bankieri no. 17 - october 2015

A new approach orbusiness as usual

BankieriPublication of the Albanian Association of Banks N

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ITS TIME TO CHANGE THE

WORLD

AAB MEMBERS

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EDITORIAL TEAM

Elvin MekaEditor-in-Chief

Eftali PeccediliCoordinator

Junida Tafaj (Katroshi)Collaborator

Andis RadoPhotographer

Design amp Layout FCB Afirma

Printed by

EDITORIAL BOARD

Christian CANACARIS AAB Chairman amp CEO of Raiffeisen Bank Albania

Gazmend KADRIUAAB Vice Chairman amp CEO of Union Bank

Periklis DROUGKASAAB Executive CommitteeMember amp CEO of Alpha Bank Albania

Seyhan PENCABLIGILAAB Executive CommitteeMember amp CEO of Banka Kombeumltare Tregtare

Freacutedeacuteric BLANCAAB Executive CommitteeMember amp CEO of Societe Generale Albania

Bozhidar TODOROVAAB Executive Committee Member amp CEO of FIBank Albania

Endrita XHAFERAJSecretary General Albanian Association of Banks

Hysen CcedilELAChairman of Albanian Institute of Authorized Chartered Auditors (IKEA)

Adrian CIVICIPresident of European University of Tirana

Spiro BRUMBULLIChief of Cabinet Ministry of Finance

Enkeleda SHEHIChairwoman of Albanian Financial Supervision Authority

ALBANIAN ASSOCIATION OF BANKSStreet Ibrahim RugovaSKY TOWER 93 TiranaTel lsquo+355 4 22803712 Fax +355 4 2280 359E-mail bankieriaab-alorg wwwaabal

Content BankieriNo17 October 2015Publication of the Albanian Association of Banks

LOCAL BORROWINGA new approach or business as usual

Bankieri is the official publication of the Albanian Association of Banks which mainly focuses on the Albanian banking industry Bankieri provides readers with valuable information on the financial industrys developments in general and of commercial banks in particular



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EditorialLocal BorrowingA market to be developed and to jump in

Elvin MEKA

FrontlineLocal Borrowing an instrument for development

Erjon VELIAJTerritorial Reform some new opportunities for local borrowing

Majlinda KULLAJFinancing Local GovernmentAn Oportunity for Banks

Admira MLIKAFor an efficient borrowing of local government

Sabina LALAJ Ened TOPI

InterviewProcredit Bank AlbaniaGerman experience in the Albanian banking market

Adela LEKA

Banking SystemSMEs in Albania Who will credit them

Anila MUCcedilMATAElectronic SignatureIts importance and advantages

Edlira LLANGONew ways to facilitate online services

Adrian HASA

Experts ForumLoan write-offs in the Albanian banking systemWhats next

Alexander ZSOLNAI

Economist CornerGreek banks in front of crisisEffects and measures taken in Balkan and Albania

Adrian CIVICI

Social CapitalBanks activities

Tech TopicHow Credit Card WorkHow to benefit from an Installment Plan

Monika BALLTA

Financial AuditoriumAsian Infrastructure Investment Bank (AIIB)A new factor for regional and global economic development

Roberto RUOZI

Junior AchievementBusiness Contribution educating future entrepreneurs

ICC AlbaniaSustainable Development Goals

AAB Activities

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Editorial

Local BorrowingA market to be developed and to jump in

ldquoBuilding sustainable cities - and a sustainable future - will need open dialogue among all branches of national regional and local government And it will need the engagement of all stakeholders - including the private sector and civil society and especially the poor and marginalizedrdquo This excerpt from Mr Ban Ki-moonrsquos Speech at Sustainable Cities Days organized by UN in December 2013 contemplates the most important challenge cities and urban areas will face in the future and this is true even for Albania as part of the developing countries which needs to address them properly and accordingly

In this regard the new territorial and administrative reform promoted and adopted by the government and Parliament could be expected as a milestone toward a better management of territory and urban areas at all Maybe this is not the first endeavor to draft a functioning and practical legal framework for local government but for sure it has all the opportunities to become the first significant undertaking in terms of putting local government on a modern and well-functioning track For many years in a row we have been witnessing a myriad

of changes and amendments in the legal framework of local government which have been usually used as a war horse in the everyday politics and randomly for a better performance and empowerment of local government units in terms of offering better services through sustained and balanced budgets

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

for municipal securities along with the bank local borrowing Local government units could easily accomplish their future financial needs for big infrastructure projects and banks could capitalize on this upcoming opportunity as they have skilled human resources institutional financial and analytical capabilities to handle and fund the whole process from loan-making to underwriting and trading

Last but not least the new local government units must act quite in prudential way when considering accessing the financial and securities market for municipal instruments and securities with the aim to optimize at the fullest possible the opportunities the actual territorial amp administrative reform provides them with whereas being accountable with funds they will raise in the future They need to understand that they will borrow money and transform them into a long-term added value for the community they serve and from whom they are elected and therefore being fully responsible and responsive Maybe itrsquos time for them to recall the iconic quote from one of the most distinguished American Founding Fathers Mr Benjamin Franklin ldquoIf you would know the value of money go and try to borrow somerdquo

by Prof Asoc Dr Elvin MEKA1 Editor-in-Chief

1 Deputy Dean amp Head of Department of Finance UET-EUT

The new local government units must understand that they will borrow money and transform them into a long-term added value for the community they serve and from whom they are elected and therefore being fully responsible and responsive

6 wwwaabal Bankieri

Frontline

Local Borrowingan instrument for development

BANKIERI In your position as Mayor of Tirana and in the light of the new territorial division how challenging do you deem the financial situation the new territorial units and typically Tirana as the largest municipality are going to be faced with

One of the main reasons why the territorial reform was undertaken is exactly the financial consolidation of administrative units Let us not forget that a large part of former municipalities or communes did not generate even a cent of income and therefore had turned into a real burden for the state budget Territorial reform and a new administrative division were designed to enable a higher financial efficiency and quality services so from this viewpoint the financial situation will be somewhat easier either for administrative units or the state budget too

BANKIERI What could be the position of Municipality of Tirana with regard to local borrowing and the use of such instrument in the near and distant future

After 4 years in lethargy Tirana needs development now more than ever but such development requires investments We will do our best to raise the necessary funds for these investments A part will be sourced by some revisions in the local fiscal package but the rest will unavoidably come from local borrowing The economic crisis has led governments to view public debt form a really different perspective but no one could deny the role of debt in promoting the economic development As we talk about the government which is under an agreement with IMF that put a cap on public debt and prevents its further accumulation it cannot be denied that following an improvement of countryrsquos financial situation the borrowing be it local or central government will play a more important role in the development of Albania

BANKIERI What are the main difficulties and obstacles towards ensuring sufficient funding to local governments from banks and to a large extent from the Albanian financial system

I do believe that local governments may encounter the same difficulties as those faced by any business when applying for a loan in the course of ensuring proper financing from the financial system It is not make a headline any more the fact that the Albanian financial system is in difficulties Although deposits have been increasing lending growth rate remains low and the rate of non-performing loans continues to be high I think getting out from this situation is paramount and what is essentially needed right now Subsequently as mentioned before an improvement of countrys financial indicators is required in order to ensure more room for borrowing Finally the new administrative division should concede municipalities a higher financial autonomy including local borrowing along with greater competences and authority vested with them

BANKIERI How do you see the cooperation between Tirana Municipality and banking system as part of reshaping the financing scheme for local government in Albania

Let me say first that principally I see no reason why local projects could not be funded by local banks Public debt should not be feared instead it should be seen as an instrument of development A business cannot grow without borrowing likewise a local institution cannot implement all communityrsquos projects without investments I think that in the future borrowing by local governments must play a more important role than hitherto The banking sector along with policy-makers must get a momentum by way of developing new and innovative products for financing local developmentfinancimit peumlr zhvillimin lokal

S P E C I A L

by Mr Erjon VELIAJTiranas Mayor

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Frontline

witness any significant increase of fund allocation for regional development

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

from 2009 (47 of GDP and 142 of the BE) Despite the increase in reve-nues generated from its own resources and exploitation of new resources the local fiscal authority remains weak and its dependence on national resources very high Thus the new municipalities will continue to experience major lack of financial resources for investment especially those which require huge capital funding On the other hand the Ministry of Finance has taken some fis-cal austerity policies to cope with the crisis and therefore it is unlikely to The main objective of the 2015

territorial reform aims at avoid-ing the inefficiencies of pub-

lic services at local level which was mainly caused by extensive territorial fragmentation and a large number of local government units (LGUs) Al-though the new territorial division is based on the principle of functional areas any solid analysis on how such division could produce territorial de-velopment through private entrepre-neurship is hardly found throughout the paperwork produced in the frame of this reform This is so in a time when the relative weight of local gov-ernment to the Gross Domestic Prod-uct (GDP) and to budget expenditures (BE) remains relatively low at about 29 and 102 respectively in 2012 whereas such ratios have been falling

by Dr Majlinda KULLAJLecturerFACULTY OF ECONOMICS AND AGRIBUSINESS AGRICULTURAL UNIVERSITY OF TIRANA

Territorial Reform some new opportunities for local borrowing

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

The expansion of local borrowing will lead to improving the role of banks in the territoryrsquos economic development by way of financing investments related to public services urban and rural infrastructure and even agricultural infrastructure which is a prerequisite for the development of agriculture

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systems for lending assessment to municipalities ie their payback ability

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

obtain grants instead of borrowing the latter seems to be alternative that has the most potential for expansion In this regard it is up to the government to review the degree of control on local borrowing although it is aware that administrative orders to limit the authority of the borrower for purposes of maintaining levels of public debt have practically impaired even further the financial capability of local government Moreover the ratio of local government debt to total public debt does not exceed 0020 which is a strong argument in favor of local borrowing The interaction between these three factors loan limit size of the grant and local taxes will comprise a complex negotiation between the government and municipalities not to mention the fact that these negotiations will be conducted on an individual basis for each municipality

