Revista bankieri nr 25 eng by Shoqata Shqiptare Bankave

VI-th year of publication No. 25 October 2017

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CONTENT Editorial Financial deepening in Albania - Now it's time for real! Prof. Asoc. Dr. Elvin MEKA

Bankieri Nr.25, October 2017

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Viti i VI i botimit Nr. 24 Korrik 2017

Publication of Albanian Association of Banks

SNRF 9: SFIDA

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

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

Frontline The prospective Albanian Organized Exchange Kaan PEKIN Securities Exchange's efficiency - The key of success for its functioning Niko KOTONIKA, CFA

6 8

Interview Albanian Securities Exchange (ALSE) - Time for financial deepening in Albania Maltin KORKUTI Andi BALLTA Ilir ADILI

Journalist's Corner The hefty burden of new fees for bailiff's services Klodian TOMORI

Banking System Exchange rate risk exposure and suggestions to deal with it successfully Suela TOTOKOÇI (VOKO) Communication methods and transparency in banks Viola NDOJA (SMAJA)

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Experts' Forum Challenges of internal auditors in Albanian banking system for becoming trusted advisors Silvana ZOTO, CIA Becoming trusted advisor through customer service Stavri PASHKO The future of factoring in Albania Dr. Maria Mogilnaya E-commerce security PAYLINK Technological Financial Revolution is knocking on the region - FinTech is entering into Albania Lindita SHOMO

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Economist Corner Financialization of the Economy - Challenges and risks of the "financial time" Prof. Dr. Adrian CIVICI

Corporate Social Responsibility

AAB Activities, Trainings, Publications

TOK DIGITAL AGENCY

EDITORIAL BOARD: Periklis DROUGKAS AAB Chairman & CEO of Alpha Bank Albania Silvio PEDRAZZI AAB Vice Chairman & CEO of Intesa Sanpaolo Bank Albania Dritan MUSTAFA AAB Executive Committee Member & CEO of Tirana Bank

Frederic BLANC AAB Executive Committee Member & CEO of Societe Generale Albania

Ervin KOÇI Chairman of Albanian Financial Supervision Authority

Andi BALLTA AAB Executive Committee Member & CEO of American Bank of Investments

Adrian CIVICI President of European University of Tirana

Bozhidar TODOROV AAB Executive Committee Member & CEO of FIBank Albania

Hysen ÇELA Chairman of Albanian Institute of Authorized Chartered Auditors (IKEA) Spiro BRUMBULLI Secretary General, Albanian Association of Banks

October 2017

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EDITORIAL

Financial deepening in Albania Now it's time for real!

The Albanian economy now calls for financial deepening, in order to ensure that the institutional pillars of the economy will be robust and capable to finance and support it in a balanced, efficient and stable way.

Prof. Asoc. Dr. Elvin MEKA1 Editor-In-Chief

rom 3 July 2017 Albania has a new securities exchange: Albanian Securities Exchange –ALSE. The most striking fact with this happening is that it is established by private entrepreneurship, precisely two commercial banks and one nonbank financial institution. It marks the third attempt to establish a particular securities market institutional infrastructure in Albania, following the first opening of Tirana Stock Exchange as a department of Bank of Albania in 1996 and as a standalone, state-owned company in 2002. The first two endeavors commenced and finished their life cycle with no stock or bond trading at all. Even this time, the institutional presence (the Exchange) preceded the tradable product existence, as currently no 1 2 3

company is in the pipeline to issue and list stocks or bonds. Furthermore, the license of ALSE allows for government papers, in the initial phase of functioning. Nevertheless, this time is different, not because it is the third time (and for real), but because the actual economic, business and institutional reality is not to be compared with that pertaining to 1520 years ago or, even 10 years ago. The Albanian economy, businesses and the financial system has changed a lot, since the first Exchange was opened, and they have changed for good, although they are faced with many obstacles and challenges in this course of development. Now the Albanian economy and the financial system face a more complex and sophisticated challenge: they have arrived at the limits of the traditional development and must enter the road to financial deepening, which is under construction. This is not a choice; instead it is a “must”, to ensure economic growth, now and in the future. “Many empirical results suggest that the financial drivers of economic growth have shifted from basic intermediation services supplied by the banking sector in the form of loans and deposits to more efficient and more sophisticated capital market services2” (Hsin-yu & Reichert, 2007). So, the Albanian economy now calls for financial

deepening, in order to ensure that the institutional pillars of the economy will be robust and capable to finance and support it in a balanced, efficient and stable way. As Gould & Melecky, from the World Bank3, put in its latest report: “…financial development must go beyond improving the access to and pricing of credit. It should help build a broad-based and balanced financial system of both bank and nonbank markets, that enables responsible financial inclusion of firms and individuals and enhances financial efficiency and stability.” Surely, the securities market and the Stock Exchange will not overrun the banking industry, as the latter will always be the largest pillar of the financial system and intermediation, but it will help balance the system and ensure it a better systemic risk management. It is a well-known fact that, besides capital raising and liquidity, secondary markets are chiefly existent for the sake of risk management. Markets do it better and markets must be operational, and in this regard, ALSE is more than welcomed to add value to the Albanian financial system. However, this is just the beginning; the private securities exchange is done; now we need to do the trade!

Finance & Economics Department Head, UET HSIN-YU, L, REICHERT, A.: “Economic Growth And Financial Sector Development”, The International Journal of Business and Finance Research, Vol. 1, No. 1, 2007, p.77. RISK AND RETURN - Managing Financial Trade-Offs for Inclusive Growth in Europe and Central Asia, World bank Group, 2017 Group, 2017

October 2017

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FRONTLINE

The prospective Albanian Organized Exchange The prospective opening of Albanian Securities Exchange is just an initial step of an early stage of market development and it can contribute to the development of Albanian Economy in the longer run, if it can provide above mentioned enhancements over time.

the focus is typically on core market enhancements, such as digitalization of market and attracting wider base of local investors and issuers. Core market enhancements could not be done only by founders (private investors) of the organized exchange, but could be done with close collaboration with governments, regulators and central banks to arrange regulatory environment and taxes. The prospective opening of Albanian Securities Exchange is just an initial step of an early stage of market development

Kaan PEKIN

Group Head Treasury and Financial Institutions BANKA KOMBËTARE TREGTARE

rganized Exchanges could have important role for the countries’ economic development in small countries like Albania if: • they can promote the development of diverse investor base, attracting not only local, but also international institutional investors and enhancing retail participation, • they can increase the pool of financial products and securities by increasing the number of local or foreign listings, launching new products and • they can improve trading market environment while investing in technology to provide faster and reliable market reference data and developing securities lending and borrowing schemes. In early development-establishment stage of those organized exchanges,

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Promoting a diversified domestic investor base, including both retail investors and a range of institutional investors (not only local, but also foreign institutional investors) with different investment horizons and perspectives, is central to the development of domestic Organized Exchanges.

and it can contribute to the development of Albanian Economy in the longer run, if it can provide above mentioned enhancements over time. I believe that the license of prospective Organized Exchange is initially granted for government securities because potential investors’ protective scheme for a larger pool of financial products (in Albania) is missing and all the necessary

regulatory updates are not in place yet. However, step by step, regulatory environment might be improved and the necessary investors’ protective schemes might be set-up over time in Albanian Securities Exchange. The role of banks in such an organized exchange should be considered as to provide the necessary liquidity to the exchange. However, banks would not be interested to provide liquidity to any organized exchange, if the cost of transacting in that specific Exchange is higher than cost of transacting outside of Exchange. When I check the initial setup of Albanian Securities Exchange, I see that to do government T-bills or T-notes transaction in the Securities Exchange would be costlier than to do the same transaction outside of exchange without becoming member of the Albanian Securities Exchange. Due to the increased cost, I believe that first tier Albanian banks would not be interested to become a member of Albanian Securities Exchange and to provide liquidity there. On the other hand, organized exchanges could not be successful unless some incentives like tax incentives are provided by the government. So, given the picture of increased transaction cost and non-existing incentives, first tier banks may not want to take a role in the Albanian Securities Exchange. Since the cost of doing security transaction in an organized exchange would be higher, Albanian Securities Exchange cannot be competitor for banks. On the other hand, it should be taken into consideration that Albanian banks have insignificant amount of commission incomes or even some small loss when they do securities transactions with institutional investors, or when

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they behave as an intermediary/broker between retail clients and government for primary T-bills and T-notes auction. Albanian Securities Exchange cannot be

The role of banks in such an organized exchange should be considered as to provide the necessary liquidity to the exchange. However, banks would not be interested to provide liquidity to any organized exchange, if the cost of transacting in that specific Exchange is higher than cost of transacting outside of Exchange.

complimentary entity as well, due to the higher cost of doing security transaction in it. Promoting a diversified domestic investor base, including both retail investors and a range of institutional investors (not only local, but also foreign institutional investors) with different investment horizons and perspectives, is central to the development of domestic Organized Exchanges. The main reason for low investor participation, particularly in early-stage emerging market exchanges, is the relative dearth and/or unattractiveness of available investment opportunities. As markets mature, Albanian Securities Exchange might concentrate on increasing the variety of listings and seeks to diversify the range of securities that are available through the market by including new instruments like derivatives and ETFs. Albanian Securities Exchange has to

try to grow both its investor and issuer base by establishing a link with other regional organized markets to create a larger regional market. This could be only done harmonizing regulatory standards across the participating countries, facilitating cross-border issuance and investment, and establishing technical links between the markets. Liquidity is a critical component of financial market development. As liquidity serves to deepen and strengthen financial markets, measures aimed at promoting liquidity will have a positive impact on overall financial market development. Therefore, a try to provide higher liquidity should be a critical objective for Albanian Securities Exchange, market regulators, issuers, and investors.

October 2017

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FRONTLINE

Securities Exchange's efficiency

The key of success for its functioning The opening of the first private stock exchange is a welcomed development, as an element that contributes in the increase of efficiency and market transparency, as well as in helping at attracting foreign international institutional investors, fostering economic growth and the effective use of funds, impacting the improvement of corporate governance of companies, as well as increasing transparency of financial statements, opportunities for diversification for investors, etc.

