PRESS RELEASE
Governor Sejko: Address to the Assembly of the Republic of Albania presenting the Annual Report of the Bank of Albania for 2021

Honourable Speaker,

Honourable Members of Parliament,

I would like to start my reporting by expressing my highest regard for the Albanian Parliament. The Bank of Albania views the accountability process to this institution as a legal and moral obligation. This reporting - a crucial element of transparency and accountability - serves to enhancing the accountability and credibility of the Bank of Albania in the eyes of the public. This reporting also enables presentation of the Bank of Albania's perspective on the economic and financial situation in the country and the challenges for the future, thereby further empowering constructive dialogue between our institutions.

Honourable Members of the Parliament,

Allow me to present an overview of our work and the results we achieved in 2021.

Rebound and consolidation were key words in relation to 2021 economic developments.  Economic activity in Albania was marked by a swift and thorough recovery, coupled with consolidation of the main indicators of economic and financial soundness.

Official data show that the volume of economic activity grew by 8.5% from the previous year, exceeding the pre-pandemic and pre-earthquake levels. Economic growth was broadly based. It reflected rapid recovery in family consumption, private investment, and in the exports of goods and services. In addition, the results of this recovery were present across almost all sectors and main branches of the economy. The comprehensive recovery of demand generated more income for Albanian enterprises and households, thereby improving their financial balances and increasing the sustainability of growth sources.

The economic recovery drove a rise in employment, wages and profit margins, which caused a build up of domestic inflationary pressures. Consequently, inflation rose gradually over 2021, though undershooting the target.

Consolidation of economic and financial balances accompanied the recovery.

The external economic and financial position of Albania has been improving. The current account deficit decreased to 7.7% of GDP in 2021, from 8.7% in the previous year. Also, Albania’s level of external debt was down.  In fiscal perspective, economic growth and decreased budget deficit led to a reduction in the public debt ratio to GDP to 73.2%, from 74.5% in 2020. In parallel with these developments, the monetary and financial stability of Albania has been consolidating. Financial markets functioned smoothly, the exchange rate was stable and lending conditions improved.  The banking system performed positively throughout 2021. Financial intermediation has been increasing, while indicators of capitalisation, liquidity and profitability improved and were considerably above our regulatory requirements. The exposure of banking activity to risks has been contained, while stress test exercises suggest that its ability to withstand shocks appears high.

This positive overview of developments has reflected the relatively solid fundamentals of the Albanian economy and the flexibility of the private sector of the economy, and, in turn, the success of coordinated, timely responses with the appropriate fiscal, monetary and financial instruments.

Focusing on the work of the Bank of Albania, I would like to highlight that our monetary policy continued to maintain an expansionary stance throughout 2021. This stance has served to meet our primary objective, which is price stability, and bolstering economic recovery. In concrete terms, we kept the policy rate at historically minimum levels, met the liquidity needs of the market, and continued to inform the market through forward guidance on the future path of the monetary policy stance. Our monetary policy stance has provided an environment with low financing costs, adequate lending conditions, and a stable exchange rate. It has maintained contained financial costs to the private sector and has enabled a fast and stable growth of lending, by underpinning the expansion of consumption and investments in the economy. Our assessments suggest that the monetary stimulus has contributed by around 1.3 percentage point to economic growth in 2021, and supported the strengthening of price stability, in line with our inflation target.

 

The Bank of Albania, in coordination with momentary stimulus, has continued to maintain macro-prudential measures, which supported loan restructuring for clients in difficulty even in the first quarter of 2021. Further, upon consolidation of lending and economic recovery, our supervisory and regulatory focus has been oriented towards the strengthening of financial stability.

In this context, the Bank of Albania has intensified work on further regulatory and methodological approximation with the EU Acquis, the Basel Committee principles and best banking supervision practices. In this view, in 2021, the Bank of Albania further extended the macro-prudential intervention framework as well as objectives and tools. It has also strengthened its banking resolution capacities, through the finalisation of individual resolution plans and setting out minimum requirements on the instruments banks should hold to enable implementation of resolution. These actions increase financial safety nets and strengthen our institutional capacities to guarantee financial stability.

In parallel with the above-mentioned measures, we have paid particular attention to improvement of the regulatory framework on the enhancement of consumer transparency and protection. In this context, we have strengthened the regulatory framework on consumer loans granted from non-bank financial institutions, aimed at quantitatively restricting the interest rates and commissions applied on these loans. These amendments are fully based on best practices that are implemented across the European Union countries.

In addition, we have continued rigorous monitoring of the financial system. On-site inspections have continued regularly, by increasing examinations of non-bank financial institutions and foreign exchange bureaus. These examinations focused on assessment of how the pandemic situation was managed and the impact on credit portfolios, as well as on risks related to banking activity.

Lastly, the Bank of Albania has paid special attention to the implementation of recommendations by the Moneyval Committee, in the framework of Anti-Money Laundering and Terrorism Financing Measures. In this framework, the Bank of Albania has continued on-site examinations related to the prevention of money laundering, with a particular focus on terrorist financing issues and the implementation of international sanctions. Examinations targeted banks, non-bank financial institutions (NBFISs) and foreign exchange bureaus (FEBs). The last evaluation report by Moneyval for 2021 concluded that the Bank of Albania had “broadly addressed” the recommendations provided on the rules and supervision of financial institutions, for the prevention of money laundering and terrorism financing.