In the frame of lending contraction to individuals and businesses during recent years banks should see local borrowing as a gateway for utilizing excess funds Municipalities are welcomed clients for banks due to the perceived low risk because local borrowing is considered somewhat as bearing a sovereign guarantee Despite the legal guarantee of non-bankruptcy banks carry out risk analysis for them as they do it for each customer but in case of municipalities they always hope in obtaining an additional guarantee compared to other customers An important advantage of large municipalities is the improvement of loan applications based upon studies of profitability due to an increasing number of high skilled specialists em-ployed by them In the same time the improved budget and investment plans will help municipalities to see debt and borrowing as an instrument to improve their position and not as an embarrassing evidence of their financial vulnerability Consequently this fact will be accompanied by a greater number of loan applications which will pass banksrsquo risk analyses Likewise the increasing staff performance of large municipalities will improve the information required by banks necessary to conduct financial control on municipal budgets The expansion of local lending will lead to an improvement of commercial banksrsquo

case of Czech RepublicThe legal framework review can

be extended in banking legislation too Specifically the credit risk may be

Notwithstanding the motivation of local government to obtain grants instead of borrowing the latter seems to be alternative that has the most potential for expansion In this regard it is up to the government to review the degree of control on local borrowing although it is aware that administrative orders to limit the authority of the borrower for purposes of maintaining levels of public debt have practically impaired even further the financial capability of local government

reassessed and re-dimensioned through a review of risk coefficients aiming at encouraging banks to see municipalities as prime borrowers Practically a lower risk factor associated with local government debt may be considered for the purpose of calculating bankrsquos loan provisions The review of regulatory provisions may spur further the interest of commercial banks in the local government sector Notwithstanding the need for legal changes the latter should not be reviewed and implemented by each government in the line of power as it creates unpredictability for intergovernmental finance system and consequently such uncertainty will push banks to require a higher risk premium for loans granted to municipalities

The expansion of local borrowing will also lead to improving the role of banks in the territoryrsquos economic development by way of financing investments related to public services urban and rural infrastructure and even agricultural infrastructure which is a prerequisite for the development of agriculture Bank lending for investment to improve the network of irrigation and drainage systems reservoirs or other similar works agriculture markets collection centers slaughterhouses etc constitute important tools for improving the agricultural business environment If the government guarantee fund for loans to businesses engaged in investment in agriculture could be extended to include the aforementioned investments by municipalities it would turn into an important stimulus in this regard In the long term the eventual competition between banks will lead to the development of debt instruments specially designed for municipalities and local government

A practical and structured initiative could be the setup of a dialogue and consultation process between the Government the Association of Mu-nicipalities and the Albanian Ass-ociation of Banks in order to present the views and suggestions for changes in the borrowing procedure open dis-cussions on possible interest subsidies from central government or their tax-exempted status the nature of inve-stment of LGUs etc

9 wwwaabal Bankieri

Frontline

rantees application procedures the calculation of minimum limits and debt criteria as well as the reporting to the Ministry of Finance

Certainly such instrument has a particular relevance given the context in which local finances were found by facing an uncharted territory at a time when after collecting taxes and tariffs the only remaining option was grants foreign donors and funding support from the state budget In other words this law provides local governments with more financial opportunities to solve urgent problems or to complete important investments for the community both in terms of nature and size Also coupled with specific requirements as regards meeting borrowing criteria the interaction with stakeholders from the financial market intending to be part of the process such as auditing LGUsrsquo financial statements preparing feasibility studies and opening up the process of borrowing to entire community turns a new page by further strengthening local entities and increasing their financial capacities transparency and most important their accountability

To summarize the conditions to be met by LGUs are as follows

bull The LGU can get a long-term loan up to the level where the total stock of its long-term debt does not exceed the operating income (including incomes from its own resources shared taxes and

of carrying out the functions vested with them The transformation includes three dimensions (i) the institutional level (ii) the transfer of fiscal powers and the relevant legislation and (iii) financial grounds The LGUsrsquo borrowing process dates from 4 February 2008 with the adoption of the Law no9896 On Local Government Borrowing which provided LGUs with the opportunity of borrowing through financial markets to support their financial needs aiming at accomplishing their exclusive functions This law has clearly outlined the limits of borrowing from local entities gua-

In international markets lending to local government units (LGUs) is seen as a relatively low risk activity

and as a good opportunity for banks to expand their activity toward local government including deposits cash management and many other products Historically loans to central and local government are perceived as a risk-free lending opportunity because of guar-anteed payments based largely upon revenues from taxes and fees In the meantime the financial crisis and its aftermath have raised many question marks over the financial situation sus-tainability of these units thus making the repayment of their financial liabili-ties less secure than ever

But whatrsquos about the situation in Albania Throughout these years LGUs have passed through a substantial decentralization process which inc-luded a simultaneous restructuring and transformation in some sectors The purpose was to provide LGUs with ade-quate resources and to develop sufficient capacities so that they could be capable

by Mrs Admira MLIKACorporate amp Commercial Banking Credit Department ManagerBANKA KOMBEumlTARE TREGTARE

Financing Local GovernmentAn Opportunity for Banks

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

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

10 wwwaabal Bankieri

unconditional transfers) by the ratio 131

bull The ratio of operating surplus of the previous fiscal year (calculated as the difference between operating incomes and non-conditional operating expenses) to annual service of long-term debt must be not less than 141

bull The annual debt service should not exceed 20 of LGUrsquos total budget revenue from unconditional transfers shared taxes and local fees and taxes calculated for its three preceding fiscal years

Meanwhile the process phases are very important and include

Preparatory Phase from LGU commencing with the analysis funding needs preparing the action plan notifying the Ministry of Finance sending letters for expression of interest in this funding from banks followed by sending necessary preliminary information to these institutions

Relationship with banks bid evaluation through an open tender process negotiating with banks and selecting the bank which provides the package with best terms and conditions drafting the agreement between parties

Loan approval approving the loan and its terms and conditions at the LGU Council then getting the approval by the Ministry of Finance about loan calculation and compliance with legal requirements and financial constraints as well as verifying that proper procedures are followed to be continuing with signing the contract with the selected bank

Loan usage disbursing the loan amount registering with the Treasury Office using the loan according to the investment phases reporting to LGU Council and Debt Department of Ministry of Finance

Banks are one of the most important stakeholders in borrowing the process as the party which provide funding The actual law ldquoOn Local Borrowing is a first step towards increasing financial capacities of local governments to implement investment projects which are not affordable with its annual budget This means a new expansion opportunity for the banking system and further support for these projects

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

designed to evaluate private companies and not LGUs the lack of information and that limited analysis capacity just complicated the local borrowing process

Banka Kombeumltare Tregtare in collaboration with USAID as a participant in the Local Governance Program in Albania (LGPA) which offered a guarantee fund at 50 for a certain amount of loan to some selected LGUs besides supporting their building and developing lending capacities started funding them in September 2010 Challenges the bank used to be faced with were numerous ranging from the fact that LGUs were somewhat ambiguous in this process and their technical staff had difficulties in preparing and presenting the feasibility studies and financial data necessary for

Historically loans to central and local government are perceived as a risk-free lending opportunity because of guaranteed payments based largely upon revenues from taxes and fees In the meantime the financial crisis and its aftermath have raised many question marks over the financial situation sustainability of these units thus making the repayment of their financial liabilities less secure than ever

proper calculation of debt criteria and constraints imposed by the Ministry of Finance effective from 2011 regarding disbursements of annual loan funds So although a LGU was able to meet all legal requirements and presented a healthy financial situation capable to sustain the whole loan amount the constraints imposed by the Ministry of Finance limited and stretched the completion of project in time Since the annual loan disbursements were at very low levels USAID decided to terminate the guarantee program in April 2012 by supporting the already disbursed loans only On the other hand the bank based upon building and developing its own capacities and market knowledge during this time turned into one of the key collaborators in supporting and financing LGUsrsquo economically acceptable projects by taking as the only guarantee the unconditional income by way of signing of Intercept Agreement

The consolidation of LGUs (going from 373 local government units to 61 municipalities) has a deep impact by changing all data such as population income and expenditure levels projects etc which are to be reorganized by the new administrative and territorial division Certainly it takes time but it generally means a better revenue and expenditure management Also the existing LGUs possess now a larger territory whereas the analyses for existing loans are conducted upon a certain territory which now affects the financial situation of the whole territory and the respective loan repayment In these regard it is suggested a strengthening of LGUs internal audit capacities along with identifying accounting issues at the local level Also all criteria constraints conditions items and procedures that must be met by LGUs should be clearly specified in specific manuals LGUs technical staff must be provided with proper training to (where ensuring a low turnover for this staff is very important) regarding the preparation and correct calculation of legal and financial criteria as well as seeking an increased transparency These already reorganized LGUs must show that they are capable to manage fees and taxes of their community


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

The new territorial division opens

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

risk as well as creating an added value through its contribution to the economic development and employment growth

The banking system will always be prone to develop an effective market local domestic borrowing instruments for the sake of cooperation and in the frame of social responsibility in order to contribute as much as it can to improve the welfare and the countryrsquos development within a new well-organized and transparent framework of local government


Frontline

local governmentrdquo Based on the provisions of the Law 98692008 local governments units can go out in the market and seek short and long term loans either for investment purposes (long term) or to bridge liquidity shortages (short term) Local government can reach out capital markets or financial institutions to obtain the line of credit and this means in local or foreign currency at fixedvariable interest rate As for the modus operandi to reach out and obtain the loan both short and long term borrowing are somehow subject

amends the law No 86522000 ldquoOn organization and functioning of the local governmentrdquo as amended