Europe’s stock exchanges, including companies listed in the stock exchange of Croatia, Serbia, Romania and Slovenia, shows an increasing interest of international institutional investors to allocate their assets in these markets, based on their risk profile. The index acts mainly as a benchmark for performance measurement of investments in these markets. In this context, the opening of the first private securities exchange has been a late development not only for the

Niko KOTONIKA1, CFA

Chairman of Treasury Commitee, AAB Treasury Division Manager BANKA NBG ALBANIA

atest developments in the international markets, increasing risk appetite of international institutional investors, as well as introduction of investment funds investing in pre-emerging markets, classified as “frontier markets”, make it necessary the need for development of capital markets in Albania. These investments would impact directly in the Balance of Payments, by increasing Portfolio Investments, which have been quite low typically because there has not been an organized market for trading securities, such as a stock exchange. The formation, in February 2008, of MSCI Frontier Markets & Eastern Europe & CIS2, which tracks the performance of selected companies, listed in Eastern

For the Securities Exchange, to be successful, it should offer visible competitive advantages, compared to the OTC market, guaranteeing the process of delivery versus payment of all the securities that are going to be issued with a public offer. contribution it has in the development of the financial market and improvement of liquidity, but also as an important element to foster economic growth, by

attracting more investments. Of course, in the very first stages investors will be local, but with the improvement of compliance standards, in a longer term perspective, there will be also interest from international investors, as it has been the case with Stock Exchanges from the region. Meanwhile the Stock Exchange must show what kind of advantages it offers, as compared to over-the-counter market. In developed markets, competing with the extraordinary growth of the overthe-counter market, has triggered a series of stock exchange mergers, in order to create competitive advantages towards one another and towards overthe-counter market ( for example the merger of Amsterdam Stock Exchange, Brussels Stock Exchange and Paris Bourse to create Euronext in 2006, merger of London Stock Exchange with Milan Stock Exchange in 2007 creating London Stock Exchange Group etc), in frontier markets there have been efforts of local stock exchanges to connect. It is worth mentioning that, in 2016, SEElink was created, which is an initiative of the Stock Exchanges of Sofia, Skopje and Zagreb with the aim to create a regional infrastructure for securities listed in these exchanges. The main objective of this initiative is to improve the liquidity of instruments traded in these markets, by attracting more institutional investors. It would be necessary that in a near future the stock exchange that will operate in our country to be part of this regional

1 The view and opinion provided in this article are of the author and do not reflect the official position of the bank . This article is not intended as investment advice, or as an endorsement, or recommendation of any security, fund, currency or company. The opinions and analyses included in the article are based from sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied is made as to their accuracy, or completeness. 2

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structure. But what is a Stock Exchange? A stock exchange is an organized market place where licensed broker/dealers trade equity, or debt securities, for their clients, or for their own account. At their beginnings, stock exchanges have been physical places, but with the development of technology, through implementation of MTFâ&#x20AC;&#x2122;s (Multilateral Trading Facilities) is not necessary for the stock exchange to be a physical place, anymore. On the other hand, its success will depend as to what degree it will guarantee the delivery of securities that are traded in the stock exchange, versus payment, thus eliminating counterparty risk for investors. To accomplish this, it is necessary to have a Central Securities Depository (CSD) so that it can make possible the delivery of securities versus payment, at the same time. For Albanian Government Securities there is AFISaR (Albanian Financial Instruments Settlement and Registration system), owned by the Bank of Albania. Direct connection

(of the securities exchange) to AFISaR system is a positive and necessary step to enable registration and settlement of Government Securities in the Stock Exchange. However, it is necessary to have a system that will enable registration and settlement of all securities issued by companies (not only securities issued by the Albanian Government), that will be listed in the stock exchange, and will guarantee a delivery vs payment process, in the same manner that AFISaR System guarantees this process for government securities. We can say that many well known international Stock Exchanges have a direct connection with clearing houses, which in many cases are in their own ownership. For example, Clearstream AG, the largest provider of post trade services in Europe, is a whollyowned subsidiary of Deutsche Boerse. Clearstream guarantees all transactions that are performed in Deutsche Boerse, as well as the largest part of transactions performed over-the-counter, in Europe3. The development of the stock

exchange in Albania should be based on best practices of the region, but also more widely so it really can be turned in a source of the countryâ&#x20AC;&#x2122;s economic development. Finally, the opening of the first private stock exchange is a welcomed development, as an element that contributes in the increase of efficiency and market transparency, as well as in helping at attracting foreign international institutional investors, fostering economic growth, impacting the improvement of corporate governance of companies, as well as increasing transparency of financial statements, opportunities for diversification for investors, etc. However, to be successful it should offer visible competitive advantages, compared to the OTC market, guaranteeing the process of delivery versus payment of all the securities that are going to be issued with a public offer.

http://deutsche-boerse.com/dbg-en/about-us/deutsche-boerse-group/business-areas/post-trading

October 2017

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INTERVIEW

Albanian Securities Exchange (ALSE) Time for financial deepening in Albania

On 3 July 2017, AMF licensed the Albanian Stock Exchange (ALSE), as the first Albanian stock exchange with private capital in the country, with three founding shareholders: Credins Bank and American Investment Bank, with 42.5% of the capital, respectively, and AK Invest with 15% of the capital.

Interview with Maltin KORKUTI, CEO, CREDINS BANK Andi BALLTA, CEO, AMERICAN BANK OF INVESTMENTS Ilir ADILI, CEO, AK INVEST BANKIERI: A few months ago, AMF licensed the Albanian Securities Exchange - ALSE, as an official securities market. This is the first private stock exchange in Albania. What does this event mean for the Albanian financial system?

Maltin KORKUTI CEO CREDINS BANK

Maltin Korkuti: Licensing a financial market, as the stock exchange may be, is certainly a positive development for a country’s economy. If we talk about a country like Albania, which never had the opportunity to have a functioning capital market, then the importance and positive impact of such development

multiplies by several times. The current stage of the country’s financial system development, as well as the evergrowing funding needs from domestic business, as part of an upward trend of an emerging economy, has already put in the spotlight the development of the capital market, as a lacking sector in the market architecture of the country. In other words, Albania has an economy where liquidity is always abundant, whereas the business is constantly looking for less costly financing sources. On the other hand, banks, due to risks and regulatory constraints, are unable to meet these funding needs. In this way, the stock market establishment and functioning is no longer a luxury, but a necessity, so that the country's economy can breathe freely and progress with a steady growth. Andi Ballta: The licensing of the first private stock exchange - ALSE, is an important event for the time it happens and its respective initiators. The market will welcome this new financial liquidity opportunity, at a time when the loanto-deposit ratio continues to be low, especially when comparing it with those of the countries in the region. Depositors will have more opportunities to invest their money; borrowers will have an alternative and long-term source to support their businesses; the liquidity

Andi BALLTA

CEO AMERICAN BANK OF INVESTMENTS

will be invested in the country and will therefore boost the economy’s growth. In the medium term, the stock market performance, like in other countries, will be used as an indicator of economic health and investors’ interest to the country's potential, too. The exchange’s stakeholders are numerous. We are open to the participation by other banks, as this increases the volume of business and the involvement of institutions. The fact that a local historic bank, an American bank/investor and a non-bank financial institution joins such initiative, tells for the versatility and compatibility of interests and shows that it’s the right time or the stock exchannge.

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Ilir ADILI CEO AK INVEST

Ilir Adili: Some of the first stock markets were created in the 17th century in London's coffee houses. These premises attracted many interested people, who owned or wanted to purchase stocks in commercial companies. The most famous was “Jonathan Coffee shop”, where innovators, like John Castaing, first published stock prices and commodity prices for "tradable securities in London" (according to London Stock Exchange historical records - as evidence of Early Trade Organization). Everyone may be surprised to discover the number of stock markets spread all over the globe; even an unknown country for a sophisticated economy, like Rwanda, relies on its own stock exchange to help businesses raise capital and give investors an opportunity to support the establishment of new ventures.

BANKIERI: Why did you decide to be one of the shareholders of this institution? How important do you deem the presence of institutions in the establishment and the founding capital of such market? Maltin Korkuti: In fact, Credins Bank is the originator and the main sponsor of the Albanian Securities Exchange Project, starting since 2014, until July 2017 when AFSA granted the license. The Bank has been involved in every aspect

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of the process, since the concept idea, market research, drafting the regulatory framework, business plan preparation, selection of electronic trading system, up to attracting other partners in this ambitious initiative, but indispensable for the country's economy. In 2016 there was a clear interest, initially from a non-bank financial institution leader, such as AK Invest. At the end of 2016, the American Bank of Investments, a new and ambitious bank in the domestic market with considerable experience in the equity and debt finance market, joined our project. Credins Bank, as one of the 3-4 largest banks in the country and a bank with a clear focus on big corporate business, is closer to business development trends and, consequently, to its needs. In this view, Credins Bank has always shown boldness and has been in vanguard, in terms of following trends, or extending its financial activity towards various uncharted sectors, thus creating a proper profile of a universal bank, according to modern standards. The commitment by financial institutions, especially banks, in the process of capital market development is a very important element, not only for the development of the securities industry, but also for these institutions, themselves. The actual trends in financial markets’ development, strongly influenced by liberal doctrines, but also by the development of information technology, have pushed banking out of traditional frameworks, by driving it towards non-conventional financial services. So, unlike some decades ago, banks are increasingly approaching the one-stop-shop universal concept, where anyone may find a quite wide range of banking products and services at a single bank window (desk), from the most traditional ones (payments, transfers, deposits, etc.) to securities’ investment, underwriting and custody, provision of insurance policy, etc. From this point of view, I think it is right time now for the banking sector in the country to be more courageous and to start

overcoming, step by step, the traditional banking framework, by getting closer to customers and services related to the securities’ industry, or intermediation in the capital market for businesses, such as: underwriting, or issuing private debt securities (corporate bonds), or organizing initial public offerings (IPOs) for stocks of companies seeking to raise capital through the Albanian Stock Exchange - ALSE. Andi Ballta: We are pioneer investors, patient and with long-term horizon. NCH Capital is known as an active participant in the development of stock exchanges in Latvia and Romania. We are specialized in undertaking initiatives that are simple and profitable. We believe in stock market success, as a very important event in image and profitability. Ilir Adili: Numerous theoretical models show that operators or economic agents may be successful financial intermediaries, at reducing search and information costs, potential investment research, corporate control, risk management, savings mobilization, and transaction execution. It can be said with certainty that financial intermediaries which provide these services to the economy, influence decisions on the use of savings, in ways that deeply affect the long-term growth rates.

BANKIERI: How do you deem the role of this stock exchange within the financial system, in relation to banks, as well as its contribution to financial deepening, and in furtherance, the expected impact on economic development? Maltin Korkuti: As I previously mentioned, modern economic theories do not see capital markets and the banking sector as competitors, but as complementary parts of each other, whose interaction brings higher market efficiency and lower intermediation costs. Consequently, we are confident that banks in the country will see the

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establishment of the stock exchange and the development of the capital market as a new field for exploration and to set foot with courage, in function of country’s economic development, and also income growth for their shareholders. Banks’ direct and indirect involvement as key players in fostering the development of capital market will facilitate the issue of excess liquidity in the banking system, in the absence of investment alternatives (except for government debt securities) and the ever-growing need of business for less costly financing. Such a positioning of banks would go in the same direction as with the dynamic monetary policy by Bank of Albania, as well as with the fight against tax evasion, announced by the government as a priority issue in its agenda for the new mandate. Andi Ballta: The presence of financial institutions in the founding capital of the stock exchange, which have a long cultivated approach to managing financial risks and compliance with regulatory requirements, is almost a necessity, as founding institutions select the technical way of operations and the

culture of doing business. They also set the criteria for listing and compliance for companies that want to be listed and traded on a stock exchange. We assessed that founders have a long and profound experience and knowledge about country’s domestic business, as well as the best practices in the region for managing the stock exchange. They also have the right initiative and professional ethics, for such activity. Ilir Adili: Despite the primary and secondary market centers, stock exchanges play a very important role in the domestic economy. Some of them are: Raising capital for businesses. Exchanges help companies to be wellcapitalized, by selling shares to the public that invests. Mobilizing savings for investments. They help the public to mobilize their savings, to invest in sectors with high economic profitability, resulting in an increase in individual output and income. Facilitating company’s growth. They help companies expand and grow with buying or joining with others.

