PRESS RELEASE
Questions and answers at the press conference on 7 July 2021

Question: You said previously that it is expected an economy growth, but you did not say the figure. What is the expected rate of the economic growth by the end of year, based on the available data and the expectations of the Bank of Albania?

Governor:  Based on the analyses conducted by the Bank of Albania, we have communicated that the latest figure regarding the economic growth outlook stands at 5.3%.  We have been in the same communication line with the International Monetary Fund.

As already stated in the Statement of the Bank of Albania's Supervisory Council, after the today analyses, the available data in the Intermediate Monetary Policy Report suggest a higher economic growth in the next quarters. Also, the first quarter of 2021 recorded an economic growth rate at 5.5%. The analysis on how correct is the forecast of the Bank of Albania has not been completed yet, so I cannot say an accurate figure.  Forecasts are always forecasts. It remains to see how much they will be materialised. Although, we expect to have a good economic growth, above 5%.  If this rate will be higher than 5.3% or not, it will be analysed and communicated in the next meeting of the Supervisory Council, in August.  That is, the complete Monetary Policy Report alongside the concluded data will be available after one month, and we will communicate it.

Nevertheless, I would like to highlight that the economic growth rate is conditioned by the risks I already mentioned in the statement.  The main risk is the economic situation affected by the pandemic.  If the situation would deteriorate due to the pandemic, particularly in fall, considering also the information we hear about the new Covid-19 variants, then the forecast for the economic growth would not be materialised. In contrary, as all indicators and data affirm, the economy with grow this year, and in the next two years.  Thus, fortunately we have better expectation about the economic growth than the forecasts.  All indicators, those of economic growth, trade balance sheet, import and exports, and of the financial system provide positive signals in this regard.

The financial system also shows very good lending indicators. Thus, overall, we have positive signals that show a good economic growth, but we will affirm the correct figure in the next meeting.

Question: What is the Bank of Albania doing for inflation to turn to the target? As you already said, inflation in the second quarter was 1.9%, what is expected to happen? For how long will be the target achieved?

Governor: Following my comments that I said previously, inflation also has been increasing. That is, inflation rate has turned towards the target, compared with the previous quarter.  Inflation stood at 0.9% in the previous quarter.  Meanwhile in April and May - as already stated in the statement- inflation picked up at 1.9%. We forecast to reach inflation target within 2022.  That is the forecast.  There are also international signals - analyses in advanced economies and across large countries - that there might by a faster inflationary situation than the forecast.

Our inflation target is 3%. Currently, inflation stands below the target and we aim at increasing inflation to simulate or fuel somewhat the economy.  But, signals from various countries, particularly from the crises caused by the pandemic, show that an inflationary situation may approach faster compared with the previous periods.

Nevertheless, the monetary policy stance will continue to be accommodative.  All countries have affirmed their positions, that: economies need both monetary and fiscal stimuli.   In this perspective, the Bank of Albania will continue to implement a simulating monetary policy.  Hence, the main instrument to achieve inflation target by the Bank of Albania is the interest rate, that is, the implemented monetary policy. We will continue to implement an accommodative policy, in the medium term, so far to the moment the negative output gap will be closed and the economy will reach its require level.  That is, the economy will turn to its potential.  I would like to point out, that we have implemented no contingency plans.  We always have in place contingency plans for quantitative easing, but we have not employed them, as the Albanian economy has appeared sufficiently flexible to the crisis shocks.  Fortunately we are on the positive direction, that is, we expect a growth. Against this backdrop, we will continue to pursue a simulating monetary policy, and we aim at achieving the inflation target within 2022 - the second half of 2022.  But the important thing is - what I said in the first question as well - to reach the growth pace, to paving the way for a stable growth in 2021 and in the next years as well.

Question: Non-performing loans ratio has been downwards by 0.26%, standing at 7.8%. Meanwhile in non-bank financial institutions, non-performing loans have been increasing.  What is your opinion or comment about this fluctuation between the total level and the non-banking sector level?

Governor: Related to non-performing loans, this ratio has been reduced.  As already stated in the press statement, currently this ratio stands at 7.8%. We expect the non-performing loans ratio increases - likewise across all counties - due to the shock caused by the pandemic.  Both households and businesses were hit by the crisis. This was reflected in their behaviour to the financial system. Thanks to the measures undertaken by the Bank of Albania on loan restructuring, extension of loan repayment or other published measures, you already know, also attributable to the reaction of the Albanian businesses to the crisis, fortunately the non-performing loans have not been increased yet. Commercial banks show signals to not expect a considerable increase of non-performing loans.

It still remains to be seen, but we are prepared.  Also, in the adverse scenario, the analyses of the Bank of Albania show that banks would not face liquidity problems or need additional capital due to the worsening of credit portfolios. We do not have this situation. Hence, in practice we do not expect a considerable increase of non-performing loans. Non-bank financial institutions, composed of microcredit and other institutions, have e difference from commercial banks. First, these institutions do not operate with funds, with deposits of citizens. They operate with donations or other funding sources.  In this view, we pay a considerable attention, as they contribute to economic development through lending. In terms of financial stability risk, these institutions have a lower risk compared with banks, as they do not directly jeopardise the deposits of citizens.  There are many factors explaining why non-performing loans ratio in these institutions is higher.  First, these institutions should be thanked for the work they perform by crediting, by funding to difficult areas, mainly rural areas, or to population segments whoa are less formal that other segments. Hence, as these institutions operate in these areas and with these segments of business, the credit ratio to repayments is somewhat more difficult. Nevertheless, these institutions show a good performance, and have appeared rather resilient during the pandemic. However, I would like to emphasise once more, that these institution do not operate with deposits of population, but through their funds and donations.

Question: The Bank of Albania has presented a draft-regulation on consumer loans and mortgage loans for public consultation.  What is the opinion of non-bank financial institutions on this draft regulation, and when will it enter into force?

Governor: The Bank of Albania, as the regulator of the financial system, has analysed and has noted - also due to main complaints by entities, citizens and various businesses- the higher interest rates. It should be clear, as I already said that, as these institutions work with donations or other funding sources, they have a higher cost. Based on these costs they do apply higher interest rates and the typology of loans that these institutions grant has higher interest rate everywhere, not only in Albania, also at regional and international level. However, these interest rates have a limit and to regulate the market, to not have exceeds of limits on interest rates, the Bank of Albania is drafting a regulation to adjust the market.

Of course we have a free market, and price ratios are free. Absolutely, we want to avoid abuses if there are any, and we are in the phase of verifying and studying the market in this regard. Yet, we do not have concluded a draft. The analysing work regarding this Regulation will be finalised within this year, and the Regulation will enter into force in the next year.

We are carrying out continuous consultations with the relevant industry and institutions.  Of course, they are alert to see what amendments the Bank of Albania is carrying out. On the other hand, we are seriously committed in the collaboration with the relevant industry before of making any regulatory amendment. In this framework, we will not be tolerant on any abuse in this market.