Bank of Albania – response to COVID-19

Nowadays, the world and Albania are facing an unprecedented situation, a health crisis caused by COVID-19, which has obliged government to undertake extreme measures and disrupt a range of activities in the public life.  All together we are engaged to counter successfully this crisis, to protect our health. At the same time, we have to manage the economic situation, which is affected considerably by this crisis; to help economic agents withstand the difficult conditions; and establish the possibilities for a restart of the activity at the best manner as possible.

In this framework, the main public institutions in Albania have undertaken continuous coordinated measures, to highly coordinate the joint efforts against this invisible enemy and the damage it is causing in our life. 

In response to this situation, the Bank of Albania undertook immediate measures to support the Albanian economy which is hit by coronavirus pandemic.  

The undertaken measures aim at mitigating the negative impacts on the welfare of enterprises and households, as well as establishing the premises for a very rapid recovery of economy in the following period.

The bank of Albania continuously monitors the situation and extends its willingness to employ all the operational instruments and regulatory space available, to minimise the consequences of the pandemic on the economy in general and on the Albanian financial system in particular. 

The goal of our decision taking will be the safeguarding of the monetary and financial stability in Albania, the easing of the crisis costs to Albanian enterprises and households, as well as the overcoming of this situation at less negative effects possible in order to not affect the long-term development of the country.

In this regard, the measures undertaken by the Bank of Albania, within its field of competence, enable and complete the fiscal package announced by the Albanian Government, which aims at shifting a part of the financial bill to counter the crisis from private to public sector.

The measures taken in the field of monetary policy aim at reducing the borrowing cost and the continuous lending to economy.  The fulfilment of these preconditions paves the way for the achievement of our objective to maintain price stability in the medium and long term.

  •  Reduction of policy rate

On 25 March 2020, the Supervisory Council of the Bank of Albania decided:

  • to reduce the policy rate from 1.0% to 0.5%;
  • to reduce the interest rate for the overnight lending facility from 1.9% to 0.9%to reduce the policy rate from 1.9% to 0.9%;
  • to maintain the interest rate for the overnight deposit facility unchanged, at 0.1%

The lowering of policy rate is a necessary measure to: reduce the costs of new borrowing; decrease the servicing cost of the existing debt; and ease the liquidity circulation to Albanian enterprises and households. It helps the smooth functioning of the monetary policy transmission mechanism and eases the pressure on the financial balance sheets of the economic operators, providing them with more time, space and breath to tackle the shock.

  • Liquidity injection

In strengthening the accommodative monetary policy stance, so far implemented by the Bank of Albania, starting form middle of March, the auction for the weekly injection of liquidity has changed from limited amount to fixed price auction.  This change provides room to commercial banks to take from the Bank of Albania liquidity with no limit, at the cost of the policy rate set out by the Bank of Albania, which for the moment stands at 0.5%.  In this way, the Bank of Albania aims at avoiding the stress on providing liquidity no only to the banking system, but to all market operators, in order the entire economy has sufficient liquidity to operate normally.  This measure in addition to the spaces created for the further reduction of credit cost in the market provides to the economic agents more possibilities to deal with the difficulties of the moment.

Also, the Bank of Albania has increased the size of liquidity injection beyond the one-week period, for the purpose of completing the above stated objective. 

  • Exchange rate

The Bank of Albania has continued to closely monitor the behaviour of the exchange rate in the domestic foreign exchange market, aiming at a timely reaction to avoid/minimise the cases when operators of the market have stress to operate in this market.  In this light, the Bank of Albania re-emphasises that it operates under a free-floating exchange rate regime, where the value of the Albanian currency (lek) against foreign currencies is freely determined in the foreign exchange market.

Without prejudice to the free exchange rate regime, the Bank of Albania may carry out operations in the foreign exchange market in order to:  avoid disruptions in the domestic foreign exchange market; adjust the exchange rate to the level determined by key macroeconomic factors; and increase or decrease the foreign currency reserve.