Profit sharing. It helps spontaneous and professional stock investors to get their share of the lucrative business assets. Corporate Governance. Stock exchanges impose strict rules to get listed there. Publicly listed companies have better management data than private ones. Creating investment opportunities for small investors. Small investors can also participate in the growth of large companies by buying a small number of shares. Raising government capital for development projects. They help the government raise funds for development activities, through issuing bonds. An investor who buys them will lend money to the government, which is safer and sometimes enjoys tax benefits. Economy’s Barometer. The capital market performance generally goes in the same direction as economic development, and moreover, developments in this market are often accurate predictors of future developments in the economy.

October 2017

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JOURNALIST'S CORNER

The hefty burden of new fees for bailiff's services The main purpose of changes in the Bailiff Service Law was to facilitate the process of collateral enforcement and reducing bad debt in the economy. Regretfully, new fees have completely overturned this goal, by risking at creating a boomerang effect, not only for the financial system, but also for the economy.

Klodian TOMORI Journalist

orld Bank has identified the ineffective collateral enforcement system as one of the main reasons for the increase of non-performing loans and the sharp slowdown of lending activity in Albania. Following a detailed screening, World Bank and International Monetary Fund suggested to the government a package of 10 legal measures, aiming at strengthening the financial system, where the change of bailiff service law was an important part of it. World Bank experts recommended that the new law should encourage the successful collateral enforcement, to reduce the bad debt within the Albanian economy. This would revive lending activity, thus fueling economic growth. In this spirit, in October last year, the Parliament adopted the law: "On Amendments to Law no. 10 031, dated 11.12.2008 "On private judicial bailiff service, as changed". The new law paved the way for amendments, additions and

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changes in several articles of the existing law and the Civil Procedure Code, but specifying the bailiffâ&#x20AC;&#x2122;s fees was left under the competence of the Ministry of Finance and Ministry of Justice. Following the political developments, the process of adopting new fees has been crawling for several months, but on 26 June, just one day after the general elections, both technical ministers from the opposition, Mr. Gazmend Bardhi, Minister of Justice and Mrs. Helga Vukaj, Minister of Finance, approved the new guidance (regulation), by increasing, up to 260%, the fixed bailiff fees. The decision by two technical ministers, as taken without any prior consultation with other groups of interest, has left

The decision creates a malignant incentive in the bailiff (enforcement) system. Due to the high fees they receive in advance, bailiff companies have no incentive to execute bad debt. This will exacerbate the level of nonperforming loans, thus seriously penalizing the economy.

astonished not only the experts, but also the international institutions, which helped to draft the new law.

Fees According the guidance (regulation), the fixed bailiff fees have been increased by up to 2.6 times, and the success rate has also increased, substantially.

Specifically, according to the decision to execute a bad debt, evaluated at ALL 2 million, the fixed fee to be paid in advance to the bailiff company increases to ALL 200 thousand, from the previous level of ALL 96 thousand. The same double-digit increase is defined for the fees of all executed amounts. For the execution of an amount of ALL 5 million, the fee increases from ALL 220 thousand to ALL 400 thousand, while for a bad debt of ALL 9 million, the fee goes up to ALL 630 thousand, from the previous ALL 360,000 fee. Meanwhile, for the execution of high valued properties, the fixed fee to be paid to bailiffs amounts up to USD 60 thousand!!!

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In ALL

Executed amount

Old fees

New fees

Increase

10,000

6,000

15,000

250%

50,000

10,000

15,000

150%

150,000

17,000

22,000

129%

600,000

34,800

60,000

172%

2,000,000

96,000

200,000

208%

5,000,000

220,000

400,000

182%

9,000,000

360,000

630,000

175%

20,000,000

760,000

1,200,000

158%

30,000,000

1,080,000

1,800,000

167%

90,000,000

2,160,000

3,600,000

167%

200,000,000

2,270,000

6,000,000

264%

However, the guidance (regulation) has not increased not only the fixed tariffs, but also the success rates. Although the success rate is set in the bilateral agreement, between the creditor and the bailiff, according to the rules provided by law, the minimum and maximum level is determined by guidance (regulation), issued by the Minister of Justice and Minister of Finance. According to the new guidance, both these levels have been increased significantly; the bailiff service fees have been multiplied, at the stroke of a pen. The decision by two technical ministers, Mr. Bardhi and Mrs. Vukaj, will have serious financial consequences, not only for debtors, but for all citizens. This is so, because such decision directly affects the public budget, the common coffers of citizens.

Consequences According to the Albanian legislation, the debtors are in charge for payment of the bailiff service. This means that those who will pay the high cost of new fees are debtors, who have not paid back their debts over time, not only to the banking sector, but also to other entities. A debtor, who is under forced execution

for collecting a debt amount to ALL 600,000, until yesterday was withheld some ALL 34,000, as a fee for execution, but with new fees the cost s/he/it has to pay goes up to ALL 60,000. The adopted guidance (regulation) has, through legal coercion, already doubled the business of bailiffs at the expense of all others, but the biggest loser in this regard is the state itself, as the biggest debtor in the economy. Every day, dozens of public institutions end up in forced execution procedure, because they do not settle their payments, or obligations to private entities, on time. As a result of this decision, the Albanian state will lose tens of millions of Euros a year, which are money that must be paid with citizens' taxes. On the other hand, the decision has another major negative impact on the economy, beyond the huge increase in costs; it creates a malignant incentive in the bailiff (enforcement) system. Due to the high fees they receive in advance, bailiff companies have no incentive to execute bad debt. This will exacerbate the level of non-performing loans, thus seriously penalizing the economy. As a result, the guidance (regulation) has completely overturned the spirit of the

law, which was designed precisely to make the execution of collaterals, as efficient as possible.

The IMF is alarmed The irrational bailiff fee increase and contrary to the law on fees for private bailiff service has also alarmed the International Monetary Fund. In the concluding statement of the mission, the IMF has listed the increase in private bailiff fees a step backward, in violation of the spirit of the law. "The recent regulation on private bailiff fees is likely to hinder the collateral execution process and should be reversed," the IMF said. According to IMF, The weak non-performing loans (NPLs) resolution framework continues to hamper credit recovery, and in this context, the reversal of the regulation (guidance), which increases the fees for private bailiff service significantly, is a step backward. The main purpose of changes in the Bailiff Service Law was to facilitate the process of collateral enforcement and reducing bad debt in the economy. Regretfully, new fees have completely overturned this goal, by risking at creating a boomerang effect, not only for the financial system, but also for the economy.

October 2017

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BANKING SYSTEM

Exchange rate risk exposure and suggestions to deal with it successfully A very important element to preserve the initial value of our investments, and why not, to benefit from developments or fluctuations in financial markets, is having the basic knowledge and information on them and on the events occurring inside them. is a greater stability in the EUR/USD exchange rate and Euro’s appreciation in the international markets. This trend has not been noticed in the domestic

Suela TOTOKOÇI (VOKO)

Head of Treasury and ALM Department INTESA SANPAOLO BANK ALBANIA

t can be said that the year 2017 is a turning point for the world economy. Following the great political earthquakes of 2016, with Brexit and the election of a nationalist president in the United States of America in 2017, a greater stability has been noticed, which would be the basic premise for a revival of the sustainable economic growth in the future. A testimony of this tendency is the European economy, which over a time horizon of several months, has shown signs of a promising improvement. Such welcome improvements, especially after long years of the greatest crisis experienced by the humanity, will hopefully bring about a more orderly stream of fluctuations of the main parameters of the economy and, consequently, those of the exchange rates, as one of the important aspects of the world economy and business. In this context, what has been noticed

The hedging against exchange rate fluctuations is not easy and becomes even more difficult when the FX derivatives market is underdeveloped, or used insignificantly by domestic investors. Actually, the domestic market does not offer all instruments needed to hedge against exchange rate risk, when it comes to currency pairs, such as: EUR/ALL or USD/ ALL, despite the fact that there exist some instruments like “Forward Foreign Exchange contracts”, which are offered to the public by certain banks and more often for EUR/USD.

market, where a downward trend of EUR/ALL exchange rate, with a sharp depreciation of EUR against ALL, is observed. Such a phenomenon shows a change in the EUR/ALL exchange rate behavior, which, for many years in

a row, has shown a slight fluctuation of the Euro against ALL. However, the currency, which has suffered the deepest depreciation despite the fact of being accustomed to its fluctuations against ALL, is the US Dollar. Not only has the US Dollar depreciated internationally, but it has also suffered the significant appreciation of ALL in the local market. In practical terms, the effect of this depreciation is measured by comparing the exchange rate in two moments in time: USD/ALL in January 2017 was at 129.75, whereas today it has gone south at 113.50 levels, i.e. a depreciation of approximately 12-13%. Starting from the exchange rate performance, it can be said that all investors holding foreign currency deposits, such as: deposits in EUR and USD, have suffered a potential "loss" on their savings, due to the depreciation of those currencies against ALL, where it is clear that those who have "lost" more are those who have kept their savings in USD. Naturally, the question that arises is how can an investor save the value of its savings, by hedging against exchange rate fluctuations? The hedging against exchange rate fluctuations is not easy and becomes even more difficult when the FX derivatives market is underdeveloped, or used insignificantly by domestic investors. Actually, the domestic market does not offer all the instruments needed to hedge against exchange rate risk, when it comes to currency pairs, such as EUR/ALL or USD/ALL, despite the fact that there exist some instruments like “Forward Foreign Exchange contracts”, which are offered to the public by certain banks and more

October 2017

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often for the pair of EUR/USD. Forward contracts are derivative instruments that could be used very well as hedges against exchange rate risk, especially in cases dealing with a payment in a certain currency at a point in time the proceeds for which, or the savings used, are in another currency. In fact, this product is more suitable for businesses that can use these instruments to know exactly at present the liquidity amount in one currency that will be needed at the time of delivery of a specific contract (future cash-flow) in another currency. A very important element to preserve the initial value of our investments, and why not, to benefit from developments or fluctuations in financial markets, is having the basic knowledge and information on them, and on the events occurring within them. What is often lacking in the Albanian market is getting information and the lack of financial education to interpret it properly. There are many ways leading to an appropriate financial education, ranging from the education system, through the study of up-to-date examples of the latest financial developments and trends, up to the self-taught education, utilizing the endless available information today. However, what is the most important is the personal counseling as a costumer, at the banking level. Given the actual conditions, where

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the financial education is limited and the derivatives’ market is underdeveloped, a good strategy to protect the value of the savings from exchange rate volatility is the division of savings into some

Given the actual conditions where the financial education is limited and the derivatives’ market is underdeveloped, a good strategy to protect the value of the savings from exchange rate volatility is the division of savings into some main currencies, or, in other words, the currency diversification through a currency basket.

main currencies, or, in other words, the currency diversification through a currency basket. If today we would create a basket of investments consisting of three main currencies, such as: EUR, USD, or ALL, we could not only benefit from an average return rate of investment, consisting of the three currencies’ interest rates, but we would also have the same protection against fluctuations in exchange rates, as the negative effect of a currency depreciation would be offset by the appreciation of the other currency. It goes without saying that all of the above can only

be done whether a financial planning is in place, which would define the final goal and determine the time to use the savings to reach that goal. This rule which applies to the individuals becomes more important for the businesses. In this regard, it is welcomed the recent trend of corporations in Albania, to set up Treasury departments inside their companies. From the forecasting point of view, although it is not widely used in our market, the focus of financial analysis should be extended, if we really want to talk, or to define an investment strategy, for corporations, as well as for individuals. In conclusion, it should be deemed as very positive the fact that we have already started talking about sound financial analysis, or investment strategies in Albania, despite the current shortages of domestic market, financial instruments, or even more sophisticated services. I am sure that we will soon see banks providing “Asset management”, or “Wealth management” services, as two popular services in international markets, especially for the customer segment categorized as "high net worth individuals", a category that has grown significantly in international markets, especially in the conditions where the most important source of income for banks are commissions versus interest margin earnings.

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BANKING SYSTEM

Communication methods and transparency in banks The website is the place where customers are informed about everything, regarding the bank, receive general information about the bank and its activity, products and services it provides for all business segments, offers and marketing campaigns, various social responsibility activities, etc.

Viola NDOJA (SMAJA)

Chaiperson of PR Committee, AAB Head of Department PR and Marketing Communication Department RAIFFEISEN BANK ALBANIA

ransparent communication with customers is quite important for banks and is actually becoming increasingly important. Nowdays, when information is very dynamic and widely accessible to all, transparency and the quality of information, transmitted by the bank, must be particularly cautious. Customers and the entire society today, require reliable, convenient and comprehensive information from banks, regarding the way how they do perform their activities, as well as the fees and terms of products and services they provide to customers. Having this information helps build trust between banks and their clients, as the trust is precisely the foundation of every successful relationship. Moreover, as refers to a report some years ago, it was concluded that customers do value transparency from companies and are more willing to purchase products and service from those corporations they consider more transparent (2014

Edelman Trust Barometer). In this context, banks today use different ways of communication with customers, so that the information going to them is timely and complete, in every aspect of

As most people today are users of social networks and increasingly use smart phones and tablets to get information, banks have "exploited" such opportunity to communicate with customers, as well as to adapt to their needs.

the bank-customer relationship. The website is the place where customers are informed about everything, regarding the bank, receive general information about the bank and its activity, products and services it provides for all business segments, offers and marketing campaigns, various social responsibility activities, etc. Also, a fast and effective way of communication is actually the use of social networks, which has been growing dramatically during recent years, being also an interactive way of communicating with customers. As most people today are users of social networks and increasingly use smart phones and tablets to get

information, banks have "exploited" such opportunity to communicate with customers, as well as to adapt to their needs. On one hand, this is a very positive thing, because it shows that banks today are keeping with the pace of time, the pace with which the technology is progressing, and thus responding to demands and needs of customers in real time, but on the other hand, there are also some problems, accompanied with such approach. In this direct communication with customers, banks often face inappropriate, inaccurate, even offensive behavior from customers, through comments that affect their image. Currently, the dynamic communication with customers is carried out through alternative platforms, such as: Facebook Messenger, WhatsApp, Viber, etc. Customers can now communicate directly with the bank, through these platforms, and receive real-time responses to each question, avoiding the queue for an answer at the bank desk, as it is done quickly and accurately through platforms. Today, almost all banks are present on social networks, such as: Facebook, Instagram, LinkedIn, etc., and it is natural that information is transmitted through these communication channels. Technology is no longer a novelty, but it is an actual necessity which does not belong to the future, but is present and tangible.

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EXPERTS' FORUM

Challenges of internal auditors in Albanian banking system for becoming trusted advisors Internal auditors, positioned in the “trusted” place in the organizations, are expected to get the stakeholders’ messages and to transform challenges into opportunities for the improvement of performance, aiming to add value to our organizations.

Silvana ZOTO, CIA

Chief Internal Auditor NBG BANK ALBANIA Chair of Internal Audit Committee, AAB

ne of the key strategies for the future of internal audit profession is monitoring/ responding key stakeholders’ perspectives”, as it is stated by the President and CEO of The Institute of Internal Auditors (The IIA) Mr. Richard Chambers. In order to achieve the recognition by key stakeholders, internal auditors need to understand the expectations and timely address any gaps between their expectations and performance by internal audit. Key internal stakeholders are part of governance framework of the organizations, including: members of Board Committee, Audit Committee and Executive Management that mostly impact internal audit performance. Among key external stakeholders are the Regulators that 20

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influence the environment in which internal auditors operate by setting standards/requirements as well as External Auditors. In line with this strategy, the subject for the 2nd forum of internal auditors was: ‘Responding to the Voice of Stakeholders’. This forum was an excellent opportunity for key stakeholders to state their views on insights, perspectives and recommendations required from internal auditors to facilitate achievement of objectives. It is important considering that banking environment and the overall economy is facing continuous challenges, due to external and internal factors. Internal

Understanding the voice of our stakeholders and preparing to respond with right attitude will lead internal auditing to add value and improve organization’s operations in order to achieve the desired goal of becoming trusted advisors to management and the board.

auditors, positioned in the “trusted” place in the organizations, are expected to get the stakeholders’ messages and to transform the challenges into opportunities for improvement of performance, aiming to add value to

our organizations. In order to obtain a general perspective and better understanding of internal audit’s purpose, function and performance in Albanian banking sector, it is conducted a survey of key stakeholders of internal audit including CEO’s/Board of Directors’ members and Audit Committee members of local banks. Also, is conducted another survey of Chief Audit Executives/ Audit Managers of local banks to gain an understanding of internal audit profession and to identify common challenges toward fulfillment of stakeholders’ expectations. Key messages from stakeholders toward internal auditing are the following: 1. Be thoroughly conversant with organisations’ strategy, objectives and risks 2. Providing assurance is essential, advisory work is desired 3. Be proactive about current and emerging risks 4. Develop necessary capabilities, including relationship and effective communication with stakeholders. The first message for internal auditors is to have always the big picture in mind and to align its activities with mission, strategy, objectives and risks of the organizations. Executive Management expect internal auditors to be able to provide insights on new business initiatives and challenges on

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existing business practices that lead to improvement on business performance. A priority for internal auditors is to possess sound knowledge of the industry, including laws, regulations, practices etc. According to the survey’s results, strategic risks are almost not included in the areas of focus, when operating, compliance and reporting risks still remain among the priorities. The second message is important considering that the mission of internal audit defined by The IIA is: To enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight. Obviously, providing of assurance remains a core function for internal auditors, but it is required also to provide advices and insights that derive from assurance or from advisory activities. Given that business is continuously changing and evolving, internal audit needs to continually change with it. This requires from CAE’s and internal auditors to go beyond the ‘comfort’ zone and take the initiatives for providing stakeholders with their views, presenting the concerns before troubles persist, for ensuring that things are done in the right way. The expected impact is enhancement and protection of organizational value. According to the survey’s results, Stakeholders and CAE’s state that the review on corporate governance and other advisory activities are not among activities perceived to bring the most value to the organizations. In this direction, Board’ support is needed. The third message includes being insightful, proactive and future focused to assist management to make sound decisions. Offering a broader risk analysis with focus on major risks for the organizations in the context of risk appetite is expected. Coordination with other control functions within the organization operating in second line of defense (risk, compliance etc.) is a

priority for internal audit. Main focus is needed toward the coordination with risk functions for providing assurance on effectiveness of risk management, control, and governance processes. According to the survey’s results, Stakeholders believe that coordination of internal audit with control functions stands at a good level, when more than 70% of CAE’s and Audit Managers state that they do not completely rely on assurance provided by functions in the 2nd line of defense. Final message is very important for internal auditors to become trusted advisors. It addresses development of necessary capabilities, including relationship and effective communication with stakeholders. Relationship needs to be build and sustained as one of main priorities. A lot of efforts and a positive attitude are required, with focus on building bridges of cooperation and partnership, without compromising independence, ethics and other professional obligations of internal auditing. With purpose of promoting ethics and values across the organizations, internal auditors will positively impact on establishing the right organizational culture, a primary responsibility of board and senior management. Developing essential capabilities on resources and methodologies, with key priority on effective communication, is a necessity. So, it is needed not only to deliver the right messages, but to use effective ways of communication including face to face meetings and written communication. According to the survey’s results, Stakeholders believe that the relationship with internal auditors stands at a good level, while 68% of CAE’s & Audit Managers believe that the relationship does not stand at the required level. Key challenges of CAE’s and Audit Managers and the results of the survey are listed below:

Appropriate positioning of internal audit function to assure independence and objectivity - 16% of respondents in the survey consider that IA reporting structure needs improvement in form and in substance, to assure independence and objectivity. Increased support from Audit Committee is a necessity - 48% of respondents stated that they had not meet in private session with Audit Committee on annual basis. Adequate resourcing in terms of number and expertise - 80% are not satisfied with current level of internal audit departments in terms of number and expertise. Develop skills and attributes in personal, relational and professional level, focus on innovation and flexibility - majority of respondents do not believe that innovation and flexibility are among existing capabilities of CAE’s. Development and update of Annual Audit Plan according to risk based methodology, greater focus on strategic risks - 40% of respondents stated that no update of Annual Audit Plan take place during the year. Also, 60% responded that analysis of strategy and business objectives is not considered during the compilation of annual audit plan. Compliance with professional obligations defined in The IIA mandatory guidance and local regulations - 76% believe that are in full compliance with mandatory guidance, 24% are partially complying or not in compliance. Implementation of effective Quality Assurance and Improvement Program (QAIP) - 44% state that QAIP is not applicable, 56% state that is partially applicable with ongoing/ periodic internal assessment and/or external assessments. Need to have complete internal audit framework (IA charter) as well as adequate IT tools and techniques October 2017

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to support internal audit processes - 38 % stated that is not in place any Internal Audit Charter, 92% stated that there are in place internal audit operating manuals and code of ethics. Also, only 20% of respondents stated that they use software/tools to support audit processes, 72% use only electronic work papers and 36% use automated tools to monitor audit recommendations. Stronger and more effective coordination with functions in 2nd line of defense â&#x20AC;&#x201C; clear distinction between 2nd and 3rd lines and need for increased reliance on assurance provided by other control functions - 28% stated that distinction between 2nd and 3rd line of defense is not clear. Given that risk management is formally developed, there is room for improvement in the coordination with risk management function - 36%

stated that no interaction is in place between internal audit and enterprise risk management function. Improvements are needed in cooperation with External Auditors and Regulatory Authorities - 56% stated that this cooperation is limited only on providing information/ documentation requested. Streamline the process of audit issues monitoring, including internal audit, external audit and regulators audits - 16% stated that no process for audit issues monitoring is in place. In relation to Information Technology (IT) risks, more focus is needed toward addressing cybersecurity risks, social media, intranet etc. less than 50% of respondents stated that risks related with cybersecurity, social media, intranet are in focus of internal auditors, 92% are focused on reviewing general IT risks, 72% on

physical security of data centers. Strengthen the relationship with stakeholders â&#x20AC;&#x201C; as mentioned in 4th message above, 68% stated that they do not have strong relationship with stakeholders. Enhanced training and continuous development, including international professional certifications (CIA, ACCA, CFE, CPA etc.) - 36% hold international professional certifications, while 56% are in the process of getting certified. Understanding the voice of our stakeholders and preparing to respond with right attitude will lead internal auditing to add value and improve organizationâ&#x20AC;&#x2122;s operations in order to achieve the desired goal of becoming trusted advisors to management and the board.

RESPONDING TO THE VOICE OF STAKEHOLDERS

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EXPERTS' FORUM

Becoming trusted advisor through customer service The internal auditors need to truly go out of their comfort zones and traditional ways to add enormous amounts of value to the final equation.

Stavri PASHKO

Executive Director ALBANIAN INSTITUTE OF INTERNAL AUDITORS (AIIA)

he latest update of the International Professional Practices Framework (IPPF) has introduced a new exciting concept: The internal audit Mission, or as it is named in the Framework, simply, the Mission. The new concept is part of the mandatory guidance of the IPPF, is simple and quite to the point: “To enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight.” The Mission is a general statement that is useful in helping stakeholders and practitioners understand the professional practice of internal auditing. The Mission can be accomplished not by internal auditors, but from internal auditors who sits in positions of leadership and trust, with gained recognition and respect from stakeholders. During a training activity 24

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organized by AAB, in collaboration with Albanian Institute of Internal Auditors, I threw in the room – to my opinion – a simple question to the participants: Who is the internal audit’s customer? And, although I followed up with some comments to direct the participants to the potential answers, they could not overcome the silence and confusion that felt quite bold in the room. What do I meant by the customer? As internal auditors, we don’t work with customers... There are no confusions though when we talk about the role of the trusted business advisor. The topic has been in the agenda of the internal audit profession for some decades now, in the intent to move internal audit from acting as a policing function to a function that of a trusted business partner. Indeed, many internal audit departments have moved in this direction during the last several years. Many others are still struggling and failing to change their route. For internal auditors, being trusted business advisors, they need to start thinking business. Our “business” is providing assurance and consulting services. To excel in our business, we need to think customer service. We need to consider the business units and process owners, we audit, as customers. In a business organization, the customer service is crucial and it is not a point of discussion. Anyone who is serious about succeeding needs to pay homage to their customer, so that they can stay in business. The same

applies to internal auditors. Among others, customer approach for internal auditors means ensuring not only that an audit engagement is completed and enables better decision-making, but that customers are happy with the audit work, face minimal disruption during the audit, and are treated with the care and concern typically reserved for paying customers. In such perspective, internal auditors should carry out their activities by considering the schedule and the concerns of their audit customers, inviting their input during the planning and scoping phases, looking for other ways in which their auditing skills can be an asset to the organization, and often taking on initiatives that fall outside the traditional scope of internal audit. This growing focus on customer service is a shift which can be brought forward, not only with a good will, but needs also a deployment of skills, such as: project management, planning, critical thinking and active listening. They need to know the customer, the business, the industry and excel at building relationships. All these soft skills are necessary to push the internal auditor at the role of the trusted advisor. Internal auditors need to foster a culture in which they don’t just fill out checklists, but approach other departments as clients or customers. The customer service - focused internal auditors are not just looking for problems, but they are looking for solutions. Internal auditors are unique among most employees, as

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they review processes and activities from end-to-end and can connect the dots together. As a result, they can provide valuable insights for process owners that are looking to boost efficiency in their operations. And of course, they need to speak the business language. By saying that the process is inefficient sometimes it is clearer than “the process lacks controls” and might attract more attention to the raised issue. Taking a customer service approach can benefit both the internal audit and those audited. As business advisors we want to make the others in the organization that “we're all in this boat together.” Once started with the customer service approach, it is important to know how satisfied they are. This is done mainly by carrying out a customer satisfaction survey. For internal auditors, this means putting ourselves in the auditee role and asking them: “Now it is your turn! How did we do?" In Albania, there are not so many internal audit departments, which

carry out such survey. One might think that perhaps the internal auditors fear to be audited or worse, are afraid to improve. Nevertheless, the customer satisfaction surveys or post-audit exit interviews are important and can help internal audit departments enforce their customer focus and improve their own processes. These surveys provide a mechanism for auditees (audit customer) to provide feedback on the audit process and the overall experience. The results should be analyzed by the internal auditors and used to identify their gaps and areas where they can improve. Often, these surveys point out important gaps on soft skills areas, such as: communication and time management, that are otherwise difficult to identify. In order not to miss opportunities for improvement, it is important that customer satisfaction survey is a formal review process and is not done only on a random and informal way. A customer focus approach it's not about the customer always being right.

The internal auditors need still to keep their position of an independent and objective reviewer, when the customer work is not aligned with the organization values and objectives and doesn’t understand the risks of doing so. Internal audit department still needs to report to, and consider the audit committee as one of the most important customer. At the same time, while most internal auditors focus on preventing risks, the achievement of the Mission requires the internal auditors to be more concerned with the organization being able to optimize its results and navigate toward the achievement of its objectives by taking calculated risks. And that doesn't happen by talking down to other people in the organization, but through close collaboration and consideration of the needs of all the organization’s stakeholders, those being audited included. The internal auditors need to truly go out of their comfort zones and traditional ways to add enormous amounts of value to the final equation.

October 2017

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EXPERTS' FORUM

The future of factoring in Albania EBRD will be working with all stakeholders to improve the legal and regulatory framework and to raise awareness and understanding of factoring, especially by SMEs, who will benefit the most.

together to identify the obstacles that had so far prevented the development of this important financial tool in Albania. “Factoring can be a very important tool for the financial sector in Albania, with a high potential for development. It may provide more financing than traditional lending, while reducing risks.” Natasha Ahmetaj, Deputy Governor, Bank of Albania

Dr. Maria Mogilnaya

Associate Banker, Trade Facilitation Programme EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

mall businesses are essential to a vibrant economy and so making sure they have easy access to finance is vital. One type of financing – factoring – is still in its infancy in Albania but it can help these businesses to grow. Therefore it has huge potential to fuel economic growth. With this in mind, Bank of Albania and EBRD held a factoring workshop in Tirana on 5 September 2017 to raise awareness among banks, non-bank financial institutions, law firms, insurance companies, accountancy firms and other stakeholders. Factoring is a particularly useful tool for small and medium-sized enterprises (SMEs) and this was something that Natasha Ahmetaj, Deputy Governor of the Bank of Albania, and Matteo Colangeli, EBRD Head of Albania, highlighted in their opening statements. They further stressed that the relevant stakeholders would need to work 1

Discussions at the workshop focused on the legal, regulatory and tax framework for factoring in Albania, the main challenges that the industry faces in offering factoring services and possible solutions. Also discussed was the role played by the EBRD, the International Chamber of Commerce (ICC) Albania and the FCI – the global representative body for factoring – in developing factoring. Erik Timmermans, FCI Deputy

“In addition to expanding SME access to finance, factoring helps to increase the competitiveness of local enterprises, which is one of the EBRD’s key objectives in Albania. We have been successfully promoting factoring in other countries through the activities of our Trade Facilitation Programme and Legal Transition Programme as well as our investments in financial institutions. We intend to replicate this approach in Albania.”, as Matteo Colangeli, Head of Albania, EBRD

Source: Bank of Albania’s Supervision Annual Report 2016, published in July 2017.

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Secretary General and Ardita Seknaj, ICC Albania Secretary General, emphasised the importance of sharing best practices and further promoting factoring by raising awareness among market participants and stakeholders, such as courts and regulators.

Status quo Currently, there are 6 non-bank financial institutions (NBFIs), out of 28, that are licensed to offer factoring in Albania: Albanian Factoring Services, Albanian Financial Institution, Crimson Finance Fund Albania, Omnifactor, Tirana Factoring & Lease, and Transit. In 2016, factoring operations (domestic factoring, only) comprised 2.8% of the NBFIs’ total portfolio, with an annual turnover of ALL 6,639,710,1 which had almost quadrupled since 2015. Nine out of 16 banks in Albania also have a licence to offer factoring. Based on statistics from the Bank of Albania, the most financed sectors include the processing industry, production and distribution of electricity, gas and water, trade, repair of vehicles and household items, with the factoring activities taking place in Tirana only. “Factoring in Albania is still in its infancy and there is a need to create awareness, knowledge and best practices. Also, the legal and regulatory environment for factoring needs to be improved (including the availability of financial data on businesses). One of the ways forward for the Albanian factoring industry will be through international factoring activities across the FCI network and I hope that very soon we will see one or two players joining FCI.” Erik Timmermans, General, FCI.

Deputy

Secretary

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How the EBRD supports factoring

What the market says In preparation for the workshop, the EBRD and ICC Albania conducted a survey of banks and NBFIs to better understand the situation in the market. The results showed that most respondents believe that factoring as a concept is not understood in the market, especially by SMEs, and that most respondents are not satisfied with the overall legal and regulatory framework for factoring in Albania. “As a business organization, ICC Albania is committed to continuing our working group on factoring. The group addresses obstacles to the development of factoring in Albania so that SMEs can learn about – and benefit from – this financial tool.” Ardita Seknaj, Secretary General, ICC Albania.

Albanian factoring legislation mentions the following types of factoring: (i) domestic, export and import factoring; and (ii) non-recourse and recourse factoring, with both recourse and nonrecourse factoring being considered true sale transactions under Albanian law. To be valid, the assignment of receivables must be concluded in writing. Although legislation on electronic signatures has been adopted, the procedure is not widely used and hard-copy agreements are preferred. The assignment must be

notified to the debtor. For VAT purposes, factoring was and is considered a financial service and the applicable VAT rate is 0%. However, the recent changes to VAT legislation no longer clearly exempt factoring from VAT, and this needs to be clarified. Also, Albania is not a member of the 1988 UNIDROIT Convention on International Factoring or the 2001 UNCITRAL Convention on the Assignment of Receivables in International Trade. The respondents to the survey identified several impediments to the development of a healthy factoring market in Albania, as well as some possible catalysts, such as:

• better access to relevant credit information on debtors, possibly through a centralised credit registry, • development of credit risk insurance products by insurance companies, • explicit exemption of factoring as a financial service from VAT, • clarification on how non-recourse factoring can be booked and reported, • training and awareness-raising for: (i) companies; (ii) governmental authorities, including courts; and (iii) factoring specialists at banks and NBFIs.

The EBRD has, for some time, been promoting factoring through its Trade Facilitation Programme (TFP) and its work with NBFIs. Launched in 1999, the EBRD’s TFP aims to promote foreign trade to, from and among the countries in which the EBRD invests. Since 2007, when the first factoring facility was approved, the EBRD has signed 14 factoring facilities with banks and factoring companies, with a total turnover of €670 million. As well as providing funding to support the development of factoring operations at banks and NBFIs, the EBRD, through its TFP, provides factoring advisory services. These are designed to introduce banks and NBFIs to factoring, and provide hands-on training and capacity building to their employees, so that ultimately the SMEs can enjoy better access to factoring. The advisory services are tailored to the needs of each bank, or NBFI, to help them build up and optimise their factoring operations. From our experience we know that legal and regulatory environment in each country can have a huge impact on the development of factoring, which could sometimes undermine the EBRD’s efforts in promoting this financing tool. As a response, the EBRD’s Legal Transition Programme created a development programme, specifically for factoring that offers technical assistance to governments that want to create an enabling legislative and regulatory environment, and that seek to support the development of local and/or regional reverse factoring programmes. The workshop at Bank of Albania was really just the first step in the development of factoring in Albania, and we will be working with all stakeholders to improve the legal and regulatory framework and to raise awareness and understanding of factoring, especially by SMEs, who will benefit the most.

October 2017

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EXPERTS' FORUM

E-commerce security E-commerce security can be a tricky subject, but it is a great responsibility for the merchant to protect the website from being hacked and sensitive customer data from being stolen.

ver the last few years the growth of e-commerce business has skyrocketed, and the momentum continues to swing upwards in 2017, as well. E-commerce goals and objective are common to any business, to provide value to customers, to provide service and performance, ads, image, to provide a sense of community amongst others and most importantly reliability and security for shopping online for everyone.

An e-commerce business is much more than just running a successful website, it must ensure that all the customer data are being handled in a safe and secure manner.

Online transactions have become an integral part of our lives these days, thanks to the growing acceptance of e-commerce, as a convenient alternative to the traditional shopping experience. But we must keep in

mind that the e-commerce industry is one of the most lucrative targets for cybercriminals. The online industry has had its fair shares of incidents involving security breaches. According to the recent studies regarding which attacks are most commonly used by hackers, and which industries are being targeted and how, the below list explains the results: • Governmental and financial organizations and e-commerce companies showed themselves to be particular targets. Those sectors are also subjected to the highest level of manual (non-automated) compromise attempts. • Attack types are tailored to specific sectors. For example, e-commerce sees a mix of attempts designed to cause downtime and access internal files. Some 65% of all attacks in the finance sector attempt to steal the login information of website visitors. • Easy-to-execute methods, such as “SQL Injection” and “OS Commanding” are the most commonly used methods across all sectors. Rarer attacks include “Arbitrary File Execution” and “Cross-Site Request Forgery”. E-commerce sites, characterized by an abundance of web applications, are the second-highest average number of attacks in the sample day analyzed. This sector handles large volumes of sensitive consumer data, such as personal and financial information. One of the most popular attack vectors in this sector is “Path Traversal”, which potentially gives attackers

access to file system directories. Also, “Denial of Service” (DoS) attacks constitute a significant portion of attacks, a method that can render web applications inaccessible in a sector in which uptime is critical. We should protect the e-commerce business from potential security threats. It can be challenging but it is doable. In fact, best practices exist and can be implemented to safeguard the integrity of online shopping and the confidentiality of customer’s data. Security practices exist to prevent e-commerce fraud and breaches and keep the online store secure. E-commerce security relates to the main principles, but not limited to, as below: • Integrity – i.e. to ensure that the information in merchant website has not been altered, • Non-repudiation – to ensure that the online actions i.e. purchase, cannot be denied/repudiated, • Authenticity – to identify the person, or the entity you are dealing with online, • Confidentiality – to ensure that the information is shown only to those authorized to view it, • Privacy – to control the use of the information provided for himself/ herself from the customer to the merchant, • Availability – to ensure the e-commerce web site continues to operate as intended even in the case of disruptions. In order to be able to have an e-commerce business, i.e. an online October 2017

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shop, and, obviously if you go online, it has to be secure and reliable. The first step towards a secure e-commerce website is to use a secure platform. There are so many open source and proprietary e-commerce platforms available choosing the best one can be difficult. However, more than two third of all active e-commerce sites are using either Magento or WordPress WooCommerce, mainly because of their sophisticated security features. There are other factors, as well, but what makes them stand apart is the extensive security. PrestaShop and VirtualMart are yet another choice with a proven security framework. Second, no matter which platform is decided for use, ensure that, it will maintain PCI compliance and fulfill the requirements. PCI compliance is mandatory if you accept credit card payments. Paylink as PCI DSS certified company offers “plugins” for the above mentioned platforms. Those plugins help merchants to achieve PCI compliance in less time and to be more secure. Also, Paylink offers its own payment gateway, which is PCI compliant and certified, as well. The plugins facilitate the way the online businesses communicate with the payment gateway. To put in few words, what the merchant will do to be able to run an e-commerce, is to choose a secure PCI compliant hosting platform, to choose a secure e-commerce platform, which will limit the scope of PCI compliance. However, many of the merchants think that PCI does not apply to them, because they are too small. This is a very common misconception. PCI applies to any business that processes, stores, or transmits credit card data. The PCI website explains how seriously it is considered by stating that small merchants are prime targets for data thieves. If card holder data is stolen – and it is merchant fault – the merchant 30

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could incur fines, penalties, even termination of the right to accept payment cards. If the merchant does not take security seriously and do get hacked, and customer information is stolen, will face serious repercussions. However, the real reason to comply with is that PCI gives you a number of very good recommendations to secure your online business. They will minimize the risk of your site getting compromised and having information stolen. Your customers will be very grateful not to have their information stolen from your website. The fines for not complying with PCI can be harsh, but will not be worse than the damaging impact of the brand, image and reputation of the company and the loss of trust from your clients by not taking security seriously. So how do we protect our e-commerce sites from being hacked and sensitive customer data from being stolen? • Choose a secure hosting provider • Choose a secure e-commerce

platform. • Use secure online checkout. • Make sure you are PCI compliant. • Don't store sensitive data. • Employ an address and card verification system. • Set up alerts for suspicious activity. • Provide security training to employees. • Monitor your site regularly. • Perform regular PCI scans audits. • Etc. An e-commerce business is much more than just running a successful website, it must ensure that all the customer data are being handled in a safe and secure manner. E-commerce security can be a tricky subject, but it is a great responsibility for the merchant to protect the website from being hacked and sensitive customer data from being stolen. Online secure business and PCI compliance can be achieved with relative ease if the merchants follow the above mentioned recommendations.

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EXPERTS' FORUM

Technological Financial Revolution is knocking on the region

FinTech is entering into Albania

FinTech's penetration in Albania is expected to grow, following the technological developments of recent years, affecting a range of services and regulatory adjustment of the financial sector to support this development. companies are melting barriers between financial products and modern lifestyle, by setting new standards within financial services. The key points that differentiate FinTech companies are their focus on customer experience and the desire to implement technology, in unusual ways. Costumers are attracted by the opportunity to access simpler, more favorable, clearer, and easily personalized financial services. Consequently, it converts into a chain reaction effect,

Lindita SHOMO General Director EASYPAY

inTech, or otherwise financial technology, is a term that comprises all technology companies, entering the financial system to provide alternative financial products. FinTechs combine innovative business models and the latest technological developments to enable the facilitation, growth and improvement of financial services. This advanced system of alternative finance is challenging conventional models of businesses and banks! FinTechs’ rapid growth in the financial services industry, and investment boom in this sector worldwide, has attracted a lot of attention from industry trends’ followers, as well as from the media. As per the recent studies, investments in FinTechs around the world have quadrupled, from 2010 to 2015, reaching $19 billion a year. Meanwhile, FinTechs’ penetration in the global market has increased from 15% in 2015 to 33%, so far. During this process, FinTech

FinTech growth rate in Albania is directly linked with the growth of digital commerce, mainly through government services used by the majority of the population, as well as with businesses that are investing in digital commerce, be it online or mobile.

as consumer expectations for other segments of financial sector, including banks, lending companies, and so on, do increase progressively. Traditional banks are witnessing a stronger competition from FinTech institutions in many aspects, including payments. This has also led to the need to introduce new strategies in many developed banks, as some of them have begun to invest in this area, just to be on a level playing field with FinTechs’ innovations, while the others are helping new companies (start-

ups), in the process of financial services revolution.

FinTech, now a reality in Albania The rise of FinTech phenomenon has been driven mainly by emerging markets. This is so, because FinTech companies are capable of capturing the clientele, which is technologyeducated at a certain extent, though not financially favored, a phenomenon that is particularly widespread in developing countries such as Albania. In Albania, the FinTech concept is still unknown, even though companies such as: EasyPay, are gradually changing the mentality and behavior in the market, within financial sector. Money transfers and payments are leading services in promoting FinTechs’ penetration. These are factors noted also in the Albanian market, where EasyPay, the leading company in the FinTech sector, operates mainly in online and mobile payments. According to an EY study, some 50% of digital active customers in the world have used one of the above services during the last six months of 2017. Surprisingly, these statistics match with the figures of EasyPay service users in Albania. According to our statistics, one in two adults, who are part of the working population in Albania, has used at least one EasyPay service. This reflects the growth of FinTech in the Albanian market, which has contributed not only to the provision of more qualitative services, but also to the reduction of cash and an increasing formalization of the Albanian economy. FinTech's penetration in Albania is expected to grow, following recent years’

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technological developments, which are affecting a range of services and financial sector regulatory adaptation, which support this development. FinTech growth rate in Albania is directly linked with the growth of digital commerce, mainly through government services used by the majority of the population, as well as with businesses that are investing in digital commerce, be it online or mobile.

In addition to domestic awards, including the "Golden Bee" Award, for the Technology Sector and the "Woman of the Year in ICT", EasyPay has recently been selected as one of three best companies at European FinTech Awards 2017, in the category of financial inclusion.

Regulatory Challenges and PSD2 In January 2016, with the adoption of the Revised Payments Service Directive (PSD2), the European Parliament mandated a real revolution in the payment industry. The new directive opens the Fintech sector in Europe the new road, that of playing a much more important role, which so far has been largely outside o the scope of PSD directive and EU regulations. The PSD2 is expected to come into force on 13 January 2018 in all EU countries and is expected to bring a huge development and competition in the financial sector, creating equally healthy conditions, both for old and new players (or potential ones). In other words, the transformation from "Single European Market" to "Single European Digital Market" is expected to take place. In

the framework of the reforms, Albania is doing for EU accession, the Albanian financial sector's expectations are that the Albanian payment sector regulations will soon be in line with PSD2.

EasyPay, a success story in Albania EasyPay is the sole Electronic Money Institution that already operates in the Albanian market and offers a wide range of payments and transfers, including: utilities, taxes, penalties, electronic (mobile) recharges, e-commerce payments, etc., for the banked and unbanked population. EasyPay users can make payments in real time, via mobile phones (EasyPay application), or via agent network (over 300 agents) across the country. EasyPay, focused on

the â&#x20AC;&#x153;unbankedâ&#x20AC;? people segment (who do not yet have access to banking services), enables mobile payments via "cash" crediting from EasyPay agents, or online crediting via bank cards (Visa and MasterCard), or directly from the bank account (currently provided by BKT and Union Bank). We proudly confirm that, in parallel with the services offered, we have been awarded with some awards! In addition to domestic awards, including the "Golden Bee" Award, for the Technology Sector and the "Woman of the Year in ICT", EasyPay has recently been selected as one of three best companies at European FinTech Awards 2017, in the category of financial inclusion. European Fintech Award is the most prestigious competition in the Fintech field in Europe, where each year the most innovative and influential companies in the continent are selected. This was Albania's first representation in the FinTech field at the international level, which is expected to attract the attention of foreign investors to this local Albanian initiative. EasyPay's representation in this important competition in Brussels as the only company selected in the region is, at the same time, a success for the Albanian financial system.

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ECONOMIST CORNER

Financialization of the Economy Challenges and risks of the "financial time" The financialization of the economy is increasingly unfurling in terms of power and unlimited strength of financial actors in the economy, in their capacity to own, or possess extraordinary capital, whose use generate colossal gains, although these "super actors" and their sophisticated strategies are a bit in disguise and not well-known.

Prof. Dr. Adrian CIVICI

President EUROPEAN UNIVERSITY OF TIRANA

How to Understand the "Financialization of the Economy"? In a broader sense, the process of financialization of the economy can be defined as an "increase in the presence and power of practices and techniques that represent and rely on the values of financial systems". This important change is transforming the contemporary economy and society, by organizing and evaluating them exclusively in the optics of "financial efficiency" and the "financial time" vision. Specifically, in developed countries, the share of financial activity in GDP and economic growth is increasing, exponentially. This is explained by the extraordinary expansion of the types of financial assets and the spectacular development of financial operations practices. These developments have put the "financial capital" in the first place, thus shifting in the second place "production capital" and investments directed towards

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The "real economy" manufacturing, consumption, wages, savings - and their respective directly-related cash flows are increasingly dominated by the finance and the financialization logic: enterprises are being increasingly financed by financial markets and not by commercial banks, exchangelisted companies are headed towards demands for share value growth, employees are more inclined towards investments in financial markets and stock markets, pension contributions are oriented toward individualized savings, or capitalization of pensions; consumption and economic growth are increasingly relying on lending, etc. manufacturing, trade, or services. On the other hand, the belief that the cause of a series of severe crises, that have shaken the foundations of capitalism and contemporary societies, is typically the "over-financialization of the economy", has caused this phenomenon to be anathematized, as "the destroyer of ethical and moral values of society and the economy", as "the instrument that favors social differentiation and which stimulates the wealth concentration". "Financialization the economy" is a process that has its origins in the history and development of capitalism. It particularly affects important elements: the ways and means of regulating

the economy, aiming at finding an answer to the question: "which are the institutions that structure the economic relations?" and the logic of capitalist accumulation, searching for the answer of: "what are the ways and manners of capital reproduction?" In its industrial phase, mainly in the XVIII-XIX century, capitalism relied almost entirely on real economy and manufacturing sector. The capital was invested mainly in productive investments, i.e. where there was the possibility of increasing production capacities, such as: construction of new plants, purchase of modern machineries, railway construction, etc. In this case, the risks of capital failure are small and controlled. The "financial Logic" is completely different. The capital does not need to pass through the real economy, or production, to multiply or to be profitable. To be efficient and reproductive, the capital needs to be circulated in the financial markets, only. Financial speculation becomes the main factor that increases the value of financial assets. The possession of a financial asset means acquiring the right to a future financial income the value of which is simply generated by the fluctuations of that asset (value), generated by speculation of various types and natures. Compared to "productive investments" and those in real sectors of the economy, profits on financial markets are higher, but on the other hand, the risk of financial assets is also much higher, because their value depends heavily on trust, or doubts, different economic stakeholders put on it.

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When did the financialization of economy phenomenon emerge? The beginning of the "financial time’s" domination and the growth of financial markets is the result of a political decision: US President Richard Nixon's decision on 18 December, 1971, at the Washington Conference at Smithsonian Institute, which discontinued the US dollar convertibility in gold, thus ending the 1944 Bretton Woods Agreement, which laid the foundations for the establishment of the new international monetary system. Such system was based upon exclusive convertibility into gold of the world's main currency, the US dollar, at a fixed exchange rate, whereas following President Nixon's decision, the currency exchange rate in the market was determined by the ratio between demand and supply of every currency in the markets financial, i.e. with a fluctuating exchange rate. All this was accompanied by another important phenomenon: during the 1980s -90s there was an extraordinary expansion towards the interest rates’ liberalization. States and governments shifted from the financing pattern of their deficits through monetary emission, towards financial markets and bond issuance financing. This also caused the interest rate percentages, applied to each country, or economy, to be determined by the demand & supply for bonds. In cases when the exchange rate corresponds to currencies’ price and the interest rate is the price of its use (or the lending price), it can be said that, under this new liberalized world system, financial assets’ prices become increasingly volatile and unstable, thus being under "speculations’" impact. In response to this uncertain and risky situation, the financial institutions created new financial products, designed to cover the risk associated with the fluctuating of assets’ value, as well as transforming debts into financial assets, a process known as "securitization". Such financial innovation, inter-twinned with the phenomenon of rapid globalization

of financial markets, stimulated in furtherance the growth of speculation phenomenon and, consequently, created even more ambiguity and risk of instability. This hypertrophy of the financial sector, or, in other words, its excessive financialization in relation to other sectors of the economy, not only changed the nature and structure of many financial and banking institutions, but produced and continues to produce consequences, even in the real economy. The main challenge lies in the phenomenon of financial bubble creation and burst, as a result of speculations with some of the major categories of financial assets. The burst of financial bubbles risks to paralyze the loan market, and at a second stage, it paralyzes the real economy. The global financial crisis of 2008 originated from the blast of real estate market bubble, one of the major financial assets, such as derivative financial products, backed by mortgage loans. Finance - a new challenging and competitive superpower. The financialization of the economy is increasingly unfurling in terms of power and unlimited strength of financial actors in the economy, in their capacity to own, or possess extraordinary capital, whose use generate colossal gains, although these "super actors" and their sophisticated strategies are a bit in disguise and not well-known. Specifically, some of them, who currently own and manage colossal financial assets of hundreds and thousands of billions of US dollars, are: hedge funds, private equity funds, sovereign funds, special purpose entities (SPVEs), special purpose vehicles (SPV), financial vehicle corporation (FVCK), investment companies in risk capital (SICAR), mutual funds and closed-end investment funds, and so on. The enormous financial dimensions and their might in the financial markets are more than evident. These financial superpowers of the last 2-3 decades have made

traditional banks - despite their growing involvement in the market - to be no longer the only financing channel for the economy. Beyond the undisputable positive elements, such "new financial actors" present for the well-functioning and efficiency of financial markets, such as: reduction of banking risks, thanks to the risk transfer instruments they possess, financial management optimization for various type of capital, bank lending facilitation and complementary, the establishment of new ventures, especially those related to research and development, new technologies and startups, the rapid mobilization of capital and free funds, outside the banking system, the mobilization of essential funds for making long-term investments, etc., their activity is linked to a number of problematic issues, such as: difficulties in understanding and interpreting their strategies, which require new qualitative competences, difficulties with more transparent information about their functioning, given that most of them are registered in offshore centers, the application of so-called "short sales", which means the sale of financial assets that are not owned; the systematic usage of financial leverage practices, which make it difficult to control and modify bank liquidity; the risks of systemic crises in the specific markets of these new financial actors, etc. How to manage better the "financialization of the economy"? Today, one of the biggest concerns and debates is answering to the question: "What are the consequences of the financialization of the economy, versus the non-financial economy"? The continued expansion of financialization requires that financial sector to consistently create money, by increasing the loan stock and transforming cash flows into financial assets, such as the case of transforming various debts into tradable securities. In this regard, consuming, saving, working, studying, obtaining medical services, running a

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venture, investing, etc., are all realities that have a strong financialization propensity. The "real economy" - manufacturing, consumption, wages, savings - and their respective directly-related cash flows are increasingly dominated by the finance and the financialization logic: enterprises are being increasingly financed by financial markets and not by commercial banks, exchange-listed companies are headed towards demands for share value growth, employees are more inclined towards investments in financial markets and stock markets, pension contributions are oriented toward individualized savings, or capitalization of pensions; consumption and economic growth are increasingly relying on lending, etc. The financialization of the economy is positively impacting the economic growth and expansion, but on the other hand, it is making it more subtle and exposed to the many,

known and unknown dangers. After the "Great Depression" of 1929 and the global economic crisis of the 1930s, the governments of many countries affected by the crisis concentrated their policies and efforts, to cope with the consequences of the crisis and getting out from it, at "controlling and limiting the power of major financial actors", by enforcing tightening laws and rules against their activity. This political arrangement of the "financial power" relied on the Keynesian theory and philosophy of "asphyxiating the rentiers and shrinking the financial parasitism". The global financial crisis of 2008-2010, caused by the burst of the financial bubble of real estate and financial derivatives, was based upon the logic of "to big to fail" concept, instead of "financial Darwinism" philosophy, or "the asphyxiation of financial rentiers". Governments and central banks, besides strengthening and tightening the rules of

supervision and control over these "giant financial actors", intervened massively in support of financial and money markets, thus not allowing them to be at deadlock, or suffering destructive shocks. The most direct consequence of such a supportive policy was the large-scale emergence of the "public debt crisis", a phenomenon not known at such proportions, previously. Debates and suggestions for more efficient policies and measures on transparency and better control of the "financialization of the economy " are more than ever in the agenda, always within the dilemma of how to better recognize, control and discipline the phenomenon of financialization, in order to eliminate its derail from public control and to manage systemic risks, whereas its continuous development is one of the basic factors of economic and social development of the world economy.

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CORPORATE SOCIAL RESPONSIBILITY

Objective 4 • The bank joined the "Donate a school bag" initiative, promoted by "Different Weekend" organization by purchasing 250 school bags and school stationeries. • The bank has partially sponsored the project for the reconstruction of the Institute for Visually Impaired Pupils’ building. Objective 9 In the frame of the International Customer Care Week, 2-6 October 2017, Alpha Bank Albania, through Alpha Bonus Program Awards, doubled all customers, using cards issued by the bank. Culture, Art and Sports Alpha Bank Albania was the general sponsor of the 5th Edition of Tirana International Guitar Festival.

Objective 4 ABI Bank, in cooperation with Tirana Municipality and "Student" Sports Club, initiated the organization of sports classes at social centers of Tirana, where bank employees are actively engaged. Objective 11 During July-August, the bank supported the organization of: • “Marathon of the Song” Spectacle in Gjirokastra, which coincided with the 12th year of the city entry to UNESCO. • The 8th Edition of the Symposium: "Park Sculpture 2017", in the city of Korça. • The Beer Festival, for the 11th year, in the city of Korca. Objective 17 For the second consecutive year, the American Bank of Investments was the main partner of the American Chamber of Commerce in Tirana, in organizing a festive ceremony, on the occasion of US Independence Day.. Culture, Art and Sports • On the occasion of National 38

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Cultural Heritage Days, TI Institute and the Ministry of Culture organized, during 29 September 29 to 1 October, 2017, the “Ethno Vibe Museum”, at the premises of National Historical Museum. This activity focused on promoting t h e A l b a n i a n e t h n o g r a p h y, craftsmanship and organization of round tables between businesses, students and ethnographers. • Starting from August, ABI Bank is the main supporter of "Flamurtari" women basketball team in Vlora, which in May won the national basketball championship for women.

Objective 3 Banka Kombëtare Tregtare maintains the long-lasting cooperation with “Xhaferr Kongoli” Hospital, by sponsoring the purchase of 2 (two) pieces of ESR Fast Detector erythrocyte sediment measurement equipment. Objective 4 • The Bank chose to be close to graduated students of Vlora, on the occasion of 2016-2017 ending school-year. In order to inspire students and give the deserved appreciation for the role they play in our future, sponsored the organization of MATURA evening. • The Bank has launched Student Loan, to help those who are attending Bachelor and Master study programs to afford their education expenses. Banka Kombëtare Tregtare has chosen to promote its product at the Mediterranean University and Luarasi University, aiming at being as close as possible to the students.

Objective 2 Credins Bank covered the expense for 3 children of SOS Village, by promoting further empowerment of

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"SOS Albanian Children Villages". Objective 4 Credins Bank supported "Bilal Golemi" secondary school in Kardhiq Bridge, Gjirokastra, by covering the expenses for bicycle activity for 40 students of this school, in the frame of formal education and school curriculum. Objective 9 During August, the bank offered its financial support to improve the conditions of Shkodra Regional Hospital with modern equipment and the Property Treatment Agency, with the reconstruction of its internal premises. Objective 10 During September, the bank donated school bags for kindergarten children with different abilities, in the town of Çorovoda. Objective 17 Credins Bank supported the British Chamber of Commerce and Industry in Albania, in organizing a conference on Promoting Agribusiness Development in Albania. Culture, Art and Sports • Credins Bank sponsored TI Institute and the National Historical Museum for “Etno Vibe Style Museum” event, on the Day of Albanian Cultural Heritage, in 29 September. • Credins Bank, supports the ABF for may consecutive years, in order to promote sports development. The support continues even further, including participation in 2019 World Basketball Qualifyers. • The Bank funded the reconstruction of “Tirana” Multidiscipline Sports Cllub. • Under #ejanëteatër intiative, apart of the artistic season, the bank supported the "Shirli Valentina" English drama. • The bank sponsored the activity dedicated to the 100 th birth anniversary of our great composer Prenk Jakova.

Fibank Bulgaria was selected as “Bank of the Customer” 2017. Each year the Bulgarian Association of Banks organizes an online competition for the best bank in the Bulgarian market for customer service. Fibank Summer Campaigns: This year, Fibank Albania campaigns were highly focused on all its social media channels, trying to be as close as possible and user friendly to customers. Its main campaigns were: “travel.fibank.al”, where customers could reserve at booking.com and receive up to 7% discount, on all of their travel purchases. 2 Year Deposit offer – was a summer deposit product, focused on Euro and Lek currency deposits with very competitive interest rates, such as 1% in Euro and 2% in ALL, respectively. #LoveSummerTravel campaign was launched on Fibank’s Facebook Fan page and consisted of the most “Loved” summer travel photo, through the Fibank Card.

Objective 4 ICB, in collaboration with “A Different Weekend” organization, became part of their project on school bags. This initiative was enabled through the voluntary contribution of the bank’s employees. Bank’s contribution consisted in 86 school bags (filled in with stationaries) for 86 pupils in KUS village, Tirana.

Objective 4 Intesa Sanpaolo Bank Albania, in cooperation with Junior Achievement Association, organized for the third consecutive year the call for "Volunteer Mentoring”. Objective 9 This year, Novathon #withPBZ, the Innovation Marathon of Intesa Sanpaolo Group was jointly organized October 2017

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with Privredna Banka Zagreb, in Zagreb on 23-24 September. The 24hour coding competition was attended by 144 participants form 7 countries. 22 September - Customer Satisfaction Day! The Bank continuously provides systems and mechanisms to make products simpler and maintains open communication with customers, banking products and services through all available channels, such as: ATM, Internet Banking, Mobile Banking, SMS and e-mail. Objective 11 On 16 September, was held TEDx Tirana, a local event brought to Albania in the well-known international format of TED Talks, by IDEO Center and a group of volunteers, that provime detailed attention to every aspect of it. The Bank was one of the supporters of such activity. Objective 16, 17 Intesa Sanpaolo Bank Albania continues to be committed to its awareness campaign on Sustainable Development Objectives, and in September 2017 it cmmemorated two United Nations calendar days: 21 September, International Peace Day 22 September, World Tourism Day

The bank organized the workshop: “Agribusiness Support in Albania”. In December 2016, Société Générale Albania and the EBRD joint forces under the Albania Agribusiness Support Facility, to increase local farmers’ and agribusiness companies’ access to finance, especially in remote regions of the country. In the framework of this project, on 20 September 2017, at Uka Farm premises, the bank organized a workshop with the theme: “Agribusiness Support in Albania”.

Objective 3 • The amusement corner near the Pyramid marks the fifth amusement corner sponsored by Raiffeisen Bank, in cooperation with Tirana Municipality.

• Raiffeisen Bank supported the University Hospital Center (QSUT) in its major rehabilitation project for heart disease reanimation premises. This project aims to provide quality care to cardiology reanimation patients at QSUT. Objective 4 The Ballet School was reconstructed and opened the doors to its students the first days of September. Raiffeisen Bank’s contribution consisted in providing security camera for school supervision and for increasing student safety. Objective 10 Raiffeisen Invest sponsored the human rights film festival, a festival aimed at increasing the awareness towards social issues, gender equality, religious tolerance, etc.

Objective 3 • This year, the blood donation was dedicated to a family in Adë, Fier, with two thalassemic children. • "A Different Weekend" organization and Tirana Bank organized "Donate a school bag" initiative in several towns and villages of the country. Culture, Art and Sports The Albanian Federation of Badminton held, on 3 - 7 July in Korça, a training camp with teams of Bulgaria, Serbia, Macedonia, Greece and Albania, with the support of Tirana Bank.

Objective 3 Union Bank employees donated blood for thalassemic children. The initiative was organized at Union Bank premises, by joining the call for the emergency situation, announced by the "Albanian Red Cross".

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ACTIVITIES Memorandum of cooperation The Albanian Association of Banks (AAB), the Insurers Association of Albania (IAA), and Life Insurers, Pensions and Investment Funds Association (LPIFA) entered into a Memorandum of Cooperation. On September 13, the General Executive

Director of the Albanian Financial Supervision Authority, Chief Executives of banks and insurance companies, together with experts of the financial sector were present in the ceremony. The event was also broadly covered and broadcasted by media.

Activity with economic journalists On 14-17 September, 2017, AAB organized, for the third consecutive year, an activity with economic journalists. Even this year, the activity was designed

as a combination of training and entertaining trip and took place in the town of Bansko, Bulgaria.

How to Build a Profitable Card Business Portfolio On 22 September, AAB and its Card Committee organized the workshop: “How to Build a Profitable Card Business Portfolio”. Representatives from VISA and MasterCard companies gave presentations on the topic. This event focused on addressing strategies or techniques for Card Portfolio Profitability

Growth; the latest insights and card industry guidance from MasterCard and Visa Card Payments Experts and best practices and success stories throughout the world. The workshop was attended by Bank of Albania’s representatives, members of AAB Card Committee and banks’ experts.

TRAININGS Certification Program: Risk management in Banking Foundation Level Part I and II AAB in collaboration with ATTF Luxembourg, organized the certification program “Risk Management in Banking, Foundation Level”, which provided participants with a solid foundation in risk management, which can serve as a basis

for more advanced courses, or as an entry into risk management. The program was addressed by Stefano Bragoli, Member of the House of Training Quality Circle ALRiM in Risk Management and was attended by 12 participants.

PUBLICATIONS During the third quarter, the AAB published two reports: • The Annual Report 2016 • The annual Corporate Social Responsibility Report

Statistics: The new system of data processing is now online

AAB developed a new system of statistical data processing. This application is now online and is available on the AAB website

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(www.aab.al).

New Informative Video on Consumer Loan AAB launched the video “Consumer Loan”, as part of “My bank” informing video series. The project aims to provide information for new and existing banks clients. The video can be found on AAB official website and AAB profiles in social networks.

www.aab.al

owadays, the information economy, whose importance is approaching that of the production’s one, has closely attracted talented young people, who in a very short time, are turning garage - founded companies, into billion-of-dollars’ giants. Today, even in Albania, it has become rather impossible to find a business, organization or association, which is not present somewhere on the internet, so companies providing such services are increasing and even starting to consolidate in the market. In this issue we will talk about TOK Digital Agency, one of the companies operating in the image and web design area, which has shown a significant growth, recently. The AAB contacted TOK Agency, when was looking for a company that could design a new website for the Albanian Association of Banks and build a new statistical application. "We are an organization of professionals from various fields – ranging from web design to image and business consulting - with over ten years of experience in Albania and abroad; we are specialized in providing a wide range of services, that a few companies in Albania, if any, provide them under a single umbrella, "said Erind Aliçkolli, TOK administrator. "Since our first conversation with AAB, we realized that they were searching for a company capable to offer not only a website redesign, but also offering a solution for designing a new statistical application, which would not be simply a database, but an interactive data system that would enable readers to create graphs, comparative reports and summary tables for those indicators who are interested in," says Enid Bala, one of the co-founders of the TOK Agency. "This is one of the most beautiful things in our work"- says Klevis Miho, because we never do the same routine work twice, as customers always come up with a special request, which also requires a special solution. Each customer poses a challenge for us, because our specialty is to provide specific solutions for specific clients. Having such challenges, we not only improve ourselves professionally, but the most important thing, is that we increase the value of our company." But what makes TOK Agency special? If you look at its website: www.tok.al you notice that their customers are as different as the services, such agency offers. In addition to customers in Albania, they have provided a range of services for international customers from US, Canada, Australia, or the United Kingdom. The services they offer range from branding a company, or product to image design, logos, websites, building and programming various computer systems, and even online market analysis, online marketing and sales. "Our primary goal is to offer our customers everything linked to their image," says Taulant Musabelliu, TOK cofounder. "We are aware that customers do not prefer to cooperate with different companies to carry out things that are actually part of a whole. We are very proud to assist our clients in every step they take. Let's take the example of a client who wants to make a promotional campaign for his/her/its company, or for a specific product. We offer everything in this regard, starting from the campaign strategy and its targets, design of the campaign image, design and completion of posters, or promotional videos, up to the event management, as we did with Turtle Fest in Dhërmi. The same can be said for customers asking for information systems, applications, or websites. Customers like this approach, because it is much easier for them to communicate with only one company, instead of some, and it is cheaper contracting one company, rather than many individual companies for each application. This is the key to the success of our company." Today, more and more Albanian businesses are becoming aware of the value added, a good image possesses for them, as well as the relationship with their customers. Whenever a company needs a service or a problem solution, agencies like TOK are there to offer solutions.

October 2017

Bankieri

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