Interview given by Mr. Ardian Fullani, Governor of the Bank of Albania, to the ''Monitor'' magazine, on November 3, 2004

1 - How would you assess the performance of the banking system in Albania and the expectations for the future?

The banking system has achieved satisfactory results over the years. With the establishment of the two-tier system, so the establishment of the Central Bank and joint private banks with both Albanian and foreign capital, very good results have been achieved contributing to the further development of the banking system, which has impacted the acceleration of the country's economic development. The opening of bank branches in various districts of the country made that banks be present not only in the capital but also everywhere the banking services were lacking or should have been established. In this light, consideration on the banking system is growing, although year 2005 is expected to come out with further significant changes and suggests other development rates of the banking system.

2 - And how would you assess the Central Bank role?

The Central Bank is one of the most important institutions in the country, which, definitely, has undertaken the necessary steps towards its consolidation. Simultaneously, the Central Bank has a significant impact on the country's economic development, being the most important financial institution in the country. It contributes through its undertakings to achieve its primary objective, which is to ensure and maintain price stability. This contribution in the economy is not secured only through attaining low inflation rate, but if relatively stable prices are maintained it ensures a good environment for developing the business, promoting public and private investments, domestic and foreign ones, crediting and savings (by depositing them in banks). By this way the Central Bank ensures a growing confidence for future results in the investment activity, the real value of savings is maintained and as a consequence the confidence in the banking system go on increasing.

Under these conditions a better environment is generally established to focus on long-term programmes, on designing economic and social policies.

In this respect, I would say that the Central Bank relies on two fundamental pillars. First, it is aware of the monetary policy and the adjustments between supply and demand for money in the market in line with the country's economic development. Second pillar is a stable banking system. The Central Bank is responsible for regulating and supervising this system.

Banking system stability is mainly related with the public confidence in the banking system and is subject to various factors, such as the stage of the country's economic development, primary and secondary financial market revolution, the culture in working with banks and other related issues. These two pillars should be developed simultaneously, and great importance should be given on them on the same direction and with the same intensity, because in this way we may have a central bank not only stable but also there will be a real possibility to fully and efficiently implement its policies in the banking system. The more organized, sound and supervised the banking system, the more freely the Bank of Albania objectives are achieved, the more efficient they are, the safer this system is not only for itself but also for creditors, depositors, and simultaneously the more efficient it is to accelerate the country's economic development.

In this context, I would say that a special attention should be given to the interconnection between macro policies and micro policies, and from this viewpoint the banking system role takes on a very particular importance. Its total privatisation with the privatisation of the Savings Bank alongside the sale of two other Albanian state-owned banks highlights the importance of the programme on structural reforms. In 2005 Albania will be placed among the countries having a totally private banking system. Under these conditions, I would say that the Bank of Albania responsibility for enhancing the monetary instruments shall increase, but at the same time its responsibility and its role in adopting short-term, medium-term and long-term policies shall increase as well. These privatisations will have absolutely a significant impact on the consolidation and expansion of the banking system. The presence of banks all over Albania shall make the market more liquid, more utilisable for the customers, and we shall have a broader banking assistance throughout the country.

3 - How would you assess the role the Bank of Albania has played over the recent years and what is expected to improve?

The Bank of Albania, definitely, has played a quite good role in the process of stabilizing the market, the policies for maintaining the inflation rate, which was reflected in the progress of the country's economic developments. However, apart from achieving its primary objective or implementing a stable and adequate monetary policy, a special attention to the development of the banking system, payment system, clearing system and to a range of regulations in view of crediting to the economy would be of great importance.

Next year, undoubtedly, the rising demand for credit will be higher, more diversified, and the request for a better collaboration between banks based on the guiding principle: "Collaborate through competitiveness" will increase. I say that as all the banks pretend to have improved the quality of services in order to raise their standards towards a broader diversity of their products. Competitiveness is not regarded only as the opening of new branches or presence of bank branches in other cities. Competitiveness will be extended to the diversity of products, increase of quality and new entries of techniques and products in general. In this context, the Bank of Albania role in applying the relative regulations will increase ensuring that the channelling of money in the banks shall be as a primary objective. What does it mean? This is not a slogan, but it will be a clear objective coordinated with all the interested actors of the Albanian economy, making the regulations of the relative legislation and also organizing this market properly for the benefit of the banking system. The primary objective, as I mentioned, shall be consisted in reorganising the payment system, in using credit cards to reduce cash in the economy. This objective shall be achieved through a strong and concrete advertising campaign, through the public responsiveness and the strengthening of transparency, which will be as a priority for the Bank of Albania.

4 - You have moved from a Senior Manager of a commercial bank and President of the Albanian Association of Banks into another rank, the Central Bank. How would your relations be with bankers of commercial banks now?

