AAB Executive Committee Member & CEO of FIBank Albania Endrita XHAFERAJ Secretary General, Albanian Association of Banks Hysen ÇELA Chairman of Albanian Institute of Authorized Chartered Auditors (IKEA)

Adrian CIVICI President of European University of Tirana

Junior Achievement Business Contribution educating future entrepreneurs

ICC Albania Sustainable Development Goals

Spiro BRUMBULLI Chief of Cabinet, Ministry of Finance

AAB Activities

Enkeleda SHEHI Chairwoman of Albanian Financial Supervision Authority

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Editorial

Local Borrowing

A market to be developed and to jump in The new local government units must understand that they will borrow money and transform them into a long-term added value for the community they serve and from whom they are elected and therefore being fully responsible and responsive. by Prof. Asoc. Dr. Elvin MEKA1 Editor-in-Chief

“Building sustainable cities - and a sustainable future - will need open dialogue among all branches of national, regional and local government. And it will need the engagement of all stakeholders - including the private sector and civil society, and especially the poor and marginalized.” This excerpt from Mr. Ban Ki-moon’s Speech at "Sustainable Cities Days", organized by UN in December 2013, contemplates the most important challenge, cities and urban areas will face in the future, and this is true even for Albania, as part of the developing countries, which needs to address them properly and accordingly. In this regard, the new territorial and administrative reform, promoted and adopted by the government and Parliament, could be expected as a milestone toward a better management of territory and urban areas, at all. Maybe, this is not the first endeavor to draft a functioning and practical legal framework for local government, but for sure it has all the opportunities to become the first significant undertaking, in terms of putting local government on a modern and wellfunctioning track. For many years in a row, we have been witnessing a myriad

of changes and amendments in the legal framework of local government, which have been usually used as a war horse in the everyday politics and randomly for a better performance and empowerment of local government units, in terms of offering better services, through sustained and balanced budgets. It’s a fact that, the big absentee in this local government theater was typically the all-time low level of fiscal decentralization, whereas the all-time participant used to be the local government units’ atomicity. The latter decisively belongs to the past, while the former needs to be established, this time for real, and further implemented, by keeping in mind the best practices, modern local governments apply in managing and administering their territory. Of course, the real decentralization will require courageous and professional interventions in local borrowing legal framework, identified as one of five sources of ensuring necessary incomes for local government units. Here comes the part for the role of banks to be played properly. Banks in Albania have supported the window of local borrowing, since its inception in 2008, and will be more than eager and ready to jump in this market, once its legal framework and issuers fulfill and pass their expectations and technical analyses. Surely, a vast dual opportunity does lie in front of local government units, banks and other financial institutions, in terms of developing, and making use of, a market

for municipal securities, along with the bank local borrowing. Local government units could easily accomplish their future financial needs for big infrastructure projects, and banks could capitalize on this upcoming opportunity, as they have skilled human resources, institutional, financial and analytical capabilities to handle and fund the whole process, from loan-making to underwriting and trading. Last, but not least, the new local government units must act quite in prudential way, when considering accessing the financial and securities market for municipal instruments and securities, with the aim to optimize, at the fullest possible, the opportunities the actual territorial & administrative reform provides them with, whereas being accountable with funds they will raise in the future. They need to understand that they will borrow money and transform them into a long-term added value for the community they serve and from whom they are elected and therefore being fully responsible and responsive. Maybe it’s time for them to recall the iconic quote from one of the most distinguished American Founding Fathers, Mr. Benjamin Franklin: “If you would know the value of money, go and try to borrow some!”

Deputy Dean & Head of Department of Finance, UET-EUT

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Frontline

SPECIAL Local Borrowing, an instrument for development by Mr Erjon VELIAJ Tirana's Mayor

BANKIERI: In your position as Mayor of Tirana, and in the light of the new territorial division, how challenging do you deem the financial situation, the new territorial units, and typically Tirana as the largest municipality, are going to be faced with? One of the main reasons why the territorial reform was undertaken is exactly the financial consolidation of administrative units. Let us not forget that, a large part of former municipalities or communes did not generate even a cent of income, and therefore had turned into a real burden for the state budget. Territorial reform and a new administrative division were designed to enable a higher financial efficiency and quality services, so from this viewpoint, the financial situation will be somewhat easier, either for administrative units, or the state budget, too. BANKIERI: What could be the position of Municipality of Tirana, with regard to local borrowing and the use of such instrument in the near and distant future? After 4 years in lethargy, Tirana needs development now more than ever, but such development requires investments. We will do our best to raise the necessary funds for these investments. A part will be sourced by some revisions in the local fiscal package, but the rest will, unavoidably, come from local borrowing. The economic crisis has led governments to view public debt form a really different perspective, but no one could deny the role of debt in promoting the economic development. As we talk about the government, which is under an agreement with IMF that put a cap on public debt and prevents its further accumulation, it cannot be denied that, following an improvement of countryâ&#x20AC;&#x2122;s financial situation, the borrowing, be it local or central government, will play a more important role in the development of Albania.

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BANKIERI: What are the main difficulties and obstacles towards ensuring sufficient funding to local governments from banks, and to a large extent, from the Albanian financial system? I do believe that local governments may encounter the same difficulties, as those faced by any business when applying for a loan, in the course of ensuring proper financing from the financial system. It is not make a headline any more the fact that the Albanian financial system is in difficulties. Although deposits have been increasing lending growth rate remains low and the rate of non-performing loans continues to be high. I think, getting out from this situation, is paramount and what is essentially needed right now. Subsequently, as mentioned before, an improvement of country's financial indicators is required, in order to ensure more room for borrowing. Finally, the new administrative division should concede municipalities a higher financial autonomy, including local borrowing, along with greater competences and authority vested with them. BANKIERI: How do you see the cooperation between Tirana Municipality and banking system, as part of reshaping the financing scheme for local government in Albania? Let me say first that, principally, I see no reason why local projects could not be funded by local banks. Public debt should not be feared, instead, it should be seen as an instrument of development. A business cannot grow without borrowing; likewise a local institution cannot implement all communityâ&#x20AC;&#x2122;s projects without investments. I think that, in the future, borrowing by local governments must play a more important role than hitherto. The banking sector, along with policy-makers, must get a momentum, by way of developing new and innovative products for financing local development.financimit pĂŤr zhvillimin lokal.

Frontline

Territorial Reform, some new opportunities for local borrowing The expansion of local borrowing will lead to improving the role of banks in the territoryâ&#x20AC;&#x2122;s economic development, by way of financing investments related to public services, urban and rural infrastructure, and even agricultural infrastructure, which is a prerequisite for the development of agriculture

by Dr Majlinda KULLAJ

Lecturer FACULTY OF ECONOMICS AND AGRIBUSINESS AGRICULTURAL UNIVERSITY OF TIRANA

he main objective of the 2015 territorial reform aims at avoiding the inefficiencies of public services at local level, which was mainly caused by extensive territorial fragmentation and a large number of local government units (LGUs). Although the new territorial division is based on the principle of "functional areas", any solid analysis on how such division could produce territorial development through private entrepreneurship is hardly found, throughout the paperwork produced in the frame of this reform. This is so, in a time when the relative weight of local government to the Gross Domestic Product (GDP) and to budget expenditures (BE) remains relatively low, at about 2.9% and 10.2%, respectively in 2012, whereas such ratios have been falling

from 2009 (4.7% of GDP and 14.2% of the BE). Despite the increase in revenues, generated from its own resources and exploitation of new resources, the local fiscal authority remains weak and its dependence on national resources, very high. Thus, the new municipalities will continue to experience major lack of financial resources for investment, especially those which require huge capital funding. On the other hand, the Ministry of Finance has taken some fiscal austerity policies, to cope with the crisis and, therefore, it is unlikely to

In the frame of lending contraction to individuals and businesses during recent years, banks should see local borrowing as a getaway for utilizing excess funds. Municipalities are welcomed clients for banks, due to the perceived low risk, because local borrowing is considered somewhat as bearing a sovereign guarantee.

witness any significant increase of fund allocation for regional development. Faced with the urgent need for investments, in relation to public expectations, all 61 municipalities will increase the pressure on government, aiming at increasing the intergovernmental transfers, taxes and in the same time, borrowing from commercial banks. As previously mentioned, the intergovernmental transfer is not expected to get any significant increase, under the conditions of weak economic growth and high public debt; practically it has been declining since 2010 (with a slight increase in 2014, only). Even the additional grant of EUR 80 million, a saving produced by the territorial reform and distributed to 61 municipalities, cannot meet the latter's needs for investment. On the other hand, the central government wants to avoid any raise of local taxes by municipalities and the new law on local government is expected to maintain restrictions on fiscal autonomy. Meanwhile, the municipalities are aware that there are still rooms for the taxable base, due to a high informality, but this does not mean a level of economic activity capable to yield more taxes. So, notwithstanding the motivation of local government to

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obtain grants instead of borrowing, the latter seems to be alternative that has the most potential for expansion. In this regard, it is up to the government to review the degree of control on local borrowing, although it is aware that, administrative orders to limit the authority of the borrower for purposes of maintaining levels of public debt have practically impaired, even further, the financial capability of local government. Moreover, the ratio of local government debt to total public debt does not exceed 0.020%, which is a strong argument in favor of local borrowing. The interaction between these three factors: loan limit, size of the grant, and local taxes, will comprise a complex negotiation between the government and municipalities, not to mention the fact that these negotiations will be conducted on an individual basis for each municipality. In the frame of lending contraction to individuals and businesses during recent years, banks should see local borrowing as a gateway for utilizing excess funds. Municipalities are welcomed clients for banks, due to the perceived low risk, because local borrowing is considered somewhat as bearing a sovereign guarantee. Despite the "legal guarantee" of non-bankruptcy, banks carry out risk analysis for them, as they do it for each customer, but in case of municipalities they always hope in obtaining an additional guarantee, compared to other customers. An important advantage of large municipalities is the improvement of loan applications, based upon studies of profitability, due to an increasing number of high skilled specialists employed by them. In the same time, the improved budget and investment plans will help municipalities to see debt and borrowing as an instrument to improve their position, and not as an embarrassing evidence of their financial vulnerability. Consequently, this fact will be accompanied by a greater number of loan applications, which will pass banks’ risk analyses. Likewise, the increasing staff performance of large municipalities will improve the information required by banks, necessary to conduct financial control on municipal budgets. The expansion of local lending will lead to an improvement of commercial banks’

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systems for lending assessment to municipalities, i.e. their payback ability. The review of legal restrictions on long-term local borrowing could feed again the debate on the Albanian government's approach regarding it, by moving towards a more liberal model, such as the practices of Hungary, or Estonia. If the central government allows itself the right to increase borrowing on the international market and consequently the public debt, for financing, investments, improved services, etc. then the same right should be granted to municipalities, for exactly the same purposes. Specifically, the level of debt stock and debt service should be revised, because the current levels are too restrictive for local borrowing. Also, there is room to expand the range of loan guarantees, by adopting models which are applied by countries like Slovakia, or third party guarantees, as in

Notwithstanding the motivation of local government to obtain grants instead of borrowing, the latter seems to be alternative that has the most potential for expansion. In this regard, it is up to the government to review the degree of control on local borrowing, although it is aware that, administrative orders to limit the authority of the borrower for purposes of maintaining levels of public debt have practically impaired, even further, the financial capability of local government. case of Czech Republic. The legal framework review can be extended in banking legislation, too. Specifically, the credit risk may be

reassessed and re-dimensioned, through a review of risk coefficients, aiming at encouraging banks to see municipalities as prime borrowers. Practically, a lower risk factor associated with local government debt may be considered, for the purpose of calculating bank’s loan provisions. The review of regulatory provisions may spur further the interest of commercial banks in the local government sector. Notwithstanding the need for legal changes, the latter should not be reviewed and implemented by each government in the line of power, as it creates unpredictability for intergovernmental finance system, and consequently, such uncertainty will push banks to require a higher risk premium for loans granted to municipalities. The expansion of local borrowing will also lead to improving the role of banks in the territory’s economic development, by way of financing investments related to public services, urban and rural infrastructure, and even agricultural infrastructure, which is a prerequisite for the development of agriculture. Bank lending for investment to improve the network of irrigation and drainage systems, reservoirs or other similar works, agriculture markets, collection centers, slaughterhouses, etc., constitute important tools for improving the agricultural business environment. If the government guarantee fund for loans to businesses engaged in investment in agriculture could be extended to include the aforementioned investments by municipalities, it would turn into an important stimulus in this regard. In the long term, the eventual competition between banks will lead to the development of debt instruments, specially designed for municipalities and local government. A practical and structured initiative could be the setup of a dialogue and consultation process between the Government, the Association of Municipalities and the Albanian Association of Banks, in order to present the views and suggestions for changes in the borrowing procedure, open discussions on possible interest subsidies from central government, or their taxexempted status, the nature of investment of LGUs, etc.

