PRESS RELEASE
Q&A with Governor Fullani at the press conference on BoA Supervisory Council decisions on Monetary Policy, 23 December 2010

Unlike other countries of the region, Albania has had a price stability that might be envied. I am referring to the situation of Kosovo, which has had an inflation of + 10% to 4% over the last two years, whereas Albania has had an inflation rate of 0 to 4%. How is explained such an extraordinary stability over this period?

If we refer to the three-year period, the Bank of Albania has shown a special prudence, in order to keep inflation under control. Remember that we have raised the interest rate 5 times in a row, have tightened the monetary policy throughout the pre-crisis period and at the same time we have been very prudent, in order to maintain the financial stability of the country, by taking measures, such as drafting the new banking law, setting-up the credit register, changing all the regulations related to risk-based supervision and its philosophy, and establishing proper structures within the Bank of Albania. A broad dialogue with the Albanian banking system and effective implementation of changes made by the Bank of Albania helped in this regard. The Bank of Albania has also paid attention to the firming up of banks' capital; remember that the capital of banks operating in Albania is twofold and a half greater than that of the parent banks in partner countries. Also, the Bank of Albania created convenience in the market as concerns liquidity and banks' profits. So, our pre-crisis preparation period was full of prudence and re-regulation for keeping risk under control. But, we have never left inflation, i.e., our primary target enacted by law, go out of focus. The pre-crisis period found the Bank of Albania prepared in terms of monetary policy, a tightening one, and also in terms of macroeconomic stability. This has not occurred in other countries of the region, which have always had high inflation rates, also due to non-continuation of structural reforms and pursuit of short-term development policies. This is obvious in countries like Montenegro or Kosovo, where the introduction of euro in an unstructured economy has given imported inflation and inflationary pressures to the country.

Will Greek crisis affect Albania?

The Bank of Albania has carefully attended the developments taking place in the Greek economy. Let us not forget that in the last two years our dialogue with the Greek banking system has been open, constructive and effective, to ensure stability in the Albanian banking system and in the banks with Greek capital. Banks operating in Albania, which have their parent bank in Greece, are well-capitalized, have credibility, extend loans and generate profits. This is so also due to the great prudence we have shown, especially in terms of capital adequacy and new capital injection, when necessary. The cooperation of the Bank of Albania with the Central Bank of Greece has been open, in the spirit of good understanding, information exchange, reconciliation of indicators and figures, views and considerations for efficiency in using various products.

However, in the real economy and in the country's external position, the imbalances or the fragility noticed today in the Greek economy will have its own effect, but its extent remains to be seen. This will depend a lot on the demand and supply in the country related to import-export goods, but also to the domestic economic activity. Through our programs, we have carefully attended the economic situation in the neighbouring country and have taken it into consideration in our macroeconomic models.
 

The Bank of Albania has carefully attended the developments taking place in the Greek economy. Let us not forget that in the last two years our dialogue with the Greek banking system has been open, constructive and effective, to ensure stability in the Albanian banking system and in the banks with Greek capital. Banks operating in Albania, which have their parent bank in Greece, are well-capitalized, have credibility, extend loans and generate profits. This is so also due to the great prudence we have shown, especially in terms of capital adequacy and new capital injection, when necessary. The cooperation of the Bank of Albania with the Central Bank of Greece has been open, in the spirit of good understanding, information exchange, reconciliation of indicators and figures, views and considerations for efficiency in using various products.

However, in the real economy and in the country's external position, the imbalances or the fragility noticed today in the Greek economy will have its own effect, but its extent remains to be seen. This will depend a lot on the demand and supply in the country related to import-export goods, but also to the domestic economic activity. Through our programs, we have carefully attended the economic situation in the neighbouring country and have taken it into consideration in our macroeconomic models.

Mr. Governor, being unable to overlook the political crisis, what do you think, has it affected the economic activity during the latest months?

I think the report is clear and it shows that November has been a very important month and is expected to influence the closure of `2009 without any negative externality. The main macroeconomic indicators will be closed within certain parameters and will constitute a sound basis for development over the next year. For 2010, the Bank of Albania deems that special prudence should be shown, especially during the first quarter of the year.

How is the non-performing loan portfolio presented and has it affected the shrinkage of lending to the economy?

The situation is quite complex. The crisis put numerous responsibilities to parent banks. Fortunately, Albania was not involved in the wide range of problematic products in the world, which generated worldwide crisis. However, the banks’ policies in Albania are and will be influenced simultaneously by the situation of parent banks and by their medium-term policies. What’s positive and worth noting is that non-performing loans have stopped at a certain level, i.e., within 10 percent, for several months in a row. It’s important that banks are working more prudentially, rigorously implementing all the regulations of the Bank of Albania. Simultaneously, the Bank of Albania is daily monitoring the situation, even from the micro viewpoint. Very organized stress-tests have been carried out periodically, in order to find out where tricks with non-performing loans really stand. It’s worth noting that banks have created their own structures to attend and restructure these non-performing loans. Thanks to them, they have started to recover a good part of non-performing loans. Hence, the situation will hopefully be positive in the context of accelerating the measures taken by the banks for a more effective pursuit of these loans and for efficient use of these funds derived from restructuring or liquidation of non-performing loans. Once again, it is important to highlight that the prudence of the Bank of Albania and of the banking system at the same time is increasing, not only for identification of problems, but also for an efficient operation of the credit system.

Immediately after the passing of the so-called "Anti-mafia Law", there has been opposition from interest groups, according to which a risk is posed to assets of immigrants, who can not justify their assets. Is there any risk for any deposit withdrawals and has there been any consultations between the Bank of Albania and the government before the passing of this Law?

Over a long time span, since the early '90s, the experience has shown that the Bank of Albania’s position has always been correct and abiding by the legal and regulatory framework. The Bank of Albania states that there is in place a complete legal and regulatory framework for protecting deposits and the banking system in Albania. Also, the Bank of Albania implements vigilantly and earnestly the regulatory framework in place, in order to maintain and certify the transparency of the Albanian banking system.