On the other hand, the Bank of Albania has already started the equivalence process of our supervisory and regulatory framework with the European Union one, by opening the way for further reduction of intermediation costs and establishment of a more adequate environment for crediting in Albania. Following the very encouraging results of an independent evaluation by a specialised international agency, we have submitted a request to The European Commission for starting the formal process of equivalence.

In parallel with the supervision and regulation of the banking sector, the Bank of Albania has also worked on promoting the development and sophistication of Albanian financial markets. In this regard, I would like to make note of work on the following:

• Guaranteeing secure and efficient payment systems, as well as expanding the existing infrastructure with a new settlement system,  AIPS EURO for the settlement of the domestic euro-denominated transfers This system enables the conduction of euro-denominated payments within Albania, with rather lower cost and in a shorter time compared to the previous process.
• Promoting electronic payments and increasing the financial inclusion of the population. The regulatory amendments in the Law “On payment services” and the infrastructural improvements have led to an increase in the number of electronic payments.
• Improving the regulatory framework of the payment system in compliance with the European Union standards in 2021. The Law “On payment account to access basic services” is drafted in line with the EU Directives. Its approval enables the basic financial services to individuals with no access to bank services, notwithstanding the level of income, employment status, and history of solvency.

To illustrate the results of our work and the progress that the banking sector has made in terms of digitalization, the use of electronic payment instruments increased by approximately 30%, the volume of "home banking" payments rose by about 25%, while the number of remotely accessible accounts was up by 31% in 2021. Developments in electronic payments have contributed to meeting the quantitative objectives set forth in the Albanian National Retail Payments Strategy.  The use of electronic payments per capita reached 2.5 out of 10 payments which is the objective of this strategy. Also, in 2021 approximately 69% of the adult population owned a payment account, significantly approaching the target of 70% laid down in the strategy.

In addition to fulfilling its primary role, the Bank of Albania has continued work on implementation of a number of tasks and other institutional commitments, as well as on the fulfilment of the recommendations left in the resolution of the Assembly.

In summary, allow me to point out that in fulfilling its function as the issuer of the national currency, the Bank of Albania has continuously improved the quality of the Albanian currency. During 2021, we completed the printing of all denominations of the new series of banknotes. We also, for the first time, put into circulation the new denomination of 10000 Lekë. This process was accompanied by an extensive educational campaign on Albanian banknotes. As well, the Bank of Albania has continued work on improvement of foreign exchange reserve management, which already relies on a consolidated regulatory and professional process, where the main objective is to guarantee its liquidity and security.

In addition, the Bank of Albania has made further progress in the following:

• Fulfilling institutional obligations in the framework of the European integration process, where the Bank of Albania has a key role in approximation of the legislation and the institutional infrastructure of the financial system with the EU standards;
• Enhancing communication, transparency and accountability, with a view to meeting our steady commitment to turn the Bank of Albania into an open institution where the public finds a trustworthy partner.
• Promoting financial education, as a crucial element for increasing the long-term well-being of society;
• the field of scientific research, as a precondition for designing the most effective growth and development policies;
• as well as in the processes of collecting, compiling and reporting statistics, in support of the most efficient decision-making, both in the public and private sector.

All these changes are driven and supported by the strengthening of the governance of the institution and continuous investment in the professional enhancement of staff, in order to always be able to face the challenges that time poses.

The Report provides detailed information on these issues.

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Honourable Members of Parliament,

Taking advantage of this public communication, I would like to address briefly the current challenge that the Albanian economy is facing, as a result of the upswing in prices in the international markets.  This shock has not spared any economy, at the European or global levels.

The rapid upsurge in prices of energy, foods and commodities across world markets has driven a climb in the cost of living for households and a push upwards in production costs for businesses. Ambiguity over the evolution and consequences of armed conflict has also intensified uncertainties in financial markets and created supply chain bottlenecks. This shock has begun to be transmitted to the Albanian economy.

Inflation in the country and in the world is recording the highest rates of the last two decades and current projections suggest that this shock will grow considerably in the next year as well.

To this end, the Bank of Albania is monitoring the situation on an ongoing basis. Based on the current information and our analysis, the Bank of Albania deems that the Albanian economy has sufficient premises to withstand the shock and avoid recession.

In these circumstances, the focus of economic policies should be oriented towards preserving price stability, as a precondition for: the financial stability of Albania; sustainable and long-standing growth; and in helping the poorer segments of the society. This focus will require ongoing review of the adequacy of the monetary policy stance, as well as maintaining budgetary flexibility to address potential contingencies in terms of easing social costs, without compromising the long-term sustainability of public debt.

Overcoming this shock, our focus should be oriented once again towards undertaking the necessary structural reforms which will free the production potentials of the country and will underpin the faster increase of society’s welfare.

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Thanking you for your attention, allow me to emphasise that the Bank of Albania has been and remains committed to accomplishing its legal duties and addressing challenges to the country's development.

Thank You!