Concluding here the panorama of essential changes in the administrative and territorial landscape of the country and returning our focus to the issues of local borrowing it is worth mentioning that the main piece of legislation regulating local government borrowing is the law No 9869 dated 04022008 ldquoOn the borrowing of the local governmentrdquo and the law No 10158 dated 15102009 ldquoOn bonds of joint stock companies and

Before making any consideration on borrowing instruments at the hands of the local government in

Albania and on improving the efficien-cy of their use one is required to start presenting the latest territorial and administrative reform implemented in the country A panorama of the ter-ritorial and administrative landscape will be of help to the reader by going through the borrowing mechanism of the local government and getting the whole picture Following the introduc-tory part this article intends to address and discuss on how local government can make use of the obtained financing in an efficient way

The Government of Albania und-ertook an important territorial and administrative reform which reshaped the panorama of local government Basically as from the last local elections the Republic of Albania has been divided in 61 (large) municipalities and 12 districts The rationale behind the reform it is believed to be the creating of large municipalities (or super municipalities likewise Tirana) with efficient although large local administration which will be able to offer more qualitative services The above reform obviously was driven and accompanied by the relevant amendments the legislation regulating local government The territorial and administrative reform in the Republic of Albania commenced with the app-roval of the law No1152014 ldquoOn the Administrative and Territorial Division of Local Government Units in the Republic of Albaniardquo as amended The law was approved by the Albanian Parliament on 31 July 2014 and entered into force on 16 September 2014 following its publication in the Official Gazette Further changes to the legislation regulating the local government units were adopted by the Albanian Parliament including herein the law No 302015 which

Ms Sabina LALAJ Senior Legal ManagerDELOITTE ALBANIA SHPK

Mr Ened TOPI Senior Legal Associate DELOITTE ALBANIA SHPK

For an efficientborrowing of localgovernment

The legal tools towards a better administration of taxes are already in the hands of local administrators that based on such tools should undertake immediate actions aiming the improvement of financial situation of local units under their administration and the increase of credibility in the eyes of lenders


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

to the veto of the Ministry of Finance In the case of the short term loan the local government unit is bound to obtain the lsquonegative responsersquo by the Ministry of Finance that the state budget will not cover liquidity needs With regard to long term loan the Minister of Finance will have the final say on the approval in case the loan will be obtained in the international markets or is needed to service the debt of previous loan or the local government unit is a distressed one that has demonstrated financial difficulties in the past five years In such case the approval of the Minister of Finance is decisive On cases other than the above-mentioned ones the approval of the Minister of Finance is limited to the procedural compliance on the loan authorization and verification the loan limits as prescribed by the provisions of the above-mentioned law on local government borrowing The approval by the Ministry of Finance should not be considered in any case a guarantee of the Republic of Albania backing the borrowing of the local government

Under current circumstances by having no state guarantee backing the local government borrowing the following issues need to be considered The legislatorrsquos intent is that creditors can in case of default take all appropriate measures to collect the debt On the other hand to the date of this publication local government units are not allowed to go bankrupt or undergo reorganization under the bankruptcy law It is worth mentioning that the current draft law On Bankruptcy foresee that local government units may be subject to reorganization procedures However under the current e circumstances no creditor will be able to lsquoseek satisfactionrsquo through bankruptcy proceedings Therefore lenders would be willing to lend only to creditworthy borrowers possessing an adequate level of financial stability and independence

As indicated above local gover-nment units are entitled to issue bonds in accordance with the provisions of the Law 101582009 as the other form of local government financing through

borrowing As in case of loans local government may issue short and long term bonds that mandatorily should be backed a relevant borrowing plan and audited by an external licensed audit entity Having evidenced the options of financing of the local government regulated by the legislation in force herein are some considerations on increasing financing options through borrowing and its efficient use In first place it goes without saying that large municipalities which emerged after last Junersquos local elections are more attractive to lenders It can be also stated that these new local government units need to obtain the confidence (as well to restore) in the eyes of the lenders This can be done through financial discipline and efficient tax administration during the process identification and collection and also in the use of collections In terms of efficient administration of taxes much is to be done by local government units There is no need for official data to state that up to this moment that local tax collection is very poor and the governmentrsquos initiative these days to formalize the business is a proof of such a poor performance The legal tools towards a better tax administration process are already in the hands of local administrators that based on such tools should undertake immediate actions aiming the improvement of the financial situation local units under their administration and the increase of credibility in the eyes of the lenders Once the local government has attained an acceptable creditworthiness financial institutions and investors would be more willing to jump on board and finance large projects and initiatives of local government

Public - private partnerships (PPPs) are another form of cooperation that would improve the creditworthiness and satisfy the needs of local gov-ernment units for investments with financial exposures stretched over a long term of period This spe-cific form of cooperation between public and private bodies regulated by the Law 1252013 dated 25042013 ldquoOn concessions and public private

partnershiprdquo as amended provides two favorable conditions to the local government units that aim to carry out investment using this form of cooperation In one hand the risk and costs of immediate investment is transferred to the private partner and on the other hand cost repayment is stretched over the years of the contract entered with a private partner thus avoiding the creation of short term repayable obligations in the finances of the local government

Notwithstanding the need for improvement and approximation with the European Union legislation the current legal framework provides adequate regulation for the creation of a local government borrowing system and improvement of the efficiency in using such borrowings for the development of the local infrastructure and services Therefore the reform initiated with the reshape of territorial and administrative division should continue with the financial discipline and efficient administration of taxes collected by local government aiming at increasing the creditworthiness of local government units in the eyes of lenders and to benefit maximally from the opportunities provided by legal framework on borrowing options and their efficient use


匀唀倀䔀刀䬀刀䔀䐀䤀

娀䜀䨀䤀䐀䠀一䤀䴀쬀 吀쬀 䴀䤀刀쬀一䬀爀攀搀椀洀攀

　　　　　　䰀䔀䬀쬀 㘀　　䰀䔀䬀쬀 䐀䤀吀쬀

伀猀攀

㘀䤀一吀䔀刀䔀匀䐀䔀刀䤀一쬀 㘀　　　　䰀䔀䬀쬀





伀猀攀


Interview

trend toward using more electronic banking services This is also in line with our philosophy of doing business where the provision of modern banking services are deemed as very important thus offering to our customers efficient business transactions that meet their business needs in a timely way

As a commercial bank focused on

and regular monthly bill payments via the e-banking platform

As part of the strategy of ProCredit Group the implementation of 247 Zone is nearing completion at every agency throughout Albania These ban-king areas address all customer needs be they business or individuals

The use of e-banking platform results in a very positive trend compared with the level of use of the same period a year ago which clearly shows the growing

Considering market dynamics and growth as well as the extensive use of technology in our daily

life and in the way of doing business itrsquos a fact now that physical and digital world are rapidly combining with each other ProCredit Bank deems the im-plementation of state-of-the-art tech-nologies as driven by the need to adapt to market trends and to satisfy clientsrsquo needs Moreover it comes as a distin-guishing feature which has accompa-nied us over the past 2 decades we op-erate in the Albanian banking market So on the occasion of the bankrsquos 20th Anniversary we have the great plea-sure to present to all our clients a very innovative banking concept the 247 Zones

This new banking concept provides our clients with a quality service in accordance with their needs for banking services regardless of office hours just 24 hours and 7 days a week The 247 Zones are equipped with high-tech equipment which make possible for clients to carry out all routine banking operations like depositing and withdrawals from business and personal accounts money transfers

Ms Adela LEKASpokesperson of the Management BoardPROCREDIT BANK - ALBANIA

Procredit Bank AlbaniaGerman experience in the Albanian banking market

The use of e-banking platform results in a very positive trend compared with the level of use of the same period a year ago which clearly shows the growing trend toward using more electronic banking services

ProCredit Bank continues to bring innovation to the banking system and presents the 247 Zones on the occasion of its 20th Anniversary

SME businesses we have created all necessary means to be the bank of first choice for these businesses and a long-term partner for accomplishing their business plans Our business strategy fulfill the mission of the bank will be continuously focused on supporting those businesses that are well-organized have clear structures and investment plans that enable their sustainable development

ProCredit Bank - Albania is part of the ProCredit group of banks which operate in different countries of the region In order to increase cooperation between clients of ProCredit banks and establishing contacts with potential partners operating in the region by organizing regional B2B meetings we provide them the opportunity to exploit customers network of regional ProCredit banks ProCredit Bank - Germany plays a quite positive role in promoting and developing new business relationships which has been very active recently with meetings held in the frame of this initiative

ProCredit Bank is a commercial bank with 100 German capital a de-velopment-oriented one focused on supporting SME businesses Our sole shareholder is ProCredit Bank - Germany with head office in Frankfurt Germany We are supervised by higher German supervision authorities like Bundesbank and BaFin which ensure our reliability and stability


SMEs in AlbaniaWho will credit them

by Mrs Anila MUCcedilMATAHead of Sales and Support for individual Loan Unit Sales and Support of SIMA Loan DepartmentCREDINS BANK

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

In everyday life everyone hears that The bank declined my loan application or Banks do not provide credit thus tak-

ing for granted the fact that a bankrsquos achieve-ment is typically ldquomaking-no-loanrdquo when the logical normal and basic function of them is crediting and selling funds collected as deposits against a reasonable profit mar-gin Who in the world would open a store only with the intention of admiring prod-ucts bought with a lot of money invested in them without having the desire to sell So banks are not in comfortable position when they say no to a client furthermore when such customers are applicants with relative-ly large amounts such as loan applications coming from small and medium enterprises

