BANK OF ALBANIA

Governor Sejko: Address to the Assembly of the Republic of Albania presenting the Annual Report of the Bank of Albania for 2020

Publication date: 27.05.2021

 

Honourable Speaker,

Honourable Members of Parliament,

I thank you for the opportunity to present the work and results of the Bank of Albania over the course of the previous year, through this direct communication!

The Covid-19 pandemic posed to the Bank of Albania – as it did to the whole economy, to society and to other Albanian institutions - unprecedented and extraordinary challenges. The Bank of Albania, being aware of the complexity and size of this problem, in coordination with fiscal policy, undertook a rapid and thorough intervention.

The objectives of our intervention were: (i) easing the short-term impact of the crisis on the economy; (ii) reducing possible negative consequences on the production potential of Albania; (iii) safeguarding the monetary and financial stability of the country.

Overall, I think that the measures undertaken by the Bank of Albania succeeded to tackle the crisis.

  • The impact of the crisis on the economy proved to be lower than our initial expectations, reflecting both the resilience and flexibility of the private sector, as well as the positive impact of the response of public policies.
  • In addition, the impact of shock on the long-term factors of growth appears contained.  Although they are natural problems, we succeeded in avoiding bankruptcy of enterprises at large and a sharp increase in unemployment.
  • Lastly, in spite of the strong test, the economic and financial equilibriums of Albania remain solid.

We assess that the Albanian economy enjoys the premises for a rapid economic rebound in the future.

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Honourable Speaker,

I would like to emphasise that - throughout 2020 - the Bank of Albania has fulfilled its legal duties; has progressed with the implementation of the Medium-term Development Strategy; and has implemented the recommendations provided by the Assembly of Albania.

Following, I will present in greater detail the work and results of the Bank of Albania over the previous year.

  1. Economic performance and the reaction of the Bank of Albania

The heightening of uncertainty and the enforcement of necessary social distancing measures to contain the spread of the Covid-19 pandemic, drove the Albanian economy into recession, led to an increase in unemployment and triggered financial difficulties for many Albanian enterprises and households in 2020.  

Indicators of economic balances worsened. The volume of economic activity contracted by 3.3%, the Albanian economy lost around 43,000 jobs, while the unemployment rate jumped to 11.8%. The fall in income led to an increase in both public and private debt. In reflection of the slowdown in economic activity, in Albanian and globally, the average inflation for 2020 stood at 1.6%, continuing to undershoot our target.

The crisis particularly hit trade and private consumption flows. Thus, the consequences of the crisis were present across all sectors of economy, but - particularly - they were felt in the industry sector and in specific branches of the services sector. 

The size and complexity of shock required addressing it with coordinated stimulating fiscal, monetary and financial policies. Within its field of competency, the Bank of Albania undertook a complete package of measures.  In more concrete terms, we:

  • Lowered the policy rate to its historical minimum of 0.5%, facilitated the banking sector’s approach to liquid funds and increased liquidity injections in the interbank market;
  • Approved regulatory amendments which induced the extension of credit payments with six months for clients in immediate difficulties, and the restructuring of credit to clients facing short longer-term financial difficulties;
  • Suspended dividends distribution to the banking system, aimed at boosting the capacity of the sector for financial absorption of the shock;
  • Forfeited any charges on the use of electronic platforms for interbank payments operated by the Bank of Albania, aimed at promoting the use of electronic payments. 

We assess that the implemented measures have proven effective in reducing the impact of the pandemic.

First, our intervention helped in preserving the monetary and financial stability of Albania. Financial market is calm, characterised by smooth activity and low volatility. This is a qualitative change from the episodes of previous shocks and certifies the strengthened maturity of our financial system.

Second, the monetary and macro prudential stimulus established the necessary conditions for the continuation of lending. Credit to the private sector grew 6.7% on average in 2020. In addition, more than 23,000 enterprises and households benefited from the moratorium on credit instalments, for a credit portfolio totalling around ALL 200 billion. Overall, our assessments show that the accommodative monetary policy stance implemented during the last four years has generated a volume of economic activity around 3.7% higher, by making a considerable contribution to the improvement of social welfare.

Third, the prudential supervision and monitoring of the banking sector's performance, continuous communication with this sector, and the temporary suspension of dividends distribution, served to keep the banking sector liquid, well-capitalised and with sound practices for the management of risks.

 

Last, guaranteeing the uninterrupted function of payment systems and the reduction of costs for online payments in lek have supported smooth functioning of the financial market.

  1. Financial stability and banking supervision

Our banking system carried a considerable part of the financial burden of the crisis, by directly conducting, properly, its function of absorbing shocks. This development, in qualitative terms, different from previous episodes of crisis, reflects the ongoing work that the Bank of Albania has performed for: improving supervision and regulation; strengthening security networks; and consolidating the banking sector.

In spite of the challenges, the activity of the banking system appears stable. In 2020, the assets of the banking sector grew by around 7%, the financial result remained in positive territory, and its capitalisation stands satisfactory, while the non-performing loans ratio dropped to 8.1% at the end of year.

The direct exposure of the banking sector’s activity to market risks remains contained. The assessments of the banking industry and stress tests suggest that the capacities of the banking sector are sufficient to deal with their potential increase.

In addition to measures undertaken due to the pandemic, the Bank of Albania has continued its work for the long-term strengthening of the supervision framework of the banking system. In this regard, the work has mainly consisted of:  

  • Implementing the recommendations from the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). In this view, the necessary amendments to the regulatory framework are in place and the number of examinations focused on the financing of terrorism issues has been increased.
  • Further improving the regulatory framework, by continuing alignment with EU Acquis, the Basel Committee principles and with best international practices.
  • Conducting on-site examinations, by placing priorities and carrying out targeted examinations in view of the implementation of containment measures. 
  • Enhancing the resolution ability, while in capacity of Resolution Authority, the resolution plans for systemic banks have been drafted. 
  1. Other activities

Honourable ladies and gentlemen, the Bank of Albania has maintained constant attention on other fields of its activity, as well, which directly contribute to both the development of the financial market and the economic life of Albania.

In this regard, I would like to evidence:

  • further development of the payment system, through legal and infrastructural changes;
  • continuous supply of cash to the economy, and strengthening of its quality;
  • good management of the foreign exchange reserve;
  • giving support to the European integration process;
  • improvement of financial statistics;
  • fostering efforts for the increase of financial education and inclusion; and
  • research work and the enhancement of communication with the public.

Also, the established internal audit systems have continued to contribute to the good management of the normal processes of the work and the continuation of all functions of the Bank.

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Honourable Members of the Parliament,

The year 2021 is expected to mark a positive return towards the recovery of the economy in Albania.

The opening of partner economies, the vaccination of the population and the monetary and fiscal stimulus in Albania will underpin the expansion of economic activity during the years 2021 and 2022. Nevertheless, uncertainties in these expectations remain present and the probability of other negative shocks in the future is not negligible.

The complete recovery of the economy and stable return of inflation to target should continue to be supported by macroeconomic stimuli in the short run. In the medium and long terms, the economic policies should shift towards a more stable balance between the need to supply stimuli and the need to preserve monetary and financial stability.

At the conclusion of my speech, allow me to highlight that the end of the crisis should be followed by a complete return of attention to the need to accelerate the agenda of structural reforms. These reforms are the only instrument for the sustainable acceleration of the pace of economic growth and to turn its results into a rather comprehensive improvement of social welfare. They should aim at increasing competition, further improving the investment climate and business environment, and the long-term strengthening of the sustainability of public finances.

Thank You!