The Bank of Albania emphasises that the continuous assessments on the economy and Albanian banking system soundness remain valid.  In more concrete terms:

  • Albania enjoys a good economic and financial soundness;
  • The parameter of the economy and banking sector functioning are sound;
  • Liquidity and capital reserves of the Albanian banking sector are high.

Nevertheless, the measures undertaken by the Albanian Government to contain the spread of coronavirus COVID-19, are expected to impact the volume of the activity of enterprises and consequently also the reduction of generated income level. Hence, the slowdown in the activity of the economic units may affect the solvency of these entities for the following period.

  • Regulatory changes

In this framework, the Bank of Albania has adopted regulatory amendments, which provide for facility to banks, non-bank financial institutions and to savings and loan associations and their union for the period March - May 2020, that in any case of evidencing borrowers’ insolvency, these entities nay not be obliged to implement the respective regulatory measures, which mainly relate to the classification and creation of provisioning funds.  These amendments set forth neither budget expenditures nor additional cost to the entities.

  • Guidelines to banks

The Bank of Albania instructed commercial banks that conduct their activity in Albania, on some good orienting practices for a coordinated approach to the process, such are: i) the compilation of internal procedures for this purpose, which should be transparent, clearly and carefully transmitted to all functions and units of the bank; ii) use of electronic means of communication, as electronic mail or digital platform, as a more effective way to address the clients’ applications to postpone the credit payments; iii) instruction on some criteria for assessing the clients’ applications by type of client (households and enterprises), the need for documenting; etc.; iv) recommendation that entities be focused on the cases addressed through a valid application, and be careful in addressing all the problematic exposures prior into the entry into force of the order; v) the calculation of interests, penalties and instalment for the postponed period; vi) recommendation on gradual documenting of the agreements signed with the clients as well, to avoid both legal and operational risks; and vii) the guideline that through a special code, the entities make identifiable the credits approved with a postponed instalment, with the purpose their internal monitoring and reporting, also for reporting purposes at the Bank of Albania, according to the requirements in the future.

  • Suspension of the allocation of profit from banks

The Bank of Albania has suspended the allocation of profit from banks up to the end of June 2020. This decision affects the profit retained from the previous periods, the profit realised in 2019 and the profit to be realised during 2019 H1.

This measure aims at providing support to banks, mainly through strengthening their capacity to absorb the possible losses and to support lending to households and enterprises during this period.

  • Eased treatment of banks’ exposures

Another measure taken by the Bank of Albania was the eased management of banks’ exposures to Albanian government debt securities in foreign currency, for those securities to be issued during 2020.  In more concrete terms, the easing consists in weighting by 0% the investments of banks in these securities for the purpose of calculating the risk-weighted assets according to the capital adequacy regulation and for the exclusion/reduction of the exposures to these securities, from the calculation of the maximum allowed exposure, according to the Regulation on large exposures. This eased treatment shall be applicable till the maturity of these securities.

  • Measures taken by the Bank of Albania for the rescheduling the loan instalment

The Bank of Albania has created to banks and non-bank financial institutions the facility  to postpone with three months the payment of instalments  of loans of their clients, due to the difficult financial situation being created by COVID-19 pandemic.

  • Order

Hence, pursuant to the Order of the Governor and Prime Minister , banks and other financial institutions may accommodate the needs of clients for a rescheduling of loan instalments, by not charging them with penalties or deterioration of the borrower's status, because the non-payment of loan is due to the difficult situation during these days and is out of their control.

  • Guideline to citizens and enterprises

In accordance with the Guideline of the Bank of Albania, to make this possible, it is needed that all the borrowing enterprises and households, who are economically and financially affected by the created situation and want to benefit from the provided facility, to present their argued applications to the financial institution (bank, non-bank, savings and loan association) with which they have entered into a borrower-lender relationship.