The term ldquoeconomic lifecyclerdquo is quite well-known in everyday jargon ie introduction growth maturity and then decline In the world economies such cycle is more prolonged and extended

in decades and years thus creating opportunities for development and growth either for individual enterprises or for the economy as a whole whereas in Albania it is often been cut-off shaken and restarted from the beginning as a result of many political and economic instability factors widely known and discussed among us

SMEs form the basis for development of a formalized economy they are cells that tend to create a countryrsquos economic identity and culture The small and me-dium enterprises somewhere created as modest familiar initiatives and somewhere as a result of a constant gr-owth after surviving many sacrifices over years are the future of national economy which tends to unite micro-businesses with modest capital in pretty higher sustainable and well-structured businesses Form the lenderrsquos viewpoint SMEs are an opportunity to increase and diversify the loan portfolio with a moderate risk allocated on a wider businessesrsquo basis thus mitigating the risk of loan portfolio concentration in some corporate clients Despite our countryrsquos numerous natural resources it is obvious that SMErsquos activity and the respective lending is highly concentrated in sectors

like trade services construction hotels and much less in productive sectors extracting industry or transport and agriculture Notwithstanding how much developed a countryrsquos trade sector may be it cannot be its long-term economic pillar such sector cannot bring a con-stant economic development as it is unable to generate enough jobs and does not increase the countrys GDP significantly

In order to explain the tight credit to other sectors is should be understand that the relatively high level of credit to trade and services sectors is closely related to consumersrsquo limited financial means which cover mainly the basic needs for mass consumption Similarly importing policies have a deep impact with low barriers for consumer products imported from other countries thus

Banking System

SMEs form the basis for development of a formalized economy they are cells that tend to create a countryrsquos economic identity and culture


favoring the latter but hindering domestic products to meet local con-sumer needs let alone exporting them Along with above difficulties we have to add the consumer skepticism especially toward relatively new do-mestic producers and the great faith put on a Made in Italy product rather than on a Made in Albania one be it even a bottle of milk which is even fresher and complying with all international and national quality standards

When manufacturing SMEs enc-ounter these difficulties in the domestic market no one needs too much imagination to perceive how diff-icult it to go out in the international markets to establish the goodwill competing with well-known and long-consolidated brands along with the absence of favorable taxation policies Unfortunately the bulk of producing companies are offering simply contract manufacturing services without owning any Made in Albania brand Such enterprises have an activity which seems large but in fact depend heavily on a small number or even one supplier amp customer a fact that carries a considerable risk for business continuity in the present and in the future whereas any contracting counterparty causes a direct and immediate impact on the liquidity of Albanian manufacturers

Agriculture and agribusiness are seen as potential and promising sector and they are really as such if we consider our countryrsquos nature and geography Currently this sector is witnessing attempts by Albanian migrants returned back home with the desire to invest their savings in Albania as well as from local farmers who see with an optimist view the future of this sector which is being mentioned quite often by government platforms and agendas Despite being promising and with a broad market that expects to be credited by banks this sector contains a significant risk as it is so closely associated with natural disasters as much as with the above-mentioned difficulties related to quality assurance and product sales Additionally the sector suffers the issues of land ownership the difficulty of providing collateral lack of historical financial data or business plans for the future

Consulting projects guarantee schemes in cooperation with government or any other and guarantee funds would have been a great help and a pivotal factor that will significantly affect lending growth to this sector More and more consulting firms are becoming present during the last two years which make not only market studies and provide consultancy services to SMEs but also professional business plans based on international practices

The construction sector giving a momentum for a certain period of time to the overall economy and credit growth now has been turning with an equal momentum into one of the most difficult sectors for debt collection It was not associated with the same purchasing power to respond to this abundant offer in a time when it had already absorbed so much liquidity thus causing a part of it not returning back in due time or ever into borrowersrsquo coffers and therefore at banksrsquo offices where they were borrowed Still today the sector suffers from informality difficulties in mortgaging and getting a property title which could support it in borrowing money and furthermore the decrease of migrant remittances which until recently were the main source of revenues in the real estate market

One of the sectors already credited by banks and with an obvious potential at least theoretically and logically is that of SMEs operating in Tourism amp Hospitality sector Apart from problems

and difficulties related to the nature of services in this sector and mainly based on rigorous assessments of financial analyses modules and basic lending concepts a great deal of courage would be shown to lend money to a business that was there yesterday but not today or is here today and itsrsquo tomorrow is clearly unknown

Despite cuts of interest rates by Bank of Albania and the drop of depositsrsquo rates in commercial banks which have lowered the cost of funds and is subsequently associated with a reduction of loansrsquo interest rates itrsquos worth noting that SMEs still suffer from insufficient or total lack of collateral a non-satisfactory degree of formalization and financial record keeping as well as the lack of a really well-structured business plan which would increase the confidence of banks On the other hand it should be clear that business quality management forms the basis for a sound bank lending and such quality is affected primarily by economic and political factors The economic policies and platforms be they short-term or long-term must be transparent and should go beyond the noble scope of fighting informality and complying with Made in EU framework they must provide a projection of the future or at least the situation we aspire to go as a result of fiscal reforms and endeavors or any other type of them but which in turn affect both the consumer and SMEsrsquo business


Electronic Signature Its importance and advantages

by Mrs Edlira LLANGODirectorNATIONAL AUTHORITY FOR ELECTRONIC CERTIFICATION(AKCE-NAEC)

The genesis of electronic signature in Europe dates back early in mid-90s with Italy and Germany

as the first countries to have mentioned and used the electronic signature Offi-cially the European Community will talk about electronic signature with the Direc-tive no199993CE of European Parlia-ment and Council of Europe dated 13 December 1999 The Electronic commu-nication and commerce need electronic signatures and their related services to enable data authentication A clear EU framework regarding the conditions ap-plied to electronic signatures will in-crease confidence and acceptance of new technologies so that the legislation of Member States does not hinder free movement of goods and services in the internal European market

The electronic signature is an elec-tronic authentication tool This term

is defined as authentication of holderrsquos identity and the respective signed data The electronic document which contains the name of the signer and hisher qualified signature has the same legal validity and power of evidence as those of a written document

The term electronic signaturerdquo

is mentioned for the first time in our country in the law No9880 dated 2522008 On electronic signature drafted in accordance with the afore-mentioned European Directive The law

Banking System

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

Currently we have two CSPs in the country registered with the National

The electronic signature is a technology that is born as a need to guarantee the authenticity of an electronic message sent so it ensures that the author of the electronic message is really the one who she claims to be that hisher identity is not used in an abusive way by someone else and that the message has not been modified during transmission

The electronic communication with electronic signature guarantees a very high level of security Each electronic document is unique and cannot be copied because the in the moment of signature it is accompanied by a time stamp which records the precise time of signing


Electronic Certification Authority National Agency for Information Society (AKSHI-NAIS) which enables the electronic signature for all employees of public administration and ALEAT shpk registered to offer the same service for Albanian citizens In case of AKSHI (NAIS) the medium or device is a USB Token where the electronic certificate that enables electronic signature is in-stalled and in case of ALEAT shpk it is the biometric identity card which in the everyday life is called the ID card of the Albanian citizens The IDs issued from 2014 onwards are also equipped with electronic certificates which enable the electronic signature and identification at no additional cost whereas for citizens who have identity cards issued before 2014 the issuance of digital certificates is offered at the premises of the provider throughout the country and it is free for the first time Of course owning an electronic certificate is not mandatory

The importance and advantages of electronic signatureThe question that naturally arises here is Why should we use the electronic signature The electronic signature is a technology that is born as a need to guarantee the authenticity of an electronic message sent so it ensures that the author of the electronic message is really the one who she claims to be that hisher identity is not used in an abusive way by someone else and that the message has not been modified during transmission These guarantees are essential in the frame of a growing use of internet as a secure means of communication between government citizens and businesses

The electronic communication with electronic signature guarantees a very high level of security Each electronic document is unique and cannot be copied because the in the moment of signature it is accompanied by a time stamp which records the precise time of signing Electronic documents signed with electronic signature cannot be modified because any modification would be obvious and would nullify the legitimacy of the document This is so because in informatics terms the document trail or the so-called

HASH is signed only The HASH value is different for each electronic document even in cases of a minor modification so the electronic signature from the informatics viewpoint is different for each document Verifying the validity of electronic signatures can be performed by any PC user and the automated system according to this technology allows no room for mistakes Such instrument offers not only high security but also other advantages such as ease of use speed of communication low cost transparency corruption avoidance by way of eliminating physical contact between citizens and public officials as well environmental protection due to the elimination of paper ink and printer

Latest developments in the field of electronic signatureOn 23 July 2014 the European Parliament and the Council of Europe adopted the Regulation No9102014 On electronic identification and trust services related to electronic transactions in the internal market (eIDAS Regulation) This Regulation establishes a common basis for all member countries by adding to the previous regulation on electronic signature under Directive 931999 the regulation for electronic identification electronic seal website authentication and the electronic data transmission service by providing the same rules and standards applicable in all EU countries so that these services are directly recognized among member countries

Given the importance of such services it is intended that this regulation will increase the usersrsquo confidence by becoming a central building block of the European Digital Single Market The eIDAS Regulation is a milestone to provide a predictable regulatory environment to enable secure electronic interactions between businesses citizens and public authorities In this regard eIDAS Regulation

- ensures that people and businesses can use their own national electronic identification schemes to access public services in other EU countries

- creates an European internal market for trust services by ensuring that they will work across borders and have the same legal status as traditional paper-based processes

Only by providing certainty on the legal validity of all these services businesses and citizens will use the digital interactions as their natural way of interaction

