PRESS RELEASE
Questions and answers following the Governor’s statement to the press conference, 29 March 2017

Question: Some surveys conducted by the Bank of Albania last year showed an increased presence of the euro in the market, while at the beginning of this year, you announced some de-euroisation policies to encourage the use of the national currency. More specifically, what do these policies consist in, and what will be your actions in this regard?

Governor: Yes, it's true. This year, the Bank of Albania will focus on a plan of measures for reducing the use of the euro and promote the use of the national currency in the Albanian economy. This would increase the efficiency Bank of Albania's monetary policy. The Bank, through the policy rate, affects the national currency, the Albanian lek.

The euroisation, that is, the great exposure of the financial and the banking system to the euro, has an impact on the financial stability, since a great part of loans are still denominated in euro. Most borrowers receive their income in the national currency, while their loans are denominated in euro. This exposes them, affecting therefore the performance of their loans. Also, the euroisation has other, broader, macro-economic effects and influences the service cost of government's debt.

In this regard, to decrease the banking system euroisation, we have taken measures by weighting the liquid assets in euro and the liabilities with a higher rate. Also, we will take measures for the remuneration of the required reserve at the Bank of Albania, by favouring the national currency vis-à-vis the euro. Additional measures will be taken to raise the public awareness on the euroisation risks.

Of course, this is a broader phenomenon. It relates to the role and function of the central bank and other relevant institutions. We have also discussed this phenomenon at the meetings of the Financial Stability Advisory Group and we are preparing a memorandum of understanding with the Ministry of Finance and the Albanian Financial Supervisory Authority to extend the measures against the euroisation.

I would say that this will increase the efficiency of the monetary policy pass through, and will further strengthen its positive effects in terms of maintaining financial stability in Albania.

Question: Talking about the political situation of Albania. Have you factored in the political risk in your outlook about the economy, and is the current political situation a threat to the economic developments?

Governor: In this report, we refer to the data from the reporting period, analysing the figures, official results and data that we have. Obviously, our model has always taken and takes into consideration the electoral periods and years. Our model is elaborated referring to historical data, thus taking into account the relative behaviours of politics and the economy in the previous periods. In practice, the model of the Bank of Albania has a correction for the macro-economic forecast, by taking into account the political situation.

We deem and hope that the processes will go ahead and comply with the normal democratic terms, as proven in previous years; and yes, we have taken into account the situation in our model. Despite the transitional periods of electoral years that happen in every country, the Bank of Albania deems that pressing ahead with the structural reforms is very important. These reforms will contribute to the return of the economy to equilibrium the closing of the negative output gap and the continuation of a steady path of economic growth.

Question: Staying on the political situation, you said that you will make a correction. Is this a correction on economic growth? Are there any signals from foreign investors of an eventual departure due to this situation?

Governor: We do not have formal signal of foreign investors wanting to leave Albania due to this situation. We collect information from the media and we do not have concrete information on foreign investors leaving. Of course, if the situation is protracted, there may also be negative consequences. In principle and in theory, we have stressed previously that political crises have their repercussions in the economy. Any type of destabilisation, not only political, increases uncertainties. Nevertheless, is this is an electoral year, and such developments are normally expected in such periods.

Related to investors leaving or other elements, currently, we do not have factual data. The Bank of Albania has been constantly monitoring and supervising the situation. After a month, we will have the complete quarterly monetary policy report, which will be accompanied by a statement of the Supervisory Council of the Bank of Albania. The report will contain updated data, including the general outcome and effects of the situation. At the moment, we are commenting on the Intermediate Monetary Policy Report on the first two months of 2017.

Question: The Competition Authority has decided on an overall investigation of banks, having found a distortion of competition. Also, stronger supervision by the Bank of Albania and the reformulation of the Regulation of the Bank of Albania has been requested. Does the bank of Albania have a plan of measures?

Governor: It is important that the Competition Authority stated that we are not in a monopolistic situation. Hence, there is no monopoly in the banking system, there is no bank dominating the banking sector. We have 16 banks, not all of the same size, but the specific share of each bank ensures that there is an adequate competition in the banking and financial system. Some elements mentioned not only by the Competition Authority, but also by various media and analysts, pertain to the revenues of the banking system.

I would note that it is a very positive element that the banking system is profitable. Banks manage the deposits and savings of the population, so it is a good thing that they are profitable. However, under the influence of the macro-economic factors and risks in the euro area, the region and Albania bank revenues have decreased compared with the previous year. This was also due to the provisioning funds to cover the loans loss. Also, the return on equity rather than the net profit would be a more precise indicator to evaluate the profitability of banks in normal terms, in regional or broader terms. To be more objective and clearer, banks return on equity stands at 14-15%, while in Albania it is at 6-7%. Hence, banks profitability is normal.

On the other hand, we are collaborating with the Competition Authority on a memorandum of understanding and a concrete plan of measures, to enhance transparency in the banking system. Transparency is crucial. It is one of the major objectives of the Bank of Albania that makes banks more transparent, while their clients are clearer on the bank products and their prices.

Question: When you say that you have corrected your scenarios due to political developments, do you mean that you have revised downwards your forecast on economic growth as a consequence of these political developments?

Governor: No. We have not revised our forecast in this report, since our original forecast had taken into account, from the beginning, that this is an electoral year. As I already emphasized, in our model we have taken into account the historical behaviour of the previous electoral years, and we have included the impact of the electoral factor. We have not revised our forecast on the economic growth, yet. A revision will be reflected in the subsequent monetary policy reports for the quarter or half of the year, depending on the performance of the economy and other factors.