Then, it will be the financial institution (bank, non-bank, savings and loan association) which, in collaboration with the borrower, will assess the application, and based on the case specifics, will provide the respective solution.

Meanwhile, the borrowers, whose solvency is neither affected nor damaged from the situation, should normally continue to pay their liabilities to these institutions.

The general address of the Bank of Albania, public@bankofalbania.org, is available to all citizens and enterprises. They may address here if they do not find the understanding with the entities where they have received a loan, by specifying the name of the bank/ the entity with which they have a borrower-lender relationship, the financial difficulties due to the created situation, and by making available the complete correspondence with banks/ entities. In addition to the usual requirements for information, the Bank of Albania has responded to more than 350 e-mails of citizens related to their concerns for the rescheduling of the loan payments.

  • The temporary removal of commissions

Also, the Bank of Albania has decided to remove temporary the commissions applied by banks on the transfers of loans in lek in non-paper form from their clients, and the fees for participation in AIPS and AECH systems operated by the Bank of Albania, starting from 10 April 2020.

The purpose of this Decision is to support the clients of banks to continue perform their payment given the restriction of movement and also to minimise the risks of population gathering at banks’ branches.  In more concrete terms, this Decision aims at making more attractive the use of remote banking services through the elimination of this service costs.

  • Smooth Operation of payment system

The Bank of Albania has guaranteed the smooth operation of the electronic payment system, by easing the circulation of cash in economy among its users, notwithstanding the created difficulties. With the limited time of movement decided by public authorities, all the economic operators should be aware that the payment system will continue its normal operation.  

  • T-bills operations

Access to the Bank of Albania's buildings is restricted considerably, due to the intensified hygienic measures.  Service at the Bank of Albania's windows for the treasury bills at the head office and at branches has continued according to the determined time limit of movement and by implementing the maximum hygienic and social distancing measures.

  • Other

Visits at the Museum of the Bank of Albania  the internships for students are suspended till a second announcement. The Bank of Albania is working to create a virtual tour of its Museum, to provide visitors with the possibility to on-line know the history of the Albanian currency and its journey.

  • Normal supply with cash

Bank of Albania has increased the operating capacities to guarantee the uninterrupted supply with coins and banknotes to economy.  It has taken all the necessary decisions and has engaged all its structures to meet the market requests for cash, by simultaneously providing a sufficient stock with the purpose to counter the increasing needs of the economy. 

Until 23 April 2020, currency in circulation increased by ALL 6.4 billion compared with 31 March 2020 and with ALL 9.6 billion compared with the end of 2019.  In April 2020, currency in circulation compared with the same period in the previous year increased by ALL 5.7 billion (ALL 6.4 billion from ALL 0.7 billion), and from the beginning of year it increased by ALL 9.4 billion (ALL 9.6 billion from ALL 0.2 billion in 2019).

In addition, to meet the perspective needs for cash, the Bank of Albania is observing with priority the procedures for the production of the new series, denominations 1000 Lekë and 10000 Lekë, which will be put into circulation within this year.

  • Cash processing

The Bank of Albania, in the framework of measures to prevent the coronavirus spread, has continued the cash processing under strengthened hygienic and packing in high temperature.  The processing is long and needs time, which makes difficult the virus to survive for a long time, while the banknotes and coins return into circulation.  In addition, the Bank of Albania has re-organised the cash processing, by postponing it, in order to minimise the surviving of the virus in the banknotes accepted by commercial banks.

Nevertheless, the Bank of Albania recommends the increase of personal hygiene during the use of banknotes, as determined in public instructions distributed by the Albanian government.

  • Spread of virus through banknotes

In these moments, there is no special warning from either world public authorities or from international association of currency affairs for the transmission of virus through cash. 

The International Association of Currency Affairs (IACA) in an official letter  addressed to the World Health Organisation, notes that so far there is no indicator that cash is a particular bearer of virus more than any other touchable surface. 