Base upon this regulation especially by considering our market needs the National Authority for Electronic Certification led the preparatory work for the draft law On electronic identification and trust services which is expected to be adopted soon by the Albanian Parliament This draft law fills a legal gap in terms of services required for safe and legally protected online communication between citizens businesses and government paving the way for secure online communication


card reader its confirmation is done through customerrsquos fingerprint trail which ensures its authentication thus paving the way to execute the requested action by the customer The process is similar for the electronic signature too Once the electronic version of the document is generated and subsequently signed by the customer it is initially signed electronically by the bankrsquos employee and then by the client again electronically via the certificate installed on herhis ID card and biometric fingerprint confirmation Then such document is retained by the bank and has the same legal validity as paper-based signed documents

This is only the one side of the coin since that service would create many and better new opportunities for increasing online services offered by a bank The integration of authentication and electronic signature with online banking systems will enable clients to carry out the entire process remotely from registration to the bank an opening an account to opening deposits and applying and getting loans thus bringing new reality in terms of excellence in use of bankrsquos resources and security in its respective processes and services

New ways to facilitate online services

by Mr Ardian HASA Operations Division ManagerSOCIETE GENERALE ALBANIA

Nowadays the fact that banks are increasingly looking for ex-cellence and safety in all bank-

ing processes does not barely make a headline Additionally their customers are increasingly requiring more quali-ty and safe services In recent years all banks have increased significantly the number of operations performed with-out the individual physical presence at bank premises and even in cases of physical presence clientrsquos digital iden-tification and electronic signature are very important safety criteria

The endorsement of the law on electronic signature provides the necessary legal space for institutions to invest in terms of electronic authe-ntication and signature as the safest means to ensure either the citizensrsquo identity or the signature with the same legal validity for of electronic doc-uments However the adoption of this

law should be accompanied by an up-date of the entire legal framework which regulates banking services and relationship between citizens and institutions so that this new reality can be turned into something tangible and with real benefits for all stakeholders

As presented during the Innovation Week an event organized by the Ministry of Innovation and Public Administration in May 2015 Societe General Bank ndash Albania is one of the which has sought the opportunity of integrating these services with other banking services aiming offering a new experience to its customers

The usage of a safe platform offered by ALEAT and guaranteed by the National Authority for Electronic Certification has enabled our bank to consider offering new services for bankrsquos customers such as digital authentication (the use of certificate installed on the citizenrsquos ID card and confirmation through biometric fingerprint trail and electronic signature (through the use of certificate installed in the ID card)) Put it simple when a customer shows up at the branch he will be asked by a bank employee to show herhis ID card and after it is placed a biometric

Banking System

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


Loan write-offs in the Albanian banking system Whatrsquos next

by Mr Alexander ZSOLNAIVice-Chairman of the Management BoardRAIFFEISEN BANK - ALBANIA

Loan write-off is the word of the day now for the Albanian bank-ing system Due to the new regu-

lation of Bank of Albania (BoA) which makes write off of loan exposures man-datory after fulfilling its requirements the topic became very ldquoprominentrdquo It is important to mention that its only one small topic in the overall overlying issue of high non-performing loans (NPL) in the Albanian banking system It is important to clearly state that the write-off is not aor the solution to tackle this problem It is one small ldquotechnicalrdquo task related to accounting principles

Write-off is referred as a transfer of the bad or uncollectable debt to the off-book accounts of the bank Write-off is presented as a continuous and dynamic process whereby the bank assesses the quality of the asset portfolio When

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

every bank Also tax regulations have to be obeyed Bank of Albaniarsquos Regulation ldquoOn Credit Risk Managementrdquo clearly

Experts Forum

states the decision-making process approval authorities and rules to be applied Of course the deteriorated economic conditions increases the number of bad or uncollectable loans and therefore the volume of written-off loans but the process per se has no difference It should be followed in the same way independent of the state of affairs within the banking industry Nevertheless a write-off does not mean that the Bank waives the right to still pretend the debt from the borrower We have seen some alarming signs either clients or even courts misinterpret the write-offs thinking that the debt is waived This phenomenon has to be monitored closely and to be prevented

Surely the write-off process improves the reported NPLs of the bank and ratios related to the quality of assets A ldquocleanedrdquo balance sheet creates a better idea of the real wealth of the bank and the potential to generate profit and absorb risks Also the NPL ratio of the banking market should then be more precise So for the balance sheets it results in a positive effect For the capital adequacy and banks profitability the effect can be both ways Capital adequacy ratio is related to the prudence of the bank in covering the assets at risk Relating it

Write-offs improve the capital adequacy and have no unexpected negative impact in profit giving to the bank more space for lending It is a normal part of activity during the life-cycle of the loan but it must be clear that it is only an accounting activity

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


to the write-off process we see a direct connection with the provisioning policies and methodologies followed by the banks A write-off is always preceded by a consistent assessment of the potential of the bank to recover a non-performing loan Based on the Central Bank (BOA) as well as IFRS rules a bank consistently estimates the potential loss linked to a certain bad loan by allocating individual loan loss provisions (ILLP) ILLP directly impact the profit and loss thus a bank may be reluctant to set a proper level of provisions But that later may lead toward direct write downs A direct write-down is the write-off of a loan which is not properly covered with provisions and represents an unexpected loss on the bank profit and loss balance

On the unsecured part of the portfolio loans to be written-off should be fully covered with provisions thus there is no need for the bank to charge direct write downs On such condition the write-off improves the capital adequacy ratio as the impact in the moment of write-off is only on the risk weighted assets On the secured portfolio based on International Financial Reporting Standards (IFRS) banks need to directly calculate write-downs in the amount that weighted collateral value was planned to cover the client exposure when performing the write-off This has a direct negative impact in the bankrsquos reported profit and in the same time in the capital adequacy

Bank of Albania regulation requires banks to write-off the loans ldquohellipno later than 3 years after their classifications as ldquoLoss loansrdquo and the classification is generally based on days in delay or when ldquohellipthe bank has deposited at the judicial officer the demand on the beginning of the mandatory execution of collateral if the loan is secured by collateralrdquo IFRS consider the weighted collateral value in provisioning methodology differently from local regulation (BoA) that neglects it Thus based on IFRS a loan should be written-off after all efforts for collateral execution are exhausted In case of an inefficient execution process in order to be in line with BoArsquos regulation the bank might be obliged to write-off a loan prior collateral execution Performing the write-off before the execution procedure is finalized will cause a direct write-

down thus a loss in the IFRS balance sheet

Considering the above rationale it is crucial for Banks to have

bull Proper assessment of the potential impairment losses by allocating the adequate ILLP level

bull Effective execution process within a reasonable time period and reliable juridical system A general revision of the legislation with the aim of positive improvements including mortgage office procedures will support banks to optimize the write-off process

In the same time is the limitation of the tax regulation that states ldquohellipbad loans may be written off from the accounting books i) 365 days after the filing of the request for the commencement of

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

the compulsory execution with the bailiff in case the loan is secured by movable or immovable property or ii) 365 days after the Court has issued the Executive Order in case the loan is not secured by movable or immovable propertyrdquo In such circumstances the bank is ldquoobligedrdquo to increase its costs to cover legal and execution expenses even for cases when the bank expects no recovery through legalexecution procedures Doing so is the only way to avoid additional taxation over bad or uncollectable loans It might be the case not to align tax regulation with legal or execution procedures

As it can be seen banks have to follow several regulations which are not always aligned Therefore authorities in Albania must take actions to align these in order to improve the efficiency and effectiveness of the write-off and provisioning process (implementation of IFRS provisioning policy in the BoA regulation alignment of tax regulation etc)

But can the loan write-off process be helpful for banks As above mentioned write-off process is preceded by a periodically assessment of the bank capability to recover a bad loan by allocating the adequate level of ILLP-s Provisions directly impact the profit In addition prior to write-off there are considerable costs related to the bad loansrsquo execution I would not say that the write-off process is per se helpful itrsquos a normal part of activity during


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the life-cycle of the loan On the other hand it must be clear that write-off is only an accounting activity Even after the write-off the obligation of the client still exists to repay his debt So the bank may continue its collection activities foreclose the collateral or sell the debt to third parties But for sure the most important is a prudent risk management process followed by banks

Now letrsquos turn to the impact the massive loan write-offs in the banking system may have in a possible lending revival and an ease of risks perceived by banks Frankly speaking the write-

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

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


situation of its banking sector contin-ued their rapid deterioration Greek sovereign debt reached the scary figure of EUR 310 billion or about 180 of GDP the economy contracted by 25 during the last 4-5 years the unemployment rose sharply especial-ly among youth citizens approaching 50 etc

Tensions between Troika and creditors and the new government in Athens with a clear anti-Euro-pean anti-capitalist and anti-gl-obalization spirit embodied in the eccentric profile and statements of then-Greek Finance Minister MrVaroufakis were reflected in a chaotic and tense situation as that witnessed in the period from May to August 2015 Greeces insistence on changing the rules of the game including here the pressure with the referendum which gave the government a legitimacy to say NO to humiliating conditions imposed by Troika and EU met with decisive resistance from Eurogroup IMF and ECB The deterioration of situation was clearly reflected in scenarios described as catastrophic Grexit from Euro and its explusion from EU the bankruptcy declaration of Greece etc

Economist Corner

by Prof Dr Adrian CIVICIPresidentEuropean University of Tirana UET-EUT

Greek banks in front of crisisEffects and measures taken in Balkan and Albania

The developments and evolu-tion of the past few months in Greek economy in general and

its complex financial and banking situ-ation put the Greek crisis in the inter-national spotlight particularly that of Troika members ie European Com-mission IMF and ECB The victory of SYRIZA and Prime Minister Tsipras was accompanied by political rhetoric based upon ending austerity measures that were adversely affecting the econ-omy finance and the living standards of Greek people a total review of austerity conditions and negotiations about budget and financial tighten-ing and treatment of Greek debt ldquowith its European partners ECB and IMF in order to negotiate on new eas-ing grounds and longer terms etc Meanwhile Greecersquos main economic and financial indicators including the