Frontline

Financing Local Government

An Opportunity for Banks The new territorial division opens many opportunities for banks, in terms of financing local government needs, because the reorganization is expected to provide better revenue and expenditure management.

by Mrs Admira MLIKA

Corporate & Commercial Banking Credit Department Manager BANKA KOMBËTARE TREGTARE

n international markets lending to local government units (LGUs) is seen as a relatively low risk activity, and as a good opportunity for banks to expand their activity toward local government, including deposits, cash management and many other products. Historically, loans to central and local government are perceived as a risk-free lending opportunity, because of guaranteed payments, based largely upon revenues from taxes and fees. In the meantime, the financial crisis and its aftermath have raised many question marks over the financial situation sustainability of these units, thus making the repayment of their financial liabilities less secure than ever. But what’s about the situation in Albania? Throughout these years, LGUs have passed through a substantial decentralization process, which included a simultaneous restructuring and transformation in some sectors. The purpose was to provide LGUs with adequate resources and to develop sufficient capacities, so that they could be capable

of carrying out the functions, vested with them. The transformation includes three dimensions: (i) the institutional level; (ii) the transfer of fiscal powers and the relevant legislation, and (iii) financial grounds. The LGUs’ borrowing process dates from 4 February 2008, with the adoption of the Law no.9896, "On Local Government Borrowing", which provided LGUs with the opportunity of borrowing through financial markets, to support their financial needs, aiming at accomplishing their exclusive functions. This law has clearly outlined the limits of borrowing from local entities, gua-

These already reorganized LGUs must show that they are capable to manage fees and taxes of their community, responsibly; they are capable to assess the advantages in taking decisions about urgent or strategic investments and that are significantly improving transparency in the decision making process.

rantees, application procedures, the calculation of minimum limits and debt criteria, as well as the reporting to the Ministry of Finance. Certainly, such instrument has a particular relevance, given the context in which local finances were found, by facing an uncharted territory, at a time when after collecting taxes and tariffs, the only remaining option was grants, foreign donors and funding support from the state budget. In other words, this law provides local governments with more financial opportunities to solve urgent problems, or to complete important investments for the community, both in terms of nature and size. Also, coupled with specific requirements, as regards meeting borrowing criteria, the interaction with stakeholders from the financial market, intending to be part of the process, such as: auditing LGUs’ financial statements, preparing feasibility studies and opening up the process of borrowing to entire community, turns a new page, by further strengthening local entities and increasing their financial capacities, transparency and, most important, their accountability. To summarize, the conditions to be met by LGUs are as follows: • The LGU can get a long-term loan up to the level where the total stock of its long-term debt does not exceed the operating income (including incomes from its own resources, shared taxes and

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unconditional transfers), by the ratio 1.3:1. • The ratio of operating surplus of the previous fiscal year (calculated as the difference between operating incomes and non-conditional operating expenses) to annual service of long-term debt, must be not less than 1.4:1. • The annual debt service should not exceed 20% of LGU’s total budget revenue from unconditional transfers, shared taxes and local fees and taxes, calculated for its three preceding fiscal years. Meanwhile, the process phases are very important and include: Preparatory Phase from LGU, commencing with: the analysis funding needs; preparing the action plan; notifying the Ministry of Finance; sending letters for expression of interest in this funding from banks, followed by sending necessary preliminary information to these institutions. Relationship with banks: bid evaluation through an open tender process; negotiating with banks and selecting the bank which provides the package with best terms and conditions; drafting the agreement between parties. Loan approval: approving the loan and its terms and conditions at the LGU Council; then getting the approval by the Ministry of Finance about loan calculation and compliance with legal requirements and financial constraints, as well as verifying that proper procedures are followed, to be continuing with signing the contract with the selected bank. Loan usage: disbursing the loan amount; registering with the Treasury Office; using the loan according to the investment phases; reporting to LGU Council and Debt Department of Ministry of Finance. Banks are one of the most important stakeholders in borrowing the process, as the party which provide funding. The actual law “On Local Borrowing" is a first step towards increasing financial capacities of local governments to implement investment projects, which are not affordable with its annual budget. This means a new expansion opportunity for the banking system and further support for these projects,

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within a well-regulated legal framework. Meanwhile, considering the conservative spirit of the law, when compared with other countries, a low level of repayment risk for loans to local governments is therefore estimated. However, the challenges and problems encountered in practice, were numerous. Most financial institutions did not have accurate information to assess the financial capacity of LGUs and in this regard, banks used the common methods

Historically, loans to central and local government are perceived as a risk-free lending opportunity, because of guaranteed payments, based largely upon revenues from taxes and fees. In the meantime, the financial crisis and its aftermath have raised many question marks over the financial situation sustainability of these units, thus making the repayment of their financial liabilities less secure than ever. designed to evaluate private companies, and not LGUs, the lack of information and that limited analysis capacity just complicated the local borrowing process. Banka Kombëtare Tregtare, in collaboration with USAID as a participant in the Local Governance Program in Albania (LGPA), which offered a guarantee fund at 50% for a certain amount of loan to some selected LGUs, besides supporting their building and developing lending capacities, started funding them in September 2010. Challenges, the bank used to be faced with, were numerous, ranging from the fact that LGUs were somewhat ambiguous in this process and their technical staff had difficulties in preparing and presenting the feasibility studies and financial data, necessary for

proper calculation of debt criteria, and constraints imposed by the Ministry of Finance, effective from 2011, regarding disbursements of annual loan funds. So, although a LGU was able to meet all legal requirements and presented a healthy financial situation, capable to sustain the whole loan amount, the constraints imposed by the Ministry of Finance limited and stretched the completion of project in time. Since the annual loan disbursements were at very low levels, USAID decided to terminate the guarantee program in April 2012, by supporting the already disbursed loans, only. On the other hand, the bank, based upon building and developing its own capacities and market knowledge during this time, turned into one of the key collaborators in supporting and financing LGUs’ economically acceptable projects, by taking as the only guarantee "the unconditional income", by way of signing of Intercept Agreement. The consolidation of LGUs (going from 373 local government units to 61 municipalities), has a deep impact, by changing all data, such as: population, income and expenditure levels, projects, etc., which are to be reorganized by the new administrative and territorial division. Certainly, it takes time, but it generally means a better revenue and expenditure management. Also, the existing LGUs possess now a larger territory, whereas the analyses for existing loans are conducted upon a certain territory, which now affects the financial situation of the whole territory and the respective loan repayment. In these regard, it is suggested a strengthening of LGUs internal audit capacities, along with identifying accounting issues, at the local level. Also, all criteria, constraints, conditions, items and procedures that must be met by LGUs should be clearly specified in specific manuals, LGUs technical staff must be provided with proper training to (where ensuring a low turnover for this staff is very important), regarding the preparation and correct calculation of legal and financial criteria, as well as seeking an increased transparency. These already reorganized LGUs must show that they are capable to manage fees and taxes of their community,

responsibly; they are capable to assess the advantages in taking decisions about urgent or strategic investments and that are significantly improving transparency in the decision making process. On the other hand, in order to increase the opportunity of lending, they could also consider the possibility of offering guarantees in the form of real estate, which could call for clearly specified rules, in terms of eligibility and specifications, in case of foreclosure. The new territorial division opens

many opportunities for banks, in terms of financing local government needs, because as mentioned above, the reorganization is expected to provide better revenue and expenditure management. It also calls for a rigorous approach towards selecting economically feasible projects, with a significant contribution to improvement of community life. On the other hand, banks find a good opportunity to expand their own loan portfolio with local borrowing, which is considered with low

risk, as well as creating an added value, through its contribution to the economic development and employment growth. The banking system will always be prone to develop an effective market local domestic borrowing instruments, for the sake of cooperation and in the frame of social responsibility, in order to contribute as much as it can to improve the welfare and the countryâ&#x20AC;&#x2122;s development, within a new, wellorganized and transparent framework of local government.

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efore making any consideration on borrowing instruments at the hands of the local government in Albania and on improving the efficiency of their use, one is required to start presenting the latest territorial and administrative reform, implemented in the country. A panorama of the territorial and administrative landscape will be of help to the reader, by going through the borrowing mechanism of the local government and getting the whole picture. Following the introductory part, this article intends to address and discuss on how local government can make use of the obtained financing, in an efficient way. The Government of Albania undertook an important territorial and administrative reform, which reshaped the panorama of local government. Basically, as from the last local elections, the Republic of Albania has been divided in 61 (large) municipalities and 12 districts. The rationale behind the reform it is believed to be the creating of large municipalities (or super municipalities likewise Tirana), with efficient, although large, local administration, which will be able to offer more qualitative services. The above reform obviously was driven and accompanied by the relevant amendments the legislation, regulating local government. The territorial and administrative reform in the Republic of Albania commenced with the approval of the law No.115/2014: “On the Administrative and Territorial Division of Local Government Units in the Republic of Albania”, as amended. The law was approved by the Albanian Parliament, on 31 July, 2014 and entered into force on 16 September, 2014, following its publication in the Official Gazette. Further changes to the legislation regulating the local government units were adopted by the Albanian Parliament, including herein the law No. 30/2015, which