The European Central Bank, in its blog, informs the public that cash does not pose additional risk for infection compared with other surfaces with which we are in everyday contact. Also, Detuche Bundesbank in a briefing notes that the probability of infection from handling cash is smaller than from many other objects used in our everyday life. Banknotes and coins pose no particular risk of infection for public.

The Bank of Albania has closely collaborated with all public authorities, actors in the market and the international financial institutions to contribute in drafting the more adequate policies to tackle the situation being created in Albania from COVID-19 pandemic.

  • Collaboration within the country

In compliance with the legal framework, the Bank of Albania has strengthened its advisory role to the Albanian government, in both the analysing of the economic and financial impact of the crisis, also for the compilation of the necessary policies in these times. 

Within its limits of competency, the Bank of Albania has been active in all discussions, national forums and work groups with the President, the Council of Ministers, the Parliament, Parliamentary Commissions, and the Ministry of Finance and economy, by contributing in the preparation and a rather rapid response to the crises and its expected effects at national level.

  • INTERNATIONAL COOPERATION

During this period, the Bank of Albania has actively collaborated with the International Monetary Fund, the World Bank Group, and the European Bank for Reconstruction and Development, the European Commission and many other international institutions, discussing on the advisory and compilation of the policies, technical assistance and the financial support to Albania. 

In this framework, the Bank of Albania will continue to closely collaborate with all the main authorities and market actors, in Albania and abroad, to compile and implement the best practices, in order the deterioration of the situation be temporary and to not affect the welfare of citizens in the long term. 

The Bank of Albania emphasises that the minimisation of the long-term consequences of the pandemic requires serious, coordinated and harmonised efforts, by all public and private authorities in Albania.

To inform the public on the measures undertaken by the Bank of Albania to confront the situation, the managers of the Bank of Albania have given interviews in various media, by responding to the questions of journalists and public opinion:

The Decisions taken by the Supervisory Council and the Administrators of the Bank of Albania to counter the situation are published in the Official Bulletin.

  • Business continuity

Bank of Albania has in place a complete and updated framework to manage business continuity in case of crisis and emergency.  These planes have been subject of regular tests on the functionality of continuance procedures and that has driven Bank of Albania to be prepared in tackling an emergency situation. 

In response to the situation created from CoVID-19 pandemic, the Bank of Albania has been implementing its Business Continuity Management Policy of the Bank of Albania, which has been adopted by the Supervisory Council in 2019. 

The main concern of the Bank of Albania in case of a crisis/emergency is the security and welfare of employees, collaborators and other individuals; the avoidance of damages to buildings; loss of wealth or data; minimisation of the event consequences and ensuring the timely continuation of critical functions; minimisation of financial loss; recovery of normal functioning of the Bank of Albania activity as fast as possible.

In this framework, the Bank of Albania has undertaken a set of necessary measures in line with the decisions of the Government and the Ministry of Health to face the situation created from the spread of coronavirus in Albania, which aims at safeguarding the health of the employees, and at the same time, to carry out of its main functions, as the central monetary authority, in supporting the economy in Albania.

  • Distant communication and work

Currently, the Bank of Albania is working with reduced staff within its physical premises, and complete staff from home.  The Bank of Albania is implementing the protocols on the distant communication and work safely and efficiently of the employees, which support them to contribute with their expertise and professionalism in the decision taking of the Bank of Albania, notwithstanding the physical obstacles.  All the core activities of the Bank of Albania has continued normally, with no disruption, by providing to it the possibility to continue to be a responsible institution, able to successfully deal with this type of situation, for the good of public health and social welfare. 

Even in these difficult days, the Bank of Albania has shown the maximum commitment to serve the country: it has guaranteed the circulation of cash and the smooth functioning of the payment systems; it has supervised the financial system; and has responded to all requests of banks and other financial intermediators; it has intervened in markets to ensure the monetary policy pass through; it has actively supported with the data and analyses all the main intuitions in Albania, by helping to shape the national policies.