My assignment as a Governor came quite naturally, just a rotation made within the banking system. Evidently, this duty raises my obligation and responsibility towards the banking system, meaning that on one side the banking system will have greater confidence in the implementation of the Bank of Albania monetary policies as the Governor comes directly from the banking system itself, and of course he comes with the relevant knowledge on this system, but bearing also a good background in experience and knowledge on the perspectives of this system. This man comes with a powerful ally, the banking system, which shall be certainly a very important actor in the overall activity of Bank of Albania. The Bank of Albania shall have a prudential eye on the performance of this system in view of developing, improving and adopting its policies.

5 - How would you see the banking system after two or three years?

Long ago I have written in the "Monitor" about banking system challenges. I believe the banking system will know further dynamic developments, which require absolutely a greater responsibility from the Central Bank to open relative dimensions and pave the way for a faster and safer progress of the banking system towards integration in the European System of Central Banks. This would mean that Bank of Albania should establish stable partnerships with other important banks of the region to create the proper conditions that the Central Bank and Albanian banking system become the first factors to naturally push the Albanian economy towards acceleration of all economic cycles in order to enable the acceleration of Albania's membership in the European Union.

6 - One of the Bank of Albania objectives is its independence. How independent would you succeed to be in the future?

I would say that the Bank of Albania independence is acquired through law and we come precisely at a time when there is much confidence in the law and the banking system is applying it rigorously. We should not forget that the banking system is the most audited, the most regulated, the most transparent and where law is the most applied in Albania, if we would perceive the bank as an enterprise. In this view, my carrier consisting of more than 20 years moulds me with a fundamental principle, which is application of law. No one can compromise the term independence, but the Bank of Albania independence is not reached only through law. It is seen first of all as the accurate adoption of its policies, always in view of the country's economic development. Obviously, I shall be, as usually, a protector of law.

The central bank is an institution not only independent, being governed by law, but also a responsible one, meaning very transparent in decision-making, policy-making and their implementation. It is important for the Bank of Albania to take decisions independently of the executive authority, politics or markets. In this way, taking into consideration that I have been one of the designers of the first law of the Bank of Albania, 12-13 years ago, I know that Bank of Albania is perceived to be an independent bank since approving the law. The rigorous application of this law shall be a major concern and commitment in our everyday central banking work, which will ensure in exchange an independent activity. The central bank, as we have perceived it, as it is supposed to be today, will act with full responsibility being really transparent and open to the public. This is a very important factor for the implementation of its policies. The powerful authority that law confers to the central bank may be misused under the conditions of a formal accountability and transparency, which might cause damage to this institution, falling a prey to politics. For this reason we will always have as a principle that Bank of Albania should be an independent and accountable institution. This will be our guiding principle. We shall try to make Bank of Albania operate as an equilibrated logical institution, and to avoid making it appear as an isolated island, as the central bank operates in a certain economic environment, lives in a financial market and is responsible for its development.

7 - What are in your view the weakness points of the banking system and how do you expect to resolve them?

The existing banking system is already a system going towards consolidation and expansion. There are 16 commercial banks, and very soon the banking system shall become private. In 2005 a new regrouping and better consolidation of this system shall be required. Taking into consideration that the Raiffeisen Bank covers over 60 percent of the market, banks shall be more accountable for their policies and their medium-term and long-term plans. The establishment of sound banks and their presence throughout the country shall be an important objective of the banking system.

8 - Which are the challenges of the banking system in the future?

Challenges shall be first channelling of money through banks, combating for the formalization of the economy, rigorous application of the law on money laundering prevention, combating against corruption, and also the collaboration and coordination of all banking policies to create an environment as adequate as possible.

The banking system challenges will have a final objective, which is the formalization of the economy, but at the same time we shall create all the possibilities to develop new products so necessary for the market. We are confident that only through modernizing the payment system, performing payment services through electronic cards, we can succeed in achieving the intended objective. To this end it is necessary to collaborate and involve all the allies, the interested actors of the Albanian economy, to create a national unified card, which shall be supported by the banking system and is expected to be successful. Albanians cannot change the money pocket for credit cards pocket. In this way, practices that each bank has its own card are already consumed. Banks as they find support in the market should definitely accelerate the procedures and create the required facilities to establish a national card, which will enable all the customers to use it in the everyday transactions. This shall certainly make the life of Albanians easier, and by this way achievements shall be not only in the banking system but also at economy level, in the development of both macroeconomic policies and fiscal policies.

The privatisation of the largest bank in the country by the Raiffeisen Bank will have a significant impact on the market. Simultaneously the crediting to the major sectors of the economy, such as trade, processing industry, real estate and tourism, will foster the banking activity and the economic development. Crediting to the households shall be a priority for the banks, thus contributing in the domestic economic growth and social welfare.

9 - How would you support the development of financial markets?

We cannot have a developed banking system if we don't have a financial system. I have said several years ago and maybe now it's time to give my personal assistance in making these ideas become true. Maybe this came along with the maturity of the banking system and its progressive developments. