Speech at the end of year event organized by the Albanian Association of Banks
Honorable President of the AAB,
Mr. Minister of Finance and the Economy,
Dear senior representatives and colleagues of the Albanian banking system,
Ladies and gentlemen,
It is a great pleasure to come back to this special end of year event, traditionally organized by the Albanian Association of Banks. It is even more important to share the experiences, the significant moments and even the hardships that we have all gone through in the past two years. First, let me give a brief overview of the economic performance in 2021.
The Albanian economy experienced a remarkable recovery in 2021, exceeding our initial expectations. The current positive dynamic is strong, broad and tangible. Our gross domestic product is already at its pre-crisis level, employment is recovering, internal and external balances have strengthened and the main indicators of the soundness of the banking sector have improved.
With this in mind, I would like to stress that the sources of economic growth have returned to their upward and diversified trend. In terms of aggregate demand, the rebound in economic growth was supported by a slight increase in exports of goods and services, along with an increase in domestic consumption and investment.
From a sector perspective, the expansion of economic activity has largely reflected the recovery of the industrial and service sectors. From a political point of view, the ongoing recovery is driven by an accommodating financial environment, attributable to the strong fiscal and monetary stimulus. In addition, it reflects higher global demand, strong private sector balance sheets and increased optimism among businesses and households.
The Albanian economy enjoys the necessary preconditions for stable and sustained growth in the future, while the opening of accession negotiations with the European Union will boost both economic growth and domestic and foreign investment.
Once again this year, the Albanian banking sector continued its trend of positive performance and demonstrated constant resistance to external shocks (pandemic effects over two years). Banking activity continued to grow (over 9%), largely supported by domestic deposits (over 80% of assets), and without affecting the overall capitalization of the bank (18.4%), due to the increase in capital buffers and prudential dividend policies followed by banks, fully cooperating with the Bank of Albania. Profitability has improved and liquidity remains strong.
The loan portfolio shows a well-diversified increase (+ 10% in total), between lek and currencies, businesses, businesses and mortgages.
The NPL ratio continued to decline (from 8.13% to 6.3%), benefiting both from the increase in the overall loan portfolio and from the reduction in non-performing loans (-17%). Along with the reduction in NPL values, the overall coverage rate has improved (from 65% to 70%).
Nonetheless, there is still a large scope for credit growth, given the large liquidity reserves, low loan-to-deposit ratios and positive profitability that can fully support capital.
Dear representatives of the banking sector,
In the context of these two difficult years, the prospects for economic growth in Albania are positive and optimistic, while providing the banking system with a solid base to develop its activity, thanks to the commitment, efforts and strong commitments of all stakeholders.
Now let me share with you some of the main common challenges that we will face together in the years to come.
First of all, the banking sector will continue to consolidate over the next year, following the acquisition of Alpha Bank from OTP NYRT. This development should lead to increased competition, in particular between the main market players. The loan portfolio remains the main contributor to balance sheet income, and in order to maintain the competitive position banks must maintain and continuously increase it. As the market offers opportunities for loan growth and banks are well equipped with liquidity and equity, it is essential to establish a long-term vision and define strategic goals, carefully designed to harness this potential. in the long term, to build the infrastructure within the bank and strengthen relationships with customers.
Second, the Bank of Albania plays an important role in the process of aligning the legislative framework with EU requirements, as the authority responsible for supervising 90% of the financial market. Part of this process is the additional capital requirements that have been introduced in recent years. Our aim has been to introduce these requirements smoothly, without harming the competitiveness of individual banks and without restricting their growth potential. The process spans a long period of time and during this period we will closely monitor the progress of building the necessary capital and MREL buffers, as well as carefully calibrating the aggregate capital requirements in an appropriate and flexible manner. , so as not to hamper and healthy growth of banking activity. At the same time, positive profitability provides good support for capital growth.
Third, While we have been determined to introduce a cap on EIR and sanctions for the first time, we recognize that these new rules, first introduced in Albania, will have operational and financial implications for the market. In 2021, the Bank of Albania launched an extensive consultation process regarding upcoming regulatory changes related to the introduction of the EIR cap and penalties. These changes have become necessary, following the expansion of the consumer credit market, to reduce asymmetries within this market and to fulfill BoA’s role in customer protection and financial inclusion. We have received different types of feedback from market participants (mostly positive from banks), and have reflected all of their comments and suggestions to the greatest extent possible. With that in mind, we’ll be prepared and reasonably flexible for the necessary calibration and smooth transition. Over the next year, we will continue the dialogue with industry, following the results of the first application of the EIR cap and the mainly debated rate cap on consumer loan penalties.
Fourth, the financial infrastructure of the banking sector has been further strengthened over the past two years. The Bank of Albania and the National Payments Systems Committee have implemented the national strategy to strengthen the market for small amount payments and increase the financial inclusion of the population. The first results are promising and they will be followed by further measures from the Bank of Albania and the banking sector, aimed at achieving a quantitative target, i.e. to see the number of holders of bank accounts double by 2023. The Bank of Albania will soon launch the new payment system for the settlement of national payments in euros. This system aims to improve efficiency in this market segment by reducing the costs borne by banks with real solutions that are channeled to the end customer and beyond, it will also improve the formalization of the Albanian economy.
In conclusion, I take this opportunity to reaffirm and reassure you about the dedication and the strong position of the Bank of Albania to be always transparent, open and united throughout its activity.
I wish you a successful and prosperous year for you and your families!