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Ms Sabina LALAJ

Senior Legal Manager DELOITTE ALBANIA SHPK

Mr Ened TOPI

Senior Legal Associate DELOITTE ALBANIA SHPK

For an efficient borrowing of local government The legal tools towards a better administration of taxes are already in the hands of local administrators, that based on such tools should undertake immediate actions aiming the improvement of financial situation of local units under their administration and the increase of credibility in the eyes of lenders. amends the law No. 8652/2000: “On organization and functioning of the local government” as amended. Concluding here the panorama of essential changes in the administrative and territorial landscape of the country and returning our focus to the issues of local borrowing, it is worth mentioning that, the main piece of legislation regulating local government borrowing is the law No. 9869, dated 04.02.2008: “On the borrowing of the local government” and the law No. 10158, dated 15.10.2009: “On bonds of joint stock companies and

local government”. Based on the provisions of the Law 9869/2008, local governments units can go out in the market and seek short and long term loans, either for investment purposes (long term), or to bridge liquidity shortages (short term). Local government can reach out capital markets, or financial institutions, to obtain the line of credit and this means in local or foreign currency at fixed/variable interest rate. As for the modus operandi to reach out and obtain the loan, both short and long term borrowing are somehow subject

to the veto of the Ministry of Finance. In the case of the short term loan, the local government unit is bound to obtain the ‘negative response’ by the Ministry of Finance that the state budget will not cover liquidity needs. With regard to long term loan, the Minister of Finance will have the final say on the approval, in case the loan will be obtained in the international markets, or is needed to service the debt of previous loan, or the local government unit is a distressed one that has demonstrated financial difficulties in the past five years. In such case, the approval of the Minister of Finance is decisive. On cases other than the above-mentioned ones the approval of the Minister of Finance is limited to the procedural compliance on the loan authorization and verification the loan limits, as prescribed by the provisions of the above-mentioned law on local government borrowing. The approval by the Ministry of Finance should not be considered, in any case, a guarantee of the Republic of Albania, backing the borrowing of the local government. Under current circumstances, by having no state guarantee backing the local government borrowing, the following issues need to be considered. The legislator’s intent is that creditors can , in case of default, take all appropriate measures to collect the debt. On the other hand, to the date of this publication, local government units are not allowed to go bankrupt, or undergo reorganization under the bankruptcy law. It is worth mentioning that the current draft law: On Bankruptcy foresee that local government units may be subject to reorganization procedures. However, under the current e circumstances, no creditor will be able to ‘seek satisfaction’ through bankruptcy proceedings. Therefore, lenders would be willing to lend only to creditworthy borrowers, possessing an adequate level of financial stability and independence. As indicated above, local government units are entitled to issue bonds, in accordance with the provisions of the Law 10158/2009, as the other form of local government financing through

borrowing. As in case of loans, local government may issue short and long term bonds that mandatorily should be backed a relevant borrowing plan and audited by an external licensed audit entity. Having evidenced the options of financing of the local government, regulated by the legislation in force, herein are some considerations on increasing financing options through borrowing and its efficient use. In first place, it goes without saying that large municipalities which emerged after last June’s local elections are more attractive to lenders. It can be also stated that these new local government units need to obtain the confidence (as well to restore) in the eyes of the lenders. This can be done through financial discipline and efficient tax administration, during the process identification and collection and also in the use of collections. In terms of efficient administration of taxes, much is to be done by local government units. There is no need for official data to state that, up to this moment, that local tax collection is very poor and the government’s initiative these days to formalize the business is a proof of such a poor performance. The legal tools towards a better tax administration process are already in the hands of local administrators, that based on such tools should undertake immediate actions aiming the improvement of the financial situation local units under their administration and the increase of credibility in the eyes of the lenders. Once the local government has attained an acceptable creditworthiness, financial institutions and investors would be more willing to jump on board and finance large projects and initiatives of local government. Public - private partnerships (PPPs) are another form of cooperation that would improve the creditworthiness and satisfy the needs of local government units, for investments with financial exposures stretched over a long term of period. This spe-cific form of cooperation, between public and private bodies, regulated by the Law 125/2013, dated 25.04.2013: “On concessions and public private

partnership”, as amended, provides two favorable conditions to the local government units that aim to carry out investment, using this form of cooperation. In one hand the risk and costs of immediate investment is transferred to the private partner and, on the other hand, cost repayment is stretched over the years of the contract entered with a private partner, thus avoiding the creation of short term repayable obligations in the finances of the local government. Notwithstanding the need for improvement and approximation with the European Union legislation, the current legal framework provides adequate regulation for the creation of a local government borrowing system and improvement of the efficiency in using such borrowings for the development of the local infrastructure and services. Therefore, the reform initiated with the reshape of territorial and administrative division should continue with the financial discipline and efficient administration of taxes, collected by local government, aiming at increasing the creditworthiness of local government units in the eyes of lenders, and to benefit maximally from the opportunities provided by legal framework, on borrowing options and their efficient use.

Notwithstanding the need for improvement and approximation with the European Union legislation, the current legal framework provides adequate regulation for the creation of a local government borrowing system and improvement of the efficiency in using such borrowings for the development of the local infrastructure and services.

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Interview

Procredit Bank Albania German experience in the Albanian banking market

ProCredit Bank continues to bring innovation to the banking system, and presents the 24/7 Zones, on the occasion of its 20th Anniversary.

Ms Adela LEKA,

Spokesperson of the Management Board PROCREDIT BANK - ALBANIA

onsidering market dynamics and growth, as well as the extensive use of technology in our daily life and in the way of doing business, itâ&#x20AC;&#x2122;s a fact now, that physical and digital world are rapidly combining with each other. ProCredit Bank deems the implementation of state-of-the-art technologies, as driven by the need to adapt to market trends and to satisfy clientsâ&#x20AC;&#x2122; needs. Moreover, it comes as a distinguishing feature, which has accompanied us over the past 2 decades we operate in the Albanian banking market. So, on the occasion of the bankâ&#x20AC;&#x2122;s 20th Anniversary, we have the great pleasure to present to all our clients a very innovative banking concept, the "24/7 Zones". This new banking concept provides our clients with a quality service, in accordance with their needs for banking services, regardless of office hours, just 24 hours, and 7 days a week. The 24/7 Zones are equipped with high-tech equipment, which make possible for clients to carry out all routine banking operations, like: depositing and withdrawals from business and personal accounts, money transfers

and regular monthly bill payments, via the e-banking platform. As part of the strategy of ProCredit Group, the implementation of "24/7 Zone" is nearing completion at every agency, throughout Albania. These banking areas address all customer needs, be they business or individuals. The use of e-banking platform results in a very positive trend, compared with the level of use of the same period a year ago, which clearly shows the growing

The use of e-banking platform results in a very positive trend, compared with the level of use of the same period a year ago, which clearly shows the growing trend toward using more electronic banking services. trend toward using more electronic banking services. This is also in line with our philosophy of doing business, where the provision of modern banking services are deemed as very important, thus offering to our customers efficient business transactions that meet their business needs, in a timely way. As a commercial bank, focused on

SME businesses, we have created all necessary means to be the bank of first choice for these businesses and a longterm partner for accomplishing their business plans. Our business strategy, fulfill the mission of the bank, will be continuously focused on supporting those businesses that are well-organized, have clear structures and investment plans, that enable their sustainable development. ProCredit Bank - Albania is part of the ProCredit group of banks, which operate in different countries of the region. In order to increase cooperation between clients of ProCredit banks and establishing contacts with potential partners, operating in the region, by organizing regional B2B meetings, we provide them the opportunity to exploit customers' network of regional ProCredit banks. ProCredit Bank - Germany plays a quite positive role in promoting and developing new business relationships, which has been very active, recently, with meetings held in the frame of this initiative. ProCredit Bank is a commercial bank with 100% German capital, a development-oriented one, focused on supporting SME businesses. Our sole shareholder is ProCredit Bank - Germany, with head office in Frankfurt, Germany. We are supervised by higher German supervision authorities, like: Bundesbank and BaFin, which ensure our reliability and stability.

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Banking System

SMEs in Albania Who will credit them? Small and Medium Enterprises (SMEs) still suffer from insufficient or total lack of collateral, a non-satisfactory degree of formalization and financial record keeping, as well as the lack of a really well-structured business plan, which would increase the confidence of banks.

by Mrs Anila MUÇMATA Head of Sales and Support for individual Loan Unit Sales and Support of S.I.M.A Loan Department CREDINS BANK

n everyday life, everyone hears that: "The bank declined my loan application", or "Banks do not provide credit", thus taking for granted the fact that a bank’s achievement is typically “making-no-loan”, when the logical, normal and basic function of them is crediting, and selling funds collected as deposits, against a reasonable profit margin. Who in the world would open a store only with the intention of admiring products, bought with a lot of money invested in them, without having the "desire to sell"? So, banks are not in comfortable position when they say "no" to a client, furthermore, when such customers are applicants with relatively large amounts, such as loan applications coming from small and medium enterprises.

The term “economic lifecycle” is quite well-known, in everyday jargon i.e. introduction, growth, maturity and then decline. In the world economies, such cycle is more prolonged and extended

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in decades and years, thus creating opportunities for development and growth, either for individual enterprises, or for the economy as a whole, whereas in Albania it is often been cut-off, shaken, and restarted from the beginning, as a result of many political and economic instability factors, widely known and discussed among us. SMEs form the basis for development of a formalized economy; they are cells that tend to create a country’s economic identity and culture. The small and medium enterprises, somewhere created as modest familiar initiatives and somewhere as a result of a constant growth, after surviving many sacrifices over years, are the future of national economy, which tends to unite microbusinesses with modest capital, in pretty higher sustainable and well-structured businesses. Form the lender’s viewpoint, SMEs are an opportunity to increase and diversify the loan portfolio with a moderate risk, allocated on a wider businesses’ basis, thus mitigating the risk of loan portfolio concentration in some corporate clients. Despite our country’s numerous natural resources it is obvious that SME’s activity and the respective lending is highly concentrated in sectors

like: trade, services, construction, hotels and much less in productive sectors, extracting industry, or transport and agriculture. Notwithstanding how much developed, a country’s trade sector may be, it cannot be its long-term economic pillar; such sector cannot bring a constant economic development, as it is unable to generate enough jobs and does not increase the country's GDP, significantly. In order to explain the tight credit to other sectors, is should be understand that the relatively high level of credit to trade and services sectors is closely related to consumers’ limited financial means, which cover mainly the basic needs for mass consumption. Similarly, importing policies have a deep impact with low barriers for consumer products, imported from other countries, thus

SMEs form the basis for development of a formalized economy; they are cells that tend to create a country’s economic identity and culture.

favoring the latter, but hindering domestic products to meet local consumer needs, let alone exporting them. Along with above difficulties, we have to add the consumer "skepticism", especially toward relatively new domestic producers, and the great faith put on a "Made in Italy" product, rather than on a "Made in Albania" one, be it even a bottle of milk, which is even fresher and complying with all international and national quality standards. When manufacturing SMEs encounter these difficulties in the domestic market, no one needs too much imagination to perceive how difficult it to go out in the international markets, to establish the goodwill, competing with well-known and longconsolidated brands, along with the absence of favorable taxation policies. Unfortunately, the bulk of producing companies are offering simply contract manufacturing services, without owning any "Made in Albania" brand. Such enterprises have an activity, which seems large, but in fact depend heavily on a small number, or even one supplier & customer, a fact that carries a considerable risk for business continuity in the present and in the future, whereas any contracting counterparty causes a direct and immediate impact on the liquidity of Albanian manufacturers. Agriculture and agribusiness are seen as potential and promising sector, and they are really as such, if we consider our country’s nature and geography. Currently, this sector is witnessing attempts by Albanian migrants, returned back home, with the desire to invest their savings in Albania, as well as from local farmers, who see with an optimist view the future of this sector, which is being mentioned, quite often, by government platforms and agendas. Despite being promising and with a broad market that expects to be credited by banks, this sector contains a significant risk, as it is so closely associated with natural disasters, as much as with the above-mentioned difficulties , related to quality assurance and product sales. Additionally, the sector suffers the issues of land ownership, the difficulty of providing collateral, lack of historical financial data, or business plans for the future.