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

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

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

whereas Greece had no chance to undertake any potential recapitalization of its banks Even the activation of European Stability Mechanism (ESM) was faced with difficulties and obstacles of a structural nature

During all that period especially in July 2015 a real fear that the liquidity was limited and everything will depend


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

This situation was reflected with a real concern of regional dimensions

in Eastern European countries where Greek banking and financial pre-sence was significant Were Albania Bulgaria Romania Montenegro Serbia Macedonia Kosovo Bosnia-Herzegovina etc threatened to be sucked into the vortex of Greek banking systemrsquos crisis Greek commercial banks have some 2500 branches in Balkan countries and more than 40 thousand employees This question was naturally raised due to the fact that should Athens fail to pay its debts to international creditors Greek lenders controlling important stakes of banking sectors in these countries could provoke a massive withdrawal of their capital On the other hand millions of people who had their deposits in local banks with Greek capital could be affected had a full-scale banking crisis be developed in Greece Greek banks hold important banks in the Southeast European countries and the concern was that if Athens will be forced out of Eurozone its lenders could bankrupt with a domino effect on their branches Standard and Poors warned

that it could downgrade the credit rating of Bulgaria Macedonia Albania Romania and Serbia in the event of Greeces troubles being spilled over their banking systems

Should various governments have to intervene to save them it would harm national finances and their long-term growth prospects would weaken fiscal and debt parameters respective governments According to Standard and Poors ldquothis would adversely affect their evaluation and rating The presence of Greek banks or those with capital of Greek origin is significant in the region Specifically based on data of Q1 2015 three Greek banks in Albania held around 32 of banking capital in Macedonia two Greek banks own 20 of banking capital in Serbia four Greek banks own 15 of such capital in Romania four Greek banks own 176 of the banking capital

However such negative situation and fear was not confirmed following the effect of a set of new anti-crisis measures and policies or prudentiality during



previous years The main preventive measures consisted in

- Bulgaria Greek-owned banks held no Greek Government papers and had not financial policies linked with their parent banks in Greece whereas the central bank of Bulgaria required a strengthening of liquidity in banks with Greek capital and had established controls and limits on transferring financial capital to Greece

- Romania branches of Greek banks were constantly monitored by asking to maintain a capital adequacy level of 17 although the CAR in Romania for other banks was 10 only Also these banks had made an agreement with the government to ensure the securitiesrsquo underwriting in order to guarantee the financial stability

- Macedonia where two banks owned by Greek parent banks were not allowed to withdraw their capital above the 10 threshold or sell their shares to a new investor On the other hand the Macedonian government has set aside a fund of EUR 250 million as a guarantee for banksrsquo capitalization should the risk scenario of bankruptcy by bank panic or massive withdrawals be fulfilled

- Serbia where there are four banks with Greek capital with an estimated banking assets of USD 4 billion some energetic measures were teken for a permanent monitoring of business plans of these banks particularly in their liquidity level and relationships with parent banks in Greece

- However as regards Kosovo the direct impact of Greek crisis is estimated to be minimal as the Kosovorsquos economy has a very low degree of direct exposure to the Greek banking system and economy

But what about Albania in such context and situation The first private bank in Albania was opened in 1996 and it was a Greek bank which later became an important regional giant Other Greek banks came in late lsquo90s to take advantage of the fact that Albania was in the moment of building and establishing its private banking system and to support a kind of regional expansion of Greece in the Balkans In 2008 banks with Greek capital owned 28 of banking systemrsquos assets but its

share in the Albanian economy steadily withered over the period of 2008 - 2011 By end-September 2011 four banks with Greek capital accounted for 22 of banking systemrsquos assets while in 2010 they accounted for 231 respectively The largest drop was observed in the loan market whereas when it comes to deposits these banks are in general equally preferred by Albanians These banks owned 29 of the loan market in 2011 from 345 who possessed in 2010 and owned 41 since 2008 The decline in the share of these banks in the loan market is in fact an undesirable

news for the Albanian economy as their activities during the period 2002-2008 helped the economic growth Currently Greek banks own 17 of total banking assets 16 of deposits or EUR 12 billion and 17 of the loan stock The loan-to-deposit ration for these banks is about 62

The Greek crisis in general and especially its impact on the Greek ba-nking system revealed several concerns even in Albania Would Albania and its financial stability be affected in case of a negative scenario in banks with Greek capital Do these banks risk any bankruptcy Is there any chance that a significant portion of capital from these banks be transferred to Athens to solve problems faced by parent banks Do the bank deposits of Albanians estimated at EUR 12 billion and put with these

The decline in the share of these banks in the loan market is in fact an undesirable news for the Albanian economy as their activities during the period 2002-2008 helped the economic growth Currently Greek banks own 17 of total banking assets 16 of deposits or EUR 12 euros and 17 of the loan stock The loan-to- deposit ration for these banks is about 62

banks face any risk The guarantee that none of these scenarios were expected to happen and in fact did not happen came from the Bank of Albania

Bank of Albania the Albanian Association of Banks and many experts of finance and the banking system confirmed that Albania will not be affected by the situation Greek banks and government were experiencing Albanian banks with Greek capital are not branches of Greek banks instead they are subsidiaries and as such they have got complete independence Since 2010 some legal changes were adopted which consider them as subsidiaries which take charge of their responsibilities separately from their parent banks in Greece Bank of Albania has taken measures that from a legal and organizational standpoint they must act independenly from Greek parent banks Albanian banks with Greek capital in Albania have excess liquidity and excess capital so they are well-capitalized The capital adequacy ratio of Greek banks is above average precisely 17 versus 12 which is the minimum regulatory requirement for banks in Albania Also banks with Greek capital carry out their activity with nearly 100 of Albaniansrsquo deposits It should be noted that a skepticism feeling by depositors is present but the authorities have taken measures which provide surplus liquidity and therefore no problem is forseen so far ldquoThe Albanian banking system including banks with Greek shareholding is financially and operationally independent from the banking systems of other countries All commercial banks are established in Albania as legal entities which carry on banking activity under provisions stipulated on the Albaniarsquos legal and regulatory framework including the capital requirements and banking supervisionrdquoldquo As reflected regularly on the financial statements and information published the banking system in Albania operates at high levels of capital adequacy and liquidity which guarantees its stability normal functioning and independence from negative developments in neighboring countriesrdquo said unequivocally the Albanian Association of Banks


Korccedila Beer FestivalThe Bank sponsored Korccedila Beer Festival suc-cessfully organized during the last 8 years in Korccedila city The Festival objective is to enter-tain the public with live concerts and shows giving special emphasis to kids Through this organization and for the touristic and economic development Korccedila has had by this project the city won the 2010 award for tourism

Young Entrepreneurs of Albania SponsorshipThe bank in collaboration with the Albanian Chamber of Commerce and CcedilELEumlSI imple-mented the ldquoYoung Entrepreneurs of Albaniardquo project initiated by Partners Albania Center for Change and Conflict Management The project aimed at supporting young vocational schools students to develop their entrepreneurial am-bition and skills by designing and selling their business ideasThe project was requested by the Ministry of Social Welfare and Youth in line with the strategic priorities of the National Strategy for Employment and Skills 2014 ndash 2020 The Bank sponsored the ldquoSmart stickrdquo project a stick de-signed to provide comfort to blind people

Sponsorship to Mother amp Child Foundation ndash X-ray equipment for newborns The bank in cooperation with Mother and Child Foundation donated an X-ray equip-ment to ldquoQueen Geraldinerdquo Maternity This equipment will help the health personnel to promptly trace potential problems in newborn babies

ldquoAdopt a kindergartenrdquo initiativeIn the framework of ldquoAdopt a kindergartenrdquo initiative the Bank engaged in renovating the internal structure of Voices of life kindergar-ten situated in Kamza area in Tirana Besides

Even this year as every year Credins Bank choses to support SOS Village by way of cov-ering living expenses for two children The sponsoring of Polyclinic of Specialties No3 of the capital in the frame of the assistance the bank provides to community especially in the health sector has created a significant impact on improving facilities in the best interests of citizensOther sponsorship happenings are also in line with our objectives to be present at artistic and cultural events in the country Some of the events to be mentioned are the financial sup-port in organizing the annual Peza festival as well as the financial support for establishing the museum of women traditional dress from different provinces

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

the renewal of the children rooms through the replacement of the existing educational materials the Bank also improved the internal hydraulic pipeline decorated the internal and external area of kindergarten and delivered toys which assist the didactic process as well as stimulate and develop childrenrsquos logical and mathematical skills The event was attended by Mr Erion Veliaj Mayor of Tirana and Mr Periklis Drougkas CEO of Alpha Bank Alba-nia

Academic year-end eventOn the occasion of academic year closure the Regional Educational Directory Tirana insti-tution organized an Artistic - Sportive Event supported by BKT This event has turned into a very successful tradition in recent years for schools in Tirana

The Best Bank in Albania for 2015Banka Kombeumltare Tregtare is reconfirmed as The Best Bank in Albania for 2015 by Euromoney Magazine based on its excel-lent performance This award which BKT is receiving for the fourth consecutive time confirms the position of the Bank as innova-tive financially strong and leader within the Albanian Banking system The award comes right after a similar evaluation by the other two prestigious magazines The Banker and EMEA Finance which awarded BKT as the Best Bank in Albania

Social Capital


Fibank in Korca Beer FestWe have the pleasure to announce that for the 1st year Fibank is an official sponsor at 2015 Korccedila Beer Fest during 12- 16 August Korca Beer Fest is the biggest event of this kind in Albania Within 5 days over 100000 people visit the festi-val The large number of visitors is mostly due to basic festival principles free en-trance an exceptional music program and a wide range of foreign and domestic beer brands

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

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

Fibank as main sponsor of FIAArsquos 15 year anniversaryFIAA has recently celebrated its 15th An-niversary Foreign Business Community members and the Highest Representatives of the Albanian Government were gathered at the Palace of Brigades in a friendly at-mosphere On this occasion members who have trusted FIAA for 15 years were given special awards in the presence of the Prime Minister of Albania Fibank as FIAArsquos newest addition was also one of the main sponsors of this special event

Fibank as general sponsor for Korcarsquos seasonal employmentThe bank has become now the lead spon-sor of Student Seasonal Employment orga-nized by Korca Municipality For the fourth consecutive year Fibank Korccedila Agency has supported this wonderful project carried through by Korca Municipality on student seasonal employment During the ceremo-ny the certificates of participation where distributed to all students who were part of this event The event was attended by the Mayor of the Korca Municipality munici-pal employees Fibank Executive Director and 60 students involved in the project

Long-term cooperation with UT Faculty of EconomyCEO of Intesa Sanpaolo Bank signed an agreement with Dean of UT Faculty of Economy under which the bank is com-mitted to a long-term cooperation with this institution of higher education pro-viding students with opportunities of in-ternships in a real business environment engaging them in scientific research as well as participation of banking specialists in special lectures as that delivered by Mr Pedrazzi CEO of the bank entitled Les-sons learned from Crises Challenges of the Banking System

Gifts for Roma children at the start of the kindergarten seasonDuring September The bank in collabora-tion with the YWCA joined the initiative Every Roma Child to Kindergarten The bankrsquos form Durreumls Berat Shkodra and Lezha branches became part of this completely voluntary initiative by pre-paring 50 gift packs containing didactic and teaching tools as well as clothing for Roma children aged 2-5 years living in these districts

Assitance with IT equipments for collab-orators in LushnjaBank donated computer equipments to ALUIZNI Regional Directorate Lushnja (Agency for Legalization Urbanization and Integration of Informal Construction and Areas) by expressed once again its support for the countrys economic de-velopment through cooperation with all stakeholders

Social Capital


Raiffeisen Bank Albania honored with the title The gratitude of the City by the City of GjirokastraIn the framework of 10th Anniversary of in-clusion in UNESCOrsquos World Heritage List the city of Gjirokastra organized a series of activi-ties with local community local businesses and nonprofit organizations that focus on preserv-ing the citys heritage In a special ceremony Raiffeisen Bank Albania was awarded the title City Gratitude for its valuable contribution in various sectors such as health education and culture The award was handed over by Mayor Bime to Mr Christian Canacaris CEO of Raiffeisen Bank

Sponsoring the social event Follow your dreamEven this year the bank was the general spon-sor of the social event Follow your dreams organized by the Association of Aerobic Ar-tistic Gymnastics The event was organized on the occasion of May 20 the International Day of Orphans As every year this massive sporting - artistic event was attended by more than 500 children aged 5-18 years coming from 9-year schools and high schools and or-phanages from Tirana Durreumls Shkodra Vlora Lushnje Kosovo etc Raiffeisen Bank has long supported the Association of Aerobic Artistic Gymnastics which even this year has success-fully organized such event

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

Donation to Education Office of SarandaIn view of its mission to support education the bank has donated office equipment to the Ed-ucation Office of Saranda

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

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

In support of new footballersThe International Football Academy in Tirana has just signed a cooperation agreement with Udinese Calciordquo one of the best-known football teams in Italy Veneto Banka is part of this cooperation by way of investing in new football fields of International Sport Complex in Pezeuml-Helmeumls where young football tal-ents will be trained and promoted

Dental Cabinet donated to the Hospital of HimareVeneto Banka continues its financial sup-port for Himara Municipality and this time together with Energia e Sorrisi the Humanitarian Association of Vicen-za donated a dental cabinet to Himara Hospital The donation from Italy along with medical assistance was handed over to Mr Jorgo Goro Mayor of Himara

Social Capital


to look at the periodic rate that will be used to calculate the finance charges

Banks that issue credit cards with variable-rate plans use indexes such as the prime rate the three six or usually twelve-month Treasury-Bill rate Variable rates are not just that they change and can also increase or decrease a cardholderrsquos finance charges based on the main indexes changes

How Credit Cards Work How to benefit from an Installment Plan

by Mrs Monika BALLTAHead of Cards Department Retail Banking DivisionTIRANA BANK

Have you ever stood behind someone in line at the store and watched him shuffle through

his wallet with at least 5 cards Con-sumers with this many cards are still in the minority but experts say that the majority of people have at least one credit card and sometimes count two or even three Its true that credit cards have become important means of identification - if you want to book your vacations for example you real-ly need a credit card And used wisely a credit card can provide convenience and allow you to make purchases with nearly a month to pay for them with-out paying any interest or other finance charges That sounds good in theory But in reality many consumers are un-able to take advantage of these bene-fits because they carry a balance on their credit card from month to month paying finance charges that can go up

to a whopping 23 percent The card-holder pays the bank either the entire balance or in monthly installments with interest paying only the manda-tory minimum payment (sometimes called carrying charges)

It is interesting to know how the credit card works both financially and technically and well offer tips on how to choose the right credit card We will also describe the different credit card plans available - which plan to choose that fits better with the customer needs The costs and terms of a credit-card plan can make a difference in how much a cardholder pays for the privilege of borrowing (which is what theyre doing when using a credit card) One of the major factors to consider in a credit-card plan is whether it has a variable or fixed interest rate Whether the credit card plan uses a variable or fixed rate in charging interest can have a significant effect on what the cardholder pays to use his card For example if you always pay your monthly bill in full the best type of card is a revolving one that has no annual fee and offers a grace period for paying your bill before finance charges kick in If you dont always pay off your balance each month be sure

Tech Topic

There is no single credit card that is considered right for everyone Basically the right card for the customers is one thats accepted wherever they shop and charges them the smallest amount of money for the services they use

Beside the cardholdersrsquo benefits for creating an affordable repayment plan bigger purchases and the possibility to split and pay with fix installments on bankrsquos side the Monthly Installment Service leads toward higher usage and profitability since transactions are split and the longer term revolving balance increases commissions and interest revenues


On the other side letrsquos take a good look at fixed-rate plans There may be a couple of percentage points higher than a variable rate but you will have the advantage of knowing what your interest rate will be Some financial experts argue that because a fixed rate can be increased with only a 15-day notice this plan is not that different from a variable-rate plan which is subject to change at any time They advise looking closely at both plans

However regardlesnots of which plan a customer chooses theyre going to be making payments There are basically three types of individual credit cards known globally

bull Bank cards issued by banks (for example Visa MasterCard etc)

bull Travel and entertainment (TampE) cards such as American Express and Diners Club

bull House cards that are good only in one chain of stores (ie phone companies oil companies and local department stores)

In the Albanian market we are also becoming familiar with what is known as an affinity card This card type typically a VISA or MasterCard carries the logo of an organization in addition to the banks logo Usually these cardholders derive some benefits from using the credit card ndash may be discounted phone bill payment frequent-flyer miles or points toward merchandise The organization that uses an affinity program in collaboration with a bank solicits its members to get such cards with the idea of keeping the groups name in front of the cardholder In addition to establishing brand loyalty the organization receives some financial incentive (a fraction of the annual fee or the finance charge or some small amount per transaction or a combination of these) from the credit-card company

There is no single credit card that is considered right for everyone Basically the right card for the customers is one thats accepted wherever they shop and charges them the smallest amount of money for the services they use The latest trend in the local market that is becoming more useful especially in the last two years is purchase of goods

andor services through installments either via consumer loans or with credit cards An ldquoInstallment Debtrdquo means a loan that is repaid by the borrower in regular installments and is generally repaid in equal monthly payments that include interest and a portion of principal The size of the monthly installment debt payments depends on a number of variables including the price of the item interest rate charged down payment loan term and debt-servicing capacity of the buyer The dealer or seller gains through increased sales volumes while the lender benefits by charging higher rates on installment debt than can be charged on other loans

Additionally if we are referring to purchases performed with a credit card in this case the Monthly Installment Service (MIS) is the installment facility

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

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

The other way how this service is offered is starting from the issuer for all purchases worldwide either in pre-defined ranges or upon cardholderrsquos choice regardless in which POS the credit card is used creating more flexibility for the customer This service in Albania is offered by Tirana Bank on issuing side allowing all its credit card holders to benefit from this service for every purchase they perform not only domestically but also internationally including online purchases in internet Through this service every Tirana Bank credit cardholder can split a purchase transaction into fix installments based on the default installment ranges of 3 6 9 and 12 installments The installments are considered for the purchases amount ranges up to 500000 ALL

Beside the cardholdersrsquo benefits for creating an affordable repayment plan on bankrsquos side the Monthly Installment Service leads toward higher usage and profitability since transactions are split and the longer term revolving balance increases commissions and interest revenues On the other side this is a facility that pushes the cardholders toward purchases with bigger amounts since they have the possibility to split and pay with fix installments In Albania there is still a long way toward education related to cards usage in POS However the advanced technology and global market innovations that are being adapted for our local cards market but also the frequent usage campaigns run by local banks in the last years will soon show positive results in this direction



for specific project by various national and international financial institutions be they public or private

In the latter cases lenders play at the same time a financial function as well as a political function in the frame of selecting countries in which they will invest and in choosing a specific infrastructure to be financed within those countries Practically these choices often promote positive or negative political relations with funding and non-funding countries which determine local economic and social development which in turn may cause different returns even for lenders and their respective countries Letrsquos think for example about the direct or indirect conditions which lending or capital injection contracts may impose on modalities of construction and management of infrastructures (eg the selection of suppliers)

In the context of institutional lenders for infrastructure development the so-called World Bank and the European Investment Bank for the Western Europe grew in importance during the first decades following the end of World War II In recent years an investment bank was established again for financial and political reasons to operate in the

Financial Auditorium

by Mr Roberto RUOZIProfessor emeritusUNIVERSITAgrave BOCCONI DI MILANO

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

The economic and social devel-opment requires anytime and anywhere a solid network of

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

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

The participation in a club (as the AIIB does exists) is certainly useful provided that the relative cost is limited the political will and the technical capacity to be at least an observer if not protagonist of what happens in the funded areas and to have the possibility of reaction if necessary does exist

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

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


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

As per above and given the financial resources the bank should be able to

collect from associated countries AIIB may turn into a suitable alternative compared with other above-mentioned international development banks particularly the World Bank Meanwhile there should be no relationship neither complementary nor competitive with the International Monetary Fund due to structural differences that should characterize their respective activities In fact the IMF should continue to operate in the short term while the AIIB by definition has to act only in the long term

Finally the question may arise whether this initiative may be of interest to Balkan countries and for Albania too According to Article 1 of AIIBrsquos Articles of Agreement these countries are not among those benefiting from the Banks initiatives as they are limited in Asia as defined by the United Nations Nevertheless they may have indirect benefits by joining the capital of AIIBs as per above discussed for which I only recall that the participation in a club is certainly useful provided that the relative cost is limited the political will does exist and technical capacity to be at least an observer if not protagonists of what happens in the funded areas and to have the possibility of reaction if necessary

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

Currently the AIIBs membership comprises 57 countries among which some twenty non-Asian countries including Italy So it is particularly important (especially from a political perspective) the participation of United Kingdom Germany Australia and Russia whereas the United States and Japanrsquos absence is quite obvious as they have not shared the AIIB establishment

infrastructures are necessary to manage the structural changes the globalization of economies and the evolution of society in developing countries they are essential to carry out the classic economic and social development and to increase the level of populationrsquos collective welfare

Meanwhile the international economic financial and political balances have changed and now the Asian continent has gained greater weight in the international scene Typically is a very heterogeneous continent where strong and weak countries do coexist with each other both in terms of demand and availability of resources The overall dimensions of each country require financial resources necessary to build the respective infrastructures outstrip the lending potential of classic multilateral lenders as those mentioned above

Thus it was no wonder that under the leading role of the greatest Asian power the Peoples Republic of China the Asian Investment Infrastructure Bank (AIIB) was founded in Beijing in 2014 According to Article 1 of its Articles of Agreement the AIIBrsquos objective is (i) foster sustainable economic development create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions To achieve these objectives under Article 2 of AIIBrsquos Articles of Agreement it may invest mainly in development projects public or private either in the form of equity investment or lending

Currently the AIIBs membership comprises 57 countries among which some twenty non-Asian countries including Italy So it is particularly important (especially from a political perspective) the participation of United Kingdom Germany Australia and Russia whereas the United States and Japanrsquos absence is quite obvious as they have not shared the AIIB establishment A question may arise whether these countries will change their mind along


Business Contribution in educating future entrepreneurs

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

successful specialistsFor the first time in the history of

the Albanian education JA brought as a culture the online mentorship process where business mentors through SKYPE technology could fulfill their mission in suburban schools where their physical participation is impossible PricewaterhouseCoopers Tirana International Airport amp Vodafone have made it possible to equip 11 schools with mini laboratories thus ensuring a direct access of businesses at schools by breaking physical barriers

We at JA do believe in the indefinite potential of young people so we share their passion for excellence respect the talent and creativity celebrate their integrity and honesty and we are determined to create opportunities so that they are grown and developed as successful young people

Junior Achievement empowers young Albanians to own their success

Junior Achievement (JA) is an edu-cation program which conveys to the youth through its methodol-

ogy some practical knowledge about entrepreneurship prepare and inspire them to be successful in the market of global economy This program teaches young people how to establish a busi-ness which generate jobs In this regard young people invest to develop values skills attitudes which are quite nec-essary to obtain increase and manage their own incomes The implementa-tion of Junior Achievement program in Albania is made possible as a direct investment of American - Albanian De-velopment Foundation (AADF) Thanks to AADF strategic support and institu-tional cooperation with the Ministry of Education and Sports the JA Program is extended to 170 schools (general and vocational) throughout the country just being in its fourth year of imple-mentation

The education on entrepreneurship takes an added value when the business and entrepreneurs are involved in the process of educating the young generation The business leaves tracks in empowering young people with knowledge and experience which will be carried throughout life through its direct contribution in organizing and undertaking various initiatives and activities The participation of businesses professionals as volunteers in the teaching process serves not only as an inspiration source but also as a success model which guide young people in setting milestones for success They have the chance to be mentors and why not guards of the first initiatives and experiences of young people The individual financial institutions and the banking system as a whole play a substantial role in the successful implementation of JA initiatives not only through intellectual and professional capacities (business

The participation of businesses professionals as volunteers in the teaching process serves not only as an inspiration source but also as a success model which guide young people in setting milestones for success

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

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

17 new ldquoGlobal GoalsrdquoThe 17 Sustainable Development Goals were launched and agreed at the UN Summit held in New York from 25-27 SeptemberThe goals range from ending extreme poverty and hunger through to tackling climate change Within the SDGs are 169targets A global measurement architecture with some 120 associated indicatorsmdashwhich will set out specific deliverables and measure progressmdashis being developedThe SDGs will enter into force on 1 January 2016 and will apply through to the end of 2030

Funding the Goals the trillion-dollar questionOne UN study has placed the cost of financing implementation of the goals at $8-10 trillion The recent Third UN Conference on Financing for Development in Addis Ababa agreed a comprehensive financing package to support the implementation of the SDGsIn addition to government funding the new agreement places a significant focus on mobilizing private sector resourcesmdashincluding through ldquoinnovativerdquo public-private partnerships

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

Sustainable Development GoalsPeople Planet Prosperity



AAB Activities

Trainings

Working breakfast with media representatives 17 September 2015

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

Training - trip with economic journalists 3-4 October 2015

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

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

Leading from Where You Are 21-22 September 2015AAB in collaboration with Lincoln Center organized a two-day course led by the trainer Cindy Balazs The training intended to help participants understand how they lead and how they can lead others better while contributing to their organization The participants engaged in problem solving reflection and application to become better leaders with the ability to help develop others

Excellence in Sales 22-23 September 2015AAB in collaboration with WIFI Albania organized a training course on sales lectured by the international trainer Eric Molin and attended by 11 participants from AAB member banks Kosovo banks and other financial institutions The training course was designed for sales managers who want to refine sales planning techniques build leadership skills and become more powerful decision makers motivators communicators and counselors


Financial Education

DEPOSIT INSURANCEOCTOBER 2015

HOW THE ldquoTHE INTEREST RATErdquo IS FORMEDJULY 2015

MORTGAGE LOANJULY 2015

CONSUMER LOANMARCH 2015

PAYMENT METHODSDICEMBER 2014

BANKS CARDSDICEMBER 2014

BANKING COMMISSIONS OCTOBER 2015

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


2 wwwaabal Bankieri

ITS TIME TO CHANGE THE

WORLD

AAB MEMBERS

3 wwwaabal Bankieri

EDITORIAL TEAM






Printed by

EDITORIAL BOARD


















o 1

7 O

ctob

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015


Elvin MEKA







Adela LEKA




Adrian HASA


Alexander ZSOLNAI


Adrian CIVICI



Monika BALLTA


Roberto RUOZI



AAB Activities

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6

7

9

12

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16

18

21

22

26

30

34

37

39

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S P E C I A L


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伀猀攀






伀猀攀


Interview



























Banking System




















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Experts Forum




































Economist Corner










































Social Capital










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Tech Topic





























































AAB Activities

Trainings









Financial Education










3 wwwaabal Bankieri

EDITORIAL TEAM






Printed by

EDITORIAL BOARD


















o 1

7 O

ctob

er 2

015


Elvin MEKA







Adela LEKA




Adrian HASA


Alexander ZSOLNAI


Adrian CIVICI



Monika BALLTA


Roberto RUOZI



AAB Activities

5

6

7

9

12

15

16

18

21

22

26

30

34

37

39

41

42

5 wwwaabal Bankieri

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S P E C I A L


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伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education










5 wwwaabal Bankieri

Editorial











6 wwwaabal Bankieri

Frontline










S P E C I A L


6 wwwaabal Bankieri

7 wwwaabal Bankieri

Frontline










8 wwwaabal Bankieri











9 wwwaabal Bankieri

Frontline




































Frontline
























伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education










6 wwwaabal Bankieri

Frontline










S P E C I A L


6 wwwaabal Bankieri

7 wwwaabal Bankieri

Frontline










8 wwwaabal Bankieri











9 wwwaabal Bankieri

Frontline




































Frontline
























伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education










7 wwwaabal Bankieri

Frontline










8 wwwaabal Bankieri











9 wwwaabal Bankieri

Frontline




































Frontline
























伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education










8 wwwaabal Bankieri











9 wwwaabal Bankieri

Frontline




































Frontline
























伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education










9 wwwaabal Bankieri

Frontline




































Frontline
























伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education

































Frontline
























伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education























伀猀攀






伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education














伀猀攀


Interview



























Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education





















Banking System




















Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education




























Banking System



























Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education
































Banking System










Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education


















Experts Forum




































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education









































Economist Corner










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education










































Social Capital










Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education



















Social Capital










Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education



















Social Capital










Tech Topic





























































AAB Activities

Trainings









Financial Education



















Tech Topic





























































AAB Activities

Trainings









Financial Education




































































AAB Activities

Trainings









Financial Education











Financial Education










bankieri no. 17 - october 2015

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