Consulting projects, guarantee schemes, in cooperation with government or any other and guarantee funds, would have been a great help and a pivotal factor that will significantly affect lending growth to this sector. More and more consulting firms are becoming present during the last two years, which make not only market studies and provide consultancy services to SMEs, but also professional business plans, based on international practices. The construction sector, giving a momentum for a certain period of time to the overall economy and credit growth, now has been turning, with an equal momentum, into one of the most difficult sectors for debt collection. It was not associated with the same purchasing power to respond to this abundant offer, in a time when it had already absorbed so much liquidity, thus causing a part of it not returning back, in due time, or ever, into borrowers’ coffers, and therefore at banks’ offices, where they were borrowed. Still today, the sector suffers from informality, difficulties in mortgaging and getting a property title, which could support it in borrowing money, and furthermore, the decrease of migrant remittances, which until recently were the main source of revenues in the real estate market. One of the sectors already credited by banks and with an obvious potential, at least theoretically and logically, is that of SMEs operating in Tourism & Hospitality sector. Apart from problems

and difficulties related to the nature of services in this sector, and mainly based on rigorous assessments of financial analyses modules and basic lending concepts, a great deal of courage would be shown to lend money to a business that was there yesterday, but not today, or is here today and its’ tomorrow is clearly unknown ... Despite cuts of interest rates by Bank of Albania and the drop of deposits’ rates in commercial banks, which have lowered the cost of funds, and is subsequently associated with a reduction of loans’ interest rates, it’s worth noting that SMEs still suffer from insufficient or total lack of collateral, a non-satisfactory degree of formalization and financial record keeping, as well as the lack of a really well-structured business plan, which would increase the confidence of banks. On the other hand, it should be clear that business quality management forms the basis for a sound bank lending, and such quality is affected primarily by economic and political factors. The economic policies and platforms, be they short-term or long-term, must be transparent and should go beyond the noble scope of fighting informality and complying with "Made in EU" framework; they must provide a projection of the future, or at least the situation we aspire to go, as a result of fiscal reforms and endeavors, or any other type of them, but which in turn, affect both the consumer and SMEs’ business.

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Banking System

Electronic Signature

Its importance and advantages The electronic signature is a technology that is born as a need to guarantee the authenticity of an electronic message sent, so it ensures that the author of the electronic message is really the one who s/he claims to be, that his/her identity is not used in an abusive way by someone else, and that the message has not been modified during transmission.

by Mrs Edlira LLANGO Director NATIONAL AUTHORITY FOR ELECTRONIC CERTIFICATION (AKCE-NAEC)

he genesis of electronic signature in Europe dates back early, in mid-90s, with Italy and Germany as the first countries to have mentioned and used the electronic signature. Officially, the European Community will talk about electronic signature with the Directive no.1999/93/CE of European Parliament and Council of Europe, dated 13 December 1999. The Electronic communication and commerce need "electronic signatures" and their related services, to enable data authentication. A clear EU framework, regarding the conditions applied to electronic signatures, will increase confidence and acceptance of new technologies, so that the legislation of Member States does not hinder free movement of goods and services in the internal European market.

The electronic signature is an electronic authentication tool. This term

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is defined as authentication of holderâ&#x20AC;&#x2122;s identity and the respective signed data. The electronic document, which contains the name of the signer and his/ her qualified signature, has the same legal validity and power of evidence, as those of a written document. The term "electronic signatureâ&#x20AC;?,

The electronic communication with electronic signature guarantees a very high level of security. Each electronic document is unique and cannot be copied, because the in the moment of signature it is accompanied by a time stamp, which records the precise time of signing. is mentioned for the first time in our country, in the law No.9880, dated 25.2.2008, "On electronic signature", drafted in accordance with the aforementioned European Directive. The law

stipulates the legal validity of electronic signatures. Legal transactions and acts, drafted by natural and legal persons, be they public or private, can be made through an electronic document, which is accompanied by a qualified electronic signature. The electronic document, which bears the name of the signer and the qualified signature, has the same legal validity and power of evidence, as those in written form. The qualified electronic signature is offered by the subjects mentioned in the law as "Certification Service Provider" (CSP). CSPs can be only those providers who register with the National Authority for Electronic Certification, which is the legally charged institution with overseeing the implementation of this law. The authority has a duty to strictly supervise the CSPsâ&#x20AC;&#x2122; activities, so that it can be carried out in compliance with the law, as well as with international and European standards in this field. The list of providers registered with the National Authority for Electronic Certification and those who have stopped their activities, is published on the website www.akce.gov.al. Currently, we have two CSPs in the country, registered with the National

Electronic Certification Authority: National Agency for Information Society (AKSHI-NAIS), which enables the electronic signature for all employees of public administration and ALEAT sh.pk, registered to offer the same service for Albanian citizens. In case of AKSHI (NAIS) the medium or device is a USB Token, where the electronic certificate that enables electronic signature is installed, and in case of ALEAT sh.pk it is the biometric identity card, which in the everyday life is called the ID card of the Albanian citizens. The IDs issued from 2014 onwards, are also equipped with electronic certificates, which enable the electronic signature and identification, at no additional cost, whereas for citizens who have identity cards issued before 2014, the issuance of digital certificates is offered at the premises of the provider, throughout the country, and it is free for the first time. Of course, owning an electronic certificate is not mandatory. The importance and advantages of electronic signature The question that naturally arises here is: Why should we use the electronic signature? The electronic signature is a technology that is born as a need to guarantee the authenticity of an electronic message sent, so it ensures that the author of the electronic message is really the one who s/he claims to be, that his/her identity is not used in an abusive way by someone else, and that the message has not been modified during transmission. These guarantees are essential in the frame of a growing use of internet as a secure means of communication between government, citizens and businesses. The electronic communication with electronic signature guarantees a very high level of security. Each electronic document is unique and cannot be copied, because the in the moment of signature it is accompanied by a time stamp, which records the precise time of signing. Electronic documents, signed with electronic signature, cannot be modified, because any modification would be obvious and would nullify the legitimacy of the document. This is so, because, in informatics terms, the "document trail" or the so-called

HASH, is signed, only. The HASH value is different for each electronic document, even in cases of a minor modification, so the electronic signature, from the informatics viewpoint, is different for each document. Verifying the validity of electronic signatures can be performed by any PC user and the automated system, according to this technology, allows no room for mistakes. Such instrument offers not only high security, but also other advantages, such as: ease of use, speed of communication, low cost, transparency, corruption avoidance, by way of eliminating physical contact between citizens and public officials, as well environmental protection, due to the elimination of paper, ink and printer. Latest developments in the field of electronic signature On 23 July 2014, the European Parliament and the Council of Europe adopted the Regulation No.910/2014 "On electronic identification and trust services, related to electronic transactions in the internal market" (eIDAS Regulation). This Regulation establishes a common basis for all member countries, by adding to the previous regulation on electronic signature, under Directive 93/1999, the regulation for electronic identification, electronic seal, website authentication and the electronic data transmission service, by providing the same rules and standards, applicable in all EU countries, so that these services are directly recognized among member countries.

Given the importance of such services, it is intended that this regulation will increase the usersâ&#x20AC;&#x2122; confidence, by becoming a central building block of the European Digital Single Market. The eIDAS Regulation is a milestone to provide a predictable regulatory environment to enable secure electronic interactions between businesses, citizens and public authorities. In this regard, eIDAS Regulation: - ensures that people and businesses can use their own national electronic identification schemes to access public services in other EU countries; - creates an European internal market for trust services, by ensuring that they will work across borders and have the same legal status as traditional paper-based processes. Only by providing certainty on the legal validity of all these services, businesses and citizens will use the digital interactions as their natural way of interaction. Base upon this regulation, especially by considering our market needs, the National Authority for Electronic Certification led the preparatory work for the draft law: "On electronic identification and trust services", which is expected to be adopted soon by the Albanian Parliament. This draft law fills a legal gap, in terms of services required for safe and legally protected online communication between citizens, businesses and government, paving the way for secure online communication.

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Banking System

New ways to facilitate online services The integration of authentication and electronic signature with online banking systems will enable clients to carry out the entire process remotely, from registration to the bank an opening an account, to opening deposits and applying and getting loans

by Mr Ardian HASA Operations Division Manager SOCIETE GENERALE ALBANIA

owadays, the fact that banks are increasingly looking for excellence and safety in all banking processes, does not barely make a headline. Additionally, their customers are increasingly requiring more quality and safe services. In recent years, all banks have increased significantly the number of operations performed without the individual physical presence at bank premises, and even in cases of physical presence, client’s digital identification and electronic signature are very important safety criteria. The endorsement of the law on electronic signature provides the necessary legal space for institutions to invest in terms of electronic authentication and signature, as the safest means to ensure either the citizens’ identity, or the signature with the same legal validity, for of electronic documents. However, the adoption of this

law should be accompanied by an update of the entire legal framework, which regulates banking services and relationship between citizens and institutions, so that this new reality can be turned into something tangible and with real benefits for all stakeholders. As presented during the Innovation Week, an event organized by the Ministry of Innovation and Public Administration, in May 2015, Societe General Bank – Albania is one of the which has sought the opportunity of integrating these services with other banking services, aiming offering a new experience to its customers. The usage of a safe platform, offered by ALEAT and guaranteed by the National Authority for Electronic Certification, has enabled our bank to consider offering new services for bank’s customers, such as digital authentication (the use of certificate, installed on the citizen’s ID card, and confirmation through biometric fingerprint trail and electronic signature (through the use of certificate installed in the ID card)). Put it simple, when a customer shows up at the branch he will be asked, by a bank employee, to show her/his ID card and after it is placed a biometric

card reader, its confirmation is done through customer’s fingerprint trail, which ensures its authentication, thus paving the way to execute the requested action by the customer. The process is similar for the electronic signature, too. Once the electronic version of the document is generated, and subsequently signed by the customer, it is initially signed, electronically, by the bank’s employee and then by the client, again electronically, via the certificate installed on her/his ID card and biometric fingerprint confirmation. Then, such document is retained by the bank and has the same legal validity as paperbased signed documents. This is only the one side of the coin, since that service would create many and better new opportunities for increasing online services, offered by a bank. The integration of authentication and electronic signature with online banking systems will enable clients to carry out the entire process remotely, from registration to the bank an opening an account, to opening deposits and applying and getting loans, thus bringing new reality, in terms of excellence in use of bank’s resources and security in its respective processes and services.

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Experts' Forum

Loan write-offs in the Albanian banking system What’s next? Write-offs improve the capital adequacy and have no unexpected negative impact in profit, giving to the bank more space for lending. It is a normal part of activity during the life-cycle of the loan, but it must be clear that it is only an accounting activity.

by Mr Alexander ZSOLNAI Vice-Chairman of the Management Board RAIFFEISEN BANK - ALBANIA

oan write-off is the word of the day now for the Albanian banking system. Due to the new regulation of Bank of Albania (BoA), which makes write off of loan exposures mandatory after fulfilling its requirements, the topic became very “prominent”. It is important to mention that its only one small topic in the overall overlying issue of high non-performing loans (NPL) in the Albanian banking system. It is important to clearly state that the write-off is not a/or the solution to tackle this problem. It is one small “technical” task, related to accounting principles. Write-off is referred as a transfer of the bad or uncollectable debt to the offbook accounts of the bank. Write-off is presented as a continuous and dynamic process, whereby the bank assesses the quality of the asset portfolio. When

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a loan, based on current information and events is deemed unable to collect, the management of the bank may take the decision to write-off the asset. The process is regulated by the Central Bank, IFRS rules and internal procedures of

Beside actual environment and the future expectations, historic evolution on level of uncollectible loans (write-offs) is a key indicator which drives the new lending strategy & risk appetite of a bank. As for the new lending, it is also very important the business sentiment of the customers, and their initiatives for new local and foreign investments (or consumption for private clients).

every bank. Also, tax regulations have to be obeyed. Bank of Albania’s Regulation: “On Credit Risk Management” clearly

states the decision-making process, approval authorities and rules to be applied. Of course, the deteriorated economic conditions increases the number of bad or uncollectable loans, and therefore the volume of writtenoff loans, but the process per se has no difference. It should be followed in the same way, independent of the state of affairs within the banking industry. Nevertheless, a write-off does not mean that the Bank waives the right to still pretend the debt from the borrower. We have seen some alarming signs either clients, or even courts, misinterpret the write-offs thinking that the debt is waived! This phenomenon has to be monitored closely and to be prevented! Surely, the write-off process improves the reported NPLs of the bank and ratios, related to the quality of assets. A “cleaned” balance sheet creates a better idea of the real wealth of the bank and the potential to generate profit and absorb risks. Also, the NPL ratio of the banking market should then be more precise. So, for the balance sheets it results in a positive effect. For the capital adequacy and banks profitability the effect can be both ways. Capital adequacy ratio is related to the prudence of the bank in covering the assets at risk. Relating it

to the write-off process we see a direct connection with the provisioning policies and methodologies, followed by the banks. A write-off is always preceded by a consistent assessment of the potential of the bank to recover a non-performing loan. Based on the Central Bank (BOA), as well as IFRS rules, a bank consistently estimates the potential loss linked to a certain bad loan, by allocating individual loan loss provisions (ILLP). ILLP directly impact the profit and loss, thus a bank may be reluctant to set a proper level of provisions. But that later may lead toward direct write downs. A direct write-down is the write-off of a loan which is not properly covered with provisions and represents an unexpected loss on the bank profit and loss balance. On the unsecured part of the portfolio, loans to be written-off should be fully covered with provisions, thus there is no need for the bank to charge direct write downs. On such condition, the write-off improves the capital adequacy ratio, as the impact in the moment of write-off is only on the risk weighted assets. On the secured portfolio, based on International Financial Reporting Standards (IFRS), banks need to directly calculate writedowns, in the amount that weighted collateral value was planned to cover the client exposure when performing the write-off. This has a direct negative impact in the bank’s reported profit, and in the same time, in the capital adequacy. Bank of Albania regulation requires banks to write-off the loans “…no later than 3 years after their classifications as “Loss loans” and the classification is generally based on days in delay, or when “…the bank has deposited at the judicial officer the demand on the beginning of the mandatory execution of collateral, if the loan is secured by collateral”. IFRS consider the weighted collateral value in provisioning methodology, differently from local regulation (BoA) that neglects it. Thus, based on IFRS, a loan should be written-off after all efforts for collateral execution are exhausted. In case of an inefficient execution process, in order to be in line with BoA’s regulation, the bank might be obliged to write-off a loan prior collateral execution. Performing the write-off before the execution procedure is finalized, will cause a direct write-

A write-off does not mean that the Bank waives the right to still pretend the debt from the borrower. We have seen some alarming signs either clients, or even courts, misinterpret the write-offs thinking that the debt is waived! This phenomenon has to be monitored closely and to be prevented!

down, thus a loss in the IFRS balance sheet. Considering the above rationale, it is crucial for Banks to have: • Proper assessment of the potential impairment losses, by allocating the adequate ILLP level; • Effective execution process within a reasonable time period and reliable juridical system. A general revision of the legislation with the aim of positive improvements, including mortgage office procedures, will support banks to optimize the write-off process. In the same time is the limitation of the tax regulation that states “…bad loans may be written off from the accounting books, i.) 365 days after the filing of the request for the commencement of

the compulsory execution with the bailiff, in case the loan is secured by movable or immovable property; or ii.) 365 days after the Court has issued the Executive Order, in case the loan is not secured by movable or immovable property.” In such circumstances, the bank is “obliged” to increase its costs to cover legal and execution expenses, even for cases when the bank expects no recovery through legal/execution procedures. Doing so is the only way to avoid additional taxation over bad or uncollectable loans. It might be the case not to align tax regulation with legal or execution procedures. As it can be seen, banks have to follow several regulations, which are not always aligned. Therefore, authorities in Albania must take actions to align these, in order to improve the efficiency and effectiveness of the write-off and provisioning process (implementation of IFRS provisioning policy in the BoA regulation, alignment of tax regulation, etc.) But can the loan write-off process be helpful for banks? As above mentioned, write-off process is preceded by a periodically assessment of the bank capability to recover a bad loan, by allocating the adequate level of ILLP-s. Provisions directly impact the profit. In addition, prior to write-off there are considerable costs related to the bad loans’ execution. I would not say that the write-off process is per se helpful, it’s a normal part of activity during

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KREDIA PËR SHTËPI

shitja@bankacredins.com

JU ZGJIDHNI SHTËPINË TUAJ, TË TJERAT NA I BESONI NE Oferta më e re përmban: Normë interesi ﬁkse për vitin e parë:

4.6% Euro 5% USD 6% Lekë Procedura të shpejta aprovimi dhe disbursimi Afati i kredisë deri në 20 vite

Credins Bank, distanca më e shkurtër mes ëndrrës dhe asaj që ju e quani shtëpi. *Oferta është e vlefshme deri në Dhjetor 2015. 24

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the life-cycle of the loan. On the other hand, it must be clear that write-off is only an accounting activity! Even after the write-off the obligation of the client still exists to repay his debt. So, the bank may continue its collection activities, foreclose the collateral, or sell the debt to third parties. But for sure the most important is a prudent risk management process, followed by banks. Now letâ&#x20AC;&#x2122;s turn to the impact the massive loan write-offs in the banking system may have in a possible lending revival and an ease of risks perceived by banks. Frankly speaking, the write-

offs have a minimal impact, only. The reasons were given above. Of course, write-offs, especially when done against provisions, improve the capital adequacy and have no unexpected negative impact in profit, giving to the bank more space for lending. But thatâ&#x20AC;&#x2122;s it. Instead, new lending and underwriting new business in general includes many factors, like: economic and political stability, level of corruption and informality, prudent legislation, effective judiciary system and the possibility to follow an efficient execution procedure, without the possibility of being damaged or

delayed through court processes or mortgage office procedures. Surely, beside actual environment and the future expectations, historic evolution on level of uncollectible loans (writeoffs) is a key indicator which drives the new lending strategy & risk appetite of a bank. As for the new lending, it is also very important the business sentiment of the customers, and their initiatives for new local and foreign investments (or consumption for private clients). These plans have to be presented to banks in a more professional and structured way, then it was done in the past.

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Economist Corner

Greek banks in front of crisis Effects and measures taken in Balkan and Albania Since 2010 some legal changes were adopted, which consider greek banks as subsidiaries which take charge of their responsibilities, separately from their parent banks in Greece. Bank of Albania has taken measures that, from a legal and organizational standpoint, they must act independenly from Greek parent banks.

by Prof. Dr Adrian CIVICI President European University of Tirana, UET-EUT

he developments and evolution of the past few months in Greek economy in general, and its complex financial and banking situation, put the Greek crisis in the international spotlight, particularly that of Troika members, i.e. European Commission, IMF and ECB. The victory of SYRIZA and Prime Minister Tsipras was accompanied by political rhetoric, based upon "ending austerity measures that were adversely affecting the economy, finance and the living standards of Greek people", "a total review of austerity conditions and negotiations about budget and financial tightening, and treatment of Greek debt", â&#x20AC;&#x153;with its European partners, ECB and IMF, in order to negotiate on new easing grounds, and longer terms", etc. Meanwhile, Greeceâ&#x20AC;&#x2122;s main economic and financial indicators, including the

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situation of its banking sector, continued their rapid deterioration. Greek sovereign debt reached the scary figure of EUR 310 billion, or about 180% of GDP, the economy contracted by 25% during the last 4-5 years, the unemployment rose sharply, especially among youth citizens, approaching 50%, etc. Tensions between Troika and creditors and the new government in Athens, with a clear "anti-European", "anti-capitalist" and "anti-globalization" spirit, embodied in the eccentric profile and statements of thenGreek Finance Minister, Mr.Varoufakis, were reflected in a chaotic and tense situation, as that witnessed in the period from May to August 2015. Greece's insistence on "changing the rules of the game", including here the pressure with the referendum, which gave the government a legitimacy to say "NO" to "humiliating" conditions imposed by Troika and EU, met with decisive resistance from Eurogroup, IMF and ECB. The deterioration of situation was clearly reflected in scenarios, described as "catastrophic" Grexit from Euro, and its explusion from EU, the bankruptcy declaration of Greece, etc.

The biggest injured from this situation was the Greek banking system, which at the end of June 2015 was forced to impose capital controls, by limiting a daily cash withdrawal at 60 Euros. Fitch stated that capital controls were the necessary last step for some important Greek banks not to declare bankruptcy,

Bank of Albania, the Albanian Association of Banks and many experts of finance and the banking system confirmed that Albania will not be affected by the situation, Greek banks and government were experiencing.

whereas Greece had no chance to undertake any potential recapitalization of its banks. Even the activation of European Stability Mechanism (ESM) was faced with difficulties and obstacles, of a structural nature. During all that period, especially in July 2015, a real fear that "the liquidity was limited and everything will depend

on ECB response and decisions" prevailed in all statements by Hellenic Bank Association and National Bank of Greece’senior management. The need for opening an emergency liquidity lifeline form ECB, amounting at EUR 80 - 90 billion, was the only oxygen to prevent the system’s collapse. Meanwhile, an enormous amount of tens of billions of euros had left the Greek banking system, in the form of transfers or deposits withdrawals. According to the Chairman of Hellenic Bank Association, “the liquidity coverage for Greek banks in these moments does not exceed 1 billion Euros; or 90 Euros per inhabitant". The "very difficult and tense" deal struck with creditors, Eurogroup and Troika in August 2015, although not the hoped and expected one from the Greek government, provided a certain solution and getaway from emergency situation and returned the addreesing of Greek debt back to a normal road, thus calming and stabilizing the banking system. This situation was reflected with a real concern of regional dimensions

in Eastern European countries, where Greek banking and financial presence was significant. Were Albania, Bulgaria, Romania, Montenegro, Serbia, Macedonia, Kosovo, BosniaHerzegovina, etc., threatened to be sucked into the vortex of Greek banking system’s crisis? Greek commercial banks have some 2,500 branches in Balkan countries and more than 40 thousand employees. This question was naturally raised due to the fact that, should Athens fail to pay its debts to international creditors, Greek lenders, controlling important stakes of banking sectors in these countries could provoke a massive withdrawal of their capital. On the other hand, millions of people who had their deposits in local banks with Greek capital could be affected, had a full-scale banking crisis be developed in Greece. Greek banks hold important banks in the Southeast European countries and the concern was that if Athens will be forced out of Eurozone, its lenders could bankrupt, with a domino effect on their branches. Standard and Poor's warned

that it could downgrade the credit rating of Bulgaria, Macedonia, Albania, Romania and Serbia, in the event of Greece's troubles being spilled over their banking systems. Should various governments have to intervene to save them, it would harm national finances and their longterm growth prospects, would weaken fiscal and debt parameters respective governments. According to Standard and Poor's, “this would adversely affect their evaluation and rating." The presence of Greek banks, or those with capital of Greek origin, is significant in the region. Specifically, based on data of Q1 2015, three Greek banks in Albania held around 32% of banking capital, in Macedonia two Greek banks own 20% of banking capital in Serbia four Greek banks own 15% of such capital, in Romania four Greek banks own 17.6% of the banking capital. However, such negative situation and fear was not confirmed, following the effect of a set of new anti-crisis measures and policies, or prudentiality during

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previous years. The main preventive measures consisted in: - Bulgaria, Greek-owned banks held no Greek Government papers and had not financial policies linked with their parent banks in Greece, whereas the central bank of Bulgaria required a strengthening of liquidity in banks with Greek capital and had established controls and limits on transferring financial capital to Greece; - Romania, branches of Greek banks were constantly monitored, by asking to maintain a capital adequacy level of 17%, although the C.A.R. in Romania for other banks was 10%, only. Also, these banks had made an agreement with the government, to ensure the securities’ underwriting, in order to guarantee the financial stability; - Macedonia, where two banks owned by Greek parent banks were not allowed to withdraw their capital above the 10% threshold, or sell their shares to a new investor. On the other hand, the Macedonian government has set aside a fund of EUR 250 million, as a guarantee for banks’ capitalization, should the risk scenario of bankruptcy by bank panic or massive withdrawals, be fulfilled; - Serbia, where there are four banks with Greek capital, with an estimated banking assets of USD 4 billion, some energetic measures were teken, for a permanent monitoring of business plans of these banks, particularly in their liquidity level and relationships with parent banks in Greece. - However, as regards Kosovo, the direct impact of Greek crisis is estimated to be minimal, as the Kosovo’s economy has a very low degree of direct exposure to the Greek banking system and economy. But what about Albania, in such context and situation? The first private bank in Albania was opened in 1996 and it was a Greek bank, which later became an important regional giant. Other Greek banks came in late ‘90s, to take advantage of the fact that Albania was in the moment of building and establishing its private banking system, and to support a kind of regional expansion of Greece in the Balkans. In 2008, banks with Greek capital owned 28% of banking system’s assets, but its

share in the Albanian economy steadily withered over the period of 2008 - 2011. By end-September 2011, four banks with Greek capital accounted for 22% of banking system’s assets, while in 2010, they accounted for 23.1%, respectively. The largest drop was observed in the loan market, whereas when it comes to deposits, these banks are, in general, equally preferred by Albanians. These banks owned 29% of the loan market in 2011 from 34.5% who possessed in 2010 and owned 41% since 2008. The decline in the share of these banks in the loan market is in fact an undesirable

The decline in the share of these banks in the loan market is in fact an undesirable news for the Albanian economy, as their activities during the period 2002-2008, helped the economic growth. Currently, Greek banks own 17% of total banking assets, 16% of deposits, or EUR 1.2 euros and 17% of the loan stock. The loan-to- deposit ration for these banks is about 62%.

news for the Albanian economy, as their activities during the period 2002-2008, helped the economic growth. Currently, Greek banks own 17% of total banking assets, 16% of deposits, or EUR 1.2 billion and 17% of the loan stock. The loan-to-deposit ration for these banks is about 62%. The Greek crisis in general, and especially its impact on the Greek banking system, revealed several concerns, even in Albania. Would Albania and its financial stability be affected, in case of a negative scenario in banks with Greek capital? Do these banks risk any bankruptcy? Is there any chance that a significant portion of capital from these banks be transferred to Athens, to solve problems faced by parent banks? Do the bank deposits of Albanians, estimated at EUR 1.2 billion and put with these

banks, face any risk? The guarantee, that none of these scenarios were expected to happen, and in fact did not happen, came from the Bank of Albania. Bank of Albania, the Albanian Association of Banks and many experts of finance and the banking system confirmed that Albania will not be affected by the situation, Greek banks and government were experiencing. Albanian banks with Greek capital are not branches of Greek banks, instead they are subsidiaries and as such, they have got complete independence. Since 2010 some legal changes were adopted, which consider them as subsidiaries which take charge of their responsibilities, separately from their parent banks in Greece. Bank of Albania has taken measures that, from a legal and organizational standpoint, they must act independenly from Greek parent banks. Albanian banks with Greek capital in Albania have excess liquidity and excess capital, so they are well-capitalized. The capital adequacy ratio of Greek banks is above average, precisely 17%, versus 12%, which is the minimum regulatory requirement for banks in Albania. Also, banks with Greek capital carry out their activity with nearly 100% of Albanians’ deposits. It should be noted that, a skepticism feeling by depositors is present, but the authorities have taken measures which provide surplus liquidity and, therefore, no problem is forseen so far. “The Albanian banking system, including banks with Greek shareholding, is financially and operationally independent from the banking systems of other countries. All commercial banks are established in Albania as legal entities, which carry on banking activity under provisions stipulated on the Albania’s legal and regulatory framework, including the capital requirements and banking supervision.”...“ As reflected regularly on the financial statements and information published, the banking system in Albania operates at high levels of capital adequacy and liquidity which guarantees its stability, normal functioning and independence from negative developments in neighboring countries”, said unequivocally the Albanian Association of Banks.

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Social Capital Academic year-end event On the occasion of academic year closure, the Regional Educational Directory Tirana institution organized an Artistic - Sportive Event supported by BKT. This event has turned into a very successful tradition in recent years for schools in Tirana.

Korça Beer Festival The Bank sponsored Korça Beer Festival, successfully organized during the last 8 years in Korça city. The Festival objective is to entertain the public with live concerts and shows, giving special emphasis to kids. Through this organization and for the touristic and economic development Korça has had by this project, the city won the 2010 award for tourism. Young Entrepreneurs of Albania Sponsorship The bank, in collaboration with the Albanian Chamber of Commerce and ÇELËSI, implemented the “Young Entrepreneurs of Albania” project, initiated by Partners Albania Center for Change and Conflict Management. The project aimed at supporting young vocational schools students to develop their entrepreneurial ambition and skills, by designing and selling their business ideas. The project was requested by the Ministry of Social Welfare and Youth, in line with the strategic priorities of the National Strategy for Employment and Skills, 2014 – 2020. The Bank sponsored the “Smart stick” project, a stick designed to provide comfort to blind people. Sponsorship to Mother & Child Foundation – X-ray equipment for newborns The bank, in cooperation with "Mother and Child Foundation", donated an X-ray equipment to “Queen Geraldine” Maternity. This equipment will help the health personnel to promptly trace potential problems in newborn babies. “Adopt a kindergarten” initiative In the framework of “Adopt a kindergarten” initiative, the Bank engaged in renovating the internal structure of "Voices of life" kindergarten, situated in Kamza area , in Tirana. Besides

Even this year, as every year, Credins Bank choses to support SOS Village, by way of covering living expenses for two children. The sponsoring of Polyclinic of Specialties No.3 of the capital, in the frame of the assistance the bank provides to community, especially in the health sector, has created a significant impact on improving facilities, in the best interests of citizens. Other sponsorship happenings are also in line with our objectives to be present at artistic and cultural events in the country. Some of the events to be mentioned are: the financial support in organizing the annual Peza festival, as well as the financial support for establishing the museum of women traditional dress from different provinces.

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The Best Bank in Albania for 2015 Banka Kombëtare Tregtare is reconfirmed as "The Best Bank in Albania for 2015" by Euromoney Magazine, based on its excellent performance. This award, which BKT is receiving for the fourth consecutive time, confirms the position of the Bank as innovative, financially strong and leader within the Albanian Banking system. The award comes right after a similar evaluation by the other two prestigious magazines, The Banker and EMEA Finance, which awarded BKT as the Best Bank in Albania. the renewal of the children rooms, through the replacement of the existing educational materials, the Bank also improved the internal hydraulic pipeline, decorated the internal and external area of kindergarten and delivered toys which assist the didactic process, as well as stimulate and develop children’s logical and mathematical skills. The event was attended by Mr. Erion Veliaj, Mayor of Tirana, and Mr. Periklis Drougkas, CEO of Alpha Bank Albania.

Crédit Agricole supports Jazz days in Albania During July, Crédit Agricole Albania supported the organization of “Jazz in Albania” International Festival, a production of “Blue Eye” Society and other partners. For the fourth consecutive year, this event continued the tradition of bringing world-class entertainment in Tirana and other cities in Albania, by bringing jazz music to Albanian public, through diverse talents from different nations. This year, the festival took place in Tirana, Shkodra, Elbasan and Saranda, by turning these cities into cultural pilgrimage for jazz fans. As in previous editions, during the festival a special attention was dedicated to promoting environmental protection and raising awareness on this issue, a topic that also enjoys a special attention and support from Crédit Agricole Bank.

Social Capital Fibank as main sponsor of FIAA’s 15 year anniversary FIAA has recently celebrated its 15th Anniversary. Foreign Business Community members and the Highest Representatives of the Albanian Government were gathered at the Palace of Brigades in a friendly atmosphere. On this occasion, members who have trusted FIAA for 15 years were given special awards, in the presence of the Prime Minister of Albania. Fibank, as FIAA’s newest addition was also one of the main sponsors of this special event.

Fibank as general sponsor for Korca’s seasonal employment The bank has become now the lead sponsor of Student Seasonal Employment, organized by Korca Municipality. For the fourth consecutive year Fibank Korça Agency has supported this wonderful project, carried through by Korca Municipality on student seasonal employment. During the ceremony, the certificates of participation where distributed to all students who were part of this event. The event was attended by the Mayor of the Korca Municipality, municipal employees, Fibank Executive Director and 60 students involved in the project.

Fibank in Korca Beer Fest We have the pleasure to announce that, for the 1st year, Fibank is an official sponsor at 2015 Korça Beer Fest, during 12- 16 August! Korca Beer Fest is the biggest event of this kind in Albania. Within 5 days, over 100.000 people visit the festival. The large number of visitors is mostly due to basic festival principles: free entrance, an exceptional music program, and a wide range of foreign and domestic beer brands.

Supporting Open Dialogue Centre at the Council of Minister’s Building Intesa Sanpaolo Banka Albania was one of the supporters for the project coordinated by the World Bank, funded by European Union, for te reconstruction of the first floor of the Council of Minister’s Building, where Open Dialogue Center was opened for service to all citizens. The initiative coincided with the historic visit of German Chancellor Mrs. Angela Merkel in Albania.

Employment of disabled people Bank offered a dedicated support for disabled people in two major ways: first, by training its staff over 5 sessions, organized by Foundation of Disabled Persons, and second, by employing two disabled persons.

Long-term cooperation with UT Faculty of Economy CEO of Intesa Sanpaolo Bank signed an agreement with Dean of UT Faculty of Economy, under which the bank is committed to a long-term cooperation with this institution of higher education, providing students with opportunities of internships in a real business environment, engaging them in scientific research, as well as participation of banking specialists in special lectures, as that delivered by, Mr. Pedrazzi, CEO of the bank, entitled: "Lessons learned from Crises, Challenges of the Banking System."

Gifts for Roma children at the start of the kindergarten season During September, The bank, in collaboration with the YWCA, joined the initiative: "Every Roma Child to Kindergarten ". The bank’s form Durrës, Berat, Shkodra and Lezha branches became part of this completely voluntary initiative, by preparing 50 gift packs, containing didactic and teaching tools, as well as clothing for Roma children, aged 2-5 years, living in these districts.

Assitance with IT equipments for collaborators in Lushnja Bank donated computer equipments to ALUIZNI Regional Directorate Lushnja (Agency for Legalization, Urbanization and Integration of Informal Construction and Areas), by expressed once again its support for the country's economic development through cooperation with all stakeholders.

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Social Capital

The renovation of the Vlora Registry Office Banka NBG Albania sponsored the renovation of the premises of Vlora Registry Office. The investment aims to improve the quality of the services for the citizens of Vlora region.

Raiffeisen Bank Albania honored with the title "The gratitude of the City" by the City of Gjirokastra In the framework of 10th Anniversary of inclusion in UNESCO’s World Heritage List, the city of Gjirokastra organized a series of activities with local community, local businesses and nonprofit organizations, that focus on preserving the city's heritage. In a special ceremony, Raiffeisen Bank Albania was awarded the title "City Gratitude", for its valuable contribution in various sectors such as: health, education and culture. The award was handed over by Mayor Bime to Mr. Christian Canacaris, CEO of Raiffeisen Bank.

Official sponsor of Albania Open 2015 Free Flights is a sport which is getting ground in Albania during recent years. For the second consecutive year, Veneto Banka supported financially the Albanian Aeronautics in this regard. Again, this season of the Championship was held in Llogara and Vlora, with the participation of pilots from all over the world.

Donation to Education Office of Saranda In view of its mission to support education, the bank has donated office equipment to the Education Office of Saranda.

In support of children with Thalasemia In cooperation with the Albanian Red Cross, the bank supported children suffering from Thalasemia, by inviting its staff to voluntarily donate blood. In Albania, 600 children suffer from Thalasemia and they need to take blood every 3 weeks. Their parents cannot be donors, since they also are carriers of Thalasemia.

Sponsoring the social event: "Follow your dream" Even this year, the bank was the general sponsor of the social event: "Follow your dreams", organized by the Association of Aerobic Artistic Gymnastics. The event was organized on the occasion of May 20, the International Day of Orphans. As every year, this massive sporting - artistic event was attended by more than 500 children, aged 5-18 years, coming from 9-year schools and high schools and orphanages from Tirana, Durrës, Shkodra Vlora, Lushnje, Kosovo, etc. Raiffeisen Bank has long supported the Association of Aerobic Artistic Gymnastics which, even this year, has successfully organized such event.

In support of new footballers The "International" Football Academy in Tirana has just signed a cooperation agreement with "Udinese Calcio”, one of the best-known football teams in Italy. Veneto Banka is part of this cooperation, by way of investing in new football fields of "International" Sport Complex, in Pezë-Helmës, where young football talents will be trained and promoted. Dental Cabinet donated to the Hospital of Himare Veneto Banka continues its financial support for Himara Municipality and this time, together with "Energia e Sorrisi", the Humanitarian Association of Vicenza, donated a dental cabinet to Himara Hospital. The donation from Italy, along with medical assistance, was handed over to Mr. Jorgo Goro, Mayor of Himara.

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Tech Topic

How Credit Cards Work How to benefit from an Installment Plan There is no single credit card that is considered right for everyone. Basically, the right card for the customers is one that's accepted wherever they shop and charges them the smallest amount of money for the services they use.

by Mrs Monika BALLTA Head of Cards Department, Retail Banking Division TIRANA BANK

ave you ever stood behind someone in line at the store and watched him shuffle through his wallet with at least 5 cards? Consumers with this many cards are still in the minority, but experts say that the majority of people have at least one credit card, and sometimes count two or even three. It's true that credit cards have become important means of identification - if you want to book your vacations, for example, you really need a credit card. And used wisely, a credit card can provide convenience and allow you to make purchases with nearly a month to pay for them without paying any interest or other finance charges. That sounds good, in theory. But in reality, many consumers are unable to take advantage of these benefits, because they carry a balance on their credit card from month to month, paying finance charges that can go up

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to a whopping 23 percent. The cardholder pays the bank either the entire balance, or in monthly installments with interest paying only the mandatory minimum payment (sometimes called carrying charges). It is interesting to know how the credit card works, both financially and technically, and we'll offer tips on how to choose the right credit card. We will also describe the different credit card plans available - which plan to choose that fits better with the customer needs. The costs and terms of a credit-card plan can make a difference in how much a cardholder pays for the privilege of borrowing (which is what they're doing when using a credit card). One of the major factors to consider in a creditcard plan is whether it has a variable or fixed interest rate. Whether the credit card plan uses a variable or fixed rate in charging interest can have a significant effect on what the cardholder pays to use his card. For example, if you always pay your monthly bill in full, the best type of card is a revolving one that has no annual fee and offers a grace period for paying your bill, before finance charges kick in. If you don't always pay off your balance each month, be sure

to look at the periodic rate that will be used to calculate the finance charges. Banks that issue credit cards with variable-rate plans use indexes, such as: the prime rate, the three, six or usually twelve-month Treasury-Bill rate. Variable rates are not just that, they change and can also increase or decrease a cardholderâ&#x20AC;&#x2122;s finance charges based on the main indexes changes.

Beside the cardholdersâ&#x20AC;&#x2122; benefits for creating an affordable repayment plan, bigger purchases and the possibility to split and pay with fix installments, on bankâ&#x20AC;&#x2122;s side the Monthly Installment Service leads toward higher usage and profitability, since transactions are split and the longer term revolving balance increases commissions and interest revenues.

On the other side, let’s take a good look at fixed-rate plans. There may be a couple of percentage points higher than a variable rate, but you will have the advantage of knowing what your interest rate will be. Some financial experts argue that because a fixed rate can be increased with only a 15-day notice, this plan is not that different from a variable-rate plan, which is subject to change at any time. They advise looking closely at both plans. However, regardles¬s of which plan a customer chooses, they're going to be making payments. There are basically three types of individual credit cards known globally: • Bank cards, issued by banks (for example, Visa, MasterCard, etc.), • Travel and entertainment (T&E) cards, such as American Express and Diners Club, • House cards that are good only in one chain of stores (i.e. phone companies, oil companies and local department stores.) In the Albanian market we are also becoming familiar with what is known as an affinity card. This card type, typically a VISA or MasterCard carries the logo of an organization in addition to the bank's logo. Usually, these cardholders derive some benefits from using the credit card – may be discounted phone bill payment, frequent-flyer miles or points toward merchandise. The organization that uses an affinity program in collaboration with a bank solicits its members to get such cards, with the idea of keeping the group's name in front of the cardholder. In addition to establishing brand loyalty, the organization receives some financial incentive (a fraction of the annual fee or the finance charge, or some small amount per transaction, or a combination of these) from the creditcard company. There is no single credit card that is considered right for everyone. Basically, the right card for the customers is one that's accepted wherever they shop and charges them the smallest amount of money for the services they use. The latest trend in the local market, that is becoming more useful especially in the last two years, is purchase of goods

and/or services through installments, either via consumer loans or with credit cards. An “Installment Debt” means a loan that is repaid by the borrower in regular installments and is generally repaid in equal monthly payments that include interest and a portion of principal. The size of the monthly installment debt payments depends on a number of variables, including the price of the item, interest rate charged, down payment, loan term and debtservicing capacity of the buyer. The dealer or seller gains through increased sales volumes, while the lender benefits by charging higher rates on installment debt than can be charged on other loans. Additionally, if we are referring to purchases performed with a credit card, in this case the Monthly Installment Service (MIS) is the installment facility

In Albania there is still a long way toward education related to cards usage in POS. However, the advanced technology and global market innovations that are being adapted for our local cards market, but also the frequent usage campaigns run by local banks in the last years will soon show positive results in this direction.

The other way how this service is offered is starting from the issuer for all purchases worldwide, either in predefined ranges or upon cardholder’s choice, regardless in which POS the credit card is used, creating more flexibility for the customer. This service in Albania is offered by Tirana Bank on issuing side, allowing all its credit card holders to benefit from this service for every purchase they perform, not only domestically but also internationally including online purchases in internet. Through this service, every Tirana Bank credit cardholder can split a purchase transaction into fix installments based on the default installment ranges of 3, 6, 9 and 12 installments. The installments are considered for the purchases amount ranges up to 500,000 ALL. Beside the cardholders’ benefits for creating an affordable repayment plan, on bank’s side the Monthly Installment Service leads toward higher usage and profitability, since transactions are split and the longer term revolving balance increases commissions and interest revenues. On the other side, this is a facility that pushes the cardholders toward purchases with bigger amounts, since they have the possibility to split and pay with fix installments. In Albania there is still a long way toward education related to cards usage in POS. However, the advanced technology and global market innovations that are being adapted for our local cards market, but also the frequent usage campaigns run by local banks in the last years will soon show positive results in this direction.

which allows credit card holders to pay in equal monthly installments expenses made by purchasing goods and services with their credit cards in country, abroad or online. Such service facility can be offered in two ways, either starting from the Acquirer processed via POS, in the moment of purchase by the merchant in store, splitting the transaction into fix installments, either via ranges or upon cardholder’s choice. The service in this case is offered only for on-us transactions, for all purchases performed within the merchant acquiring network of a specific bank.

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Financial Auditorium

Asian Infrastructure Investment Bank (AIIB) A new factor for regional and global economic development The participation in a club (as the AIIB does exists) is certainly useful, provided that the relative cost is limited, the political will and the technical capacity to be at least an observer, if not protagonist, of what happens in the funded areas and to have the possibility of reaction, if necessary, does exist.

by Mr Roberto RUOZI Professor emeritus UNIVERSITÀ BOCCONI DI MILANO

he economic and social development requires, anytime and anywhere, a solid network of infrastructures, whose buildup is a responsibility of central and local public administrations of each country. Such undertaking requires an availability of sufficient financial resources, which usually need to be at a significant level, given the outsize value of the aforementioned networks. Also, these resources must have specific technical characteristics, given the fact that investments in infrastructure spread through a long time span and are not always capable to generate the necessary cash flows to pay back their debts. The problem is far more complex in developing countries, where public finances possess fewer resources than actual needs. Wherever possible, the gap is bridged by turning into debt or external financial resources. The State may issue bonds, but it can also borrow or get capital injection

for specific project by various national and international financial institutions, be they public or private. In the latter cases, lenders play at the same time a financial function as well as a political function, in the frame of selecting countries in which they will invest, and in choosing a specific infrastructure to be financed, within those countries. Practically, these choices often promote positive or negative political relations with funding and nonfunding countries, which determine local economic and social development, which in turn may cause different returns even for lenders and their respective countries. Let’s think, for example, about the direct or indirect conditions which lending or capital injection contracts may impose on modalities of construction and management of infrastructures (e.g. the selection of suppliers). In the context of institutional lenders for infrastructure development, the socalled World Bank and the European Investment Bank for the Western Europe grew in importance, during the first decades following the end of World War II. In recent years, an investment bank was established again, for financial and political reasons, to operate in the

countries of ex-Communist bloc, in Central and Eastern Europe. The history of such institutions – and the others like them – does fluctuate between periods of success and a relative stagnation. Their activity has been declining during

It must be kept in mind that AIIB's practical activity has not yet begun and that many answers to the above questions may differ, or be better explained, based on concrete facts. Only after a few years lapse, a first assessment of such initiative may be conducted, upon which, more precise decisions could be taken.

recent years, despite the fact that the demand for infrastructure funding has not been shrinking at all, either in developed countries or the developing ones. In developed economies the new

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infrastructures are necessary to manage the structural changes, the globalization of economies and the evolution of society; in developing countries they are essential to carry out the classic economic and social development and to increase the level of population’s collective welfare. Meanwhile, the international economic, financial and political balances have changed and now the Asian continent has gained greater weight in the international scene. Typically is a very heterogeneous continent, where strong and weak countries do coexist with each other, both in terms of demand and availability of resources. The overall dimensions of each country require financial resources, necessary to build the respective infrastructures, outstrip the lending potential of classic multilateral lenders, as those mentioned above. Thus, it was no wonder that, under the leading role of the greatest Asian power, the People's Republic of China the Asian Investment Infrastructure Bank (AIIB) was founded in Beijing, in 2014. According to Article 1 of its Articles of Agreement, the AIIB’s objective is: (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors; and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions. To achieve these objectives, under Article 2 of AIIB’s Articles of Agreement, it may invest mainly in development projects, public or private, either in the form of equity investment or lending. Currently the AIIB's membership comprises 57 countries, among which some twenty non-Asian countries, including Italy. So, it is particularly important (especially from a political perspective) the participation of United Kingdom, Germany, Australia and Russia, whereas the United States and Japan’s absence is quite obvious, as they have not shared the AIIB establishment. A question may arise whether these countries will change their mind along

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the way, but currently it is impossible to give any realistic answer to this question. An important determinant will be the way how the AIIB will operate and the extent of activities it will be able to perform. The participation of non-Asian countries is certainly motivated even by the afore-mentioned political reasons. Such countries recognize the importance of the Asian continent and understand that participation in this special club, which the new bank does represent, can facilitate the dialogue with all countries of the region. These countries think that, by subscribing the capital of the bank, they can have reliable and timely information, regarding many development projects which will be implemented in Asia. This information can be further used to their advantage. As per above, and given the financial resources, the bank should be able to

Currently the AIIB's membership comprises 57 countries, among which some twenty nonAsian countries, including Italy. So, it is particularly important (especially from a political perspective) the participation of United Kingdom, Germany, Australia and Russia, whereas the United States and Japan’s absence is quite obvious, as they have not shared the AIIB establishment.

collect from associated countries, AIIB may turn into a suitable alternative, compared with other above-mentioned international development banks, particularly the World Bank. Meanwhile, there should be no relationship, neither complementary nor competitive, with the International Monetary Fund, due to structural differences that should characterize their respective activities. In fact, the IMF should continue to operate in the short term, while the AIIB, by definition, has to act only in the long term. Finally, the question may arise whether this initiative may be of interest to Balkan countries, and for Albania, too. According to Article 1 of AIIB’s Articles of Agreement, these countries are not among those benefiting from the Bank's initiatives, as they are limited in Asia, as defined by the United Nations. Nevertheless, they may have indirect benefits by joining the capital of AIIB's, as per above discussed, for which I only recall that the participation in a club is certainly useful, provided that the relative cost is limited, the political will does exist and technical capacity to be at least an observer, if not protagonists, of what happens in the funded areas and to have the possibility of reaction, if necessary. In any case, it must be kept in mind that, AIIB's practical activity has not yet begun and that many answers to the above questions may differ, or be better explained, based on concrete facts. Only after a few years lapse, a first assessment of such initiative may be conducted, upon which, more precise decisions could be taken.

Business Contribution in educating future entrepreneurs

unior Achievement (JA) is an education program, which conveys to the youth, through its methodology, some practical knowledge about entrepreneurship, prepare and inspire them to be successful in the market of global economy. This program teaches young people how to establish a business, which generate jobs. In this regard, young people invest to develop values, skills, attitudes, which are quite necessary to obtain, increase and manage their own incomes. The implementation of Junior Achievement program in Albania is made possible as a direct investment of American - Albanian Development Foundation (AADF). Thanks to AADF strategic support and institutional cooperation with the Ministry of Education and Sports, the JA Program is extended to 170 schools (general and vocational), throughout the country, just being in its fourth year of implementation. The education on entrepreneurship takes an added value when the business and entrepreneurs are involved in the process of educating the young generation. The business leaves tracks in empowering young people with knowledge and experience, which will be carried throughout life, through its direct contribution in organizing and undertaking various initiatives and activities. The participation of businesses professionals as volunteers in the teaching process serves not only as an inspiration source, but also as a success model, which guide young people in setting milestones for success. They have the chance to be "mentors" and why not "guards" of the first initiatives and experiences of young people. The individual financial institutions and the banking system as a whole, play a substantial role in the successful implementation of JA initiatives, not only through intellectual and professional capacities, (business

mentors at class, institutional head â&#x20AC;&#x201C; hosts for excellent students, jurors in JA competitions, mentors â&#x20AC;&#x201C; advisers in the innovation camp), but also through financial support, as a business investment in educating young generation. Raiffeisen Bank and Credins Bank have supported and enabled the mentoring process in more than 50 schools, throughout Albania, by bringing in classes many

The participation of businesses professionals as volunteers in the teaching process serves not only as an inspiration source, but also as a success model, which guide young people in setting milestones for success. successful specialists. For the first time in the history of the Albanian education, JA brought, as a culture, the online mentorship process, where business mentors, through SKYPE technology, could fulfill their mission in suburban schools, where their physical participation is impossible. PricewaterhouseCoopers, Tirana International Airport & Vodafone have made it possible to equip 11 schools with mini laboratories, thus ensuring a direct access of businesses at schools, by breaking physical barriers. We at JA do believe in the indefinite potential of young people, so we share their passion for excellence, respect the talent and creativity, celebrate their integrity and honesty and we are determined to create opportunities, so that they are grown and developed as successful young people. Junior Achievement empowers young Albanians to own their success!

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Bankieri

Sustainable Development Goals People, Planet, Prosperity

What are the SDGs?

The Sustainable Development Goals (SDGs) are a set of 17 goals that United Nations (UN) member states will use to frame their policies over the next 15 years to promote peace, prosperity and environmental protection. The SDGs follow—and expand on— the Millennium Development Goals (MDGs), which were agreed by governments at the turn of the millennium, and are due to expire at the end of this year.

How are the SDGs different?

The new SDGs take a more holistic approach towards global development by: (i) seeking to address some of the root causes of poverty; (ii) establishing an expanded set of goals and objectives (such as on human rights, gender and climate); and (iii) defining frameworks to support effective implementation. The UN conducted the largest consultation programme among governments, business and civil society in its history to inform what the SDGs should include. ICC played a leading role in these global consultations as the official business focal point at the UN negotiations and as Coordinator of the Global Business Alliance for Post 2015.

17 new “Global Goals”

The 17 Sustainable Development Goals, were launched and agreed at the UN Summit held in New York from 25-27 September. The goals range from ending extreme poverty and hunger through to tackling climate change. Within the SDGs are 169targets. A global measurement architecture with some 120 associated indicators—which will set out specific deliverables and measure progress—is being developed. The SDGs will enter into force on 1 January 2016 and will apply through to the end of 2030.

Funding the Goals: the trillion-dollar question

One UN study has placed the cost of financing implementation of the goals at $810 trillion. The recent Third UN Conference on Financing for Development in Addis Ababa agreed a comprehensive financing package to support the implementation of the SDGs. In addition to government funding, the new agreement places a significant focus on mobilizing private sector resources—including through “innovative” public-private partnerships.

Increasing focus on the private sector…

Engagement of the private sector will be central to the success of the SDGs. In addition to the need to mobilize private sector capital, the new Goals place an emphasis on promoting trade as an engine of growth and encourage companies to adopt sustainable business models. It has been acknowledged that the private sector will have an important role to play in collecting data to measure progress against the SDG targets/indicators.

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Bankieri

AAB Activities Working breakfast with media representatives, 17 September 2015 AAB, in the framework of building bridges of communication with media, aiming the creation of an adequate environment and strengthening effective collaboration, organized a working breakfast of Executive Committee members and media representatives. During this informal meeting, the participants discussed about the power of media on the public opinion and regarding relevant issues, concerning the banking sector, and agreed that a better and more effective communication between the two parties will lead to a better information of the public.

Training - trip with economic journalists, 3-4 October 2015 AAB organized in Vlora a two days activity, designed as a training and entertaining trip, with 13 economic journalists from Agjencia Telegrafike ShqipĂŤtare (ATSH); Agjencia KombĂŤtare e Lajmeve (NOA); Monitor Magazine; Shekulli; Shqip; Top Channel; Top News; TVSH; and Vizion Plus TV, who had the chance to broaden their understanding of financial and banking issues thanks to the presentations and discussions with representatives from BKT, FIBank, Tirana Bank and Procredit Bank. The second day of the activity followed with a boat trip to Sazan Island and lunch in Karaburun, in a warm and friendly environment where journalists and bankers had further opportunities to discuss and elaborate on economic and banking issues.

Trainings Payment and Cash Management - using FIN messages, 6-17 September 2015 AAB, in collaboration with SWIFT, organized for the first time in Albania, the training entitled: "Payment and Cash Management - using FIN messages". The training was attended by 12 representatives of commercial banks and central banks of Albania and Kosovo.

Leading from Where You Are, 21-22 September 2015 AAB, in collaboration with Lincoln Center, organized a two-day course, led by the trainer Cindy Balazs. The training intended to help participants understand how they lead and how they can lead others better, while contributing to their organization. The participants engaged in problem solving, reflection and application to become better leaders with the ability to help develop others. Excellence in Sales, 22-23 September 2015 AAB, in collaboration with WIFI Albania, organized a training course on sales, lectured by the international trainer Eric Molin and attended by 11 participants from AAB member banks, Kosovo banks and other financial institutions. The training course was designed for sales managers, who want to refine sales planning techniques, build leadership skills and become more powerful decision makers, motivators, communicators, and counselors.

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Financial Education The informative video series "My Bank" aims to provide information for new and existing banks clients. The first 7 videos can be found on AAB official website, and the AAB profiles in social networks.

MORTGAGE LOAN JULY 2015

BANKS CARDS DICEMBER 2014

HOW THE “THE INTEREST RATE” IS FORMED JULY 2015

PAYMENT METHODS DICEMBER 2014

DEPOSIT INSURANCE OCTOBER 2015

CONSUMER LOAN MARCH 2015

BANKING COMMISSIONS OCTOBER 2015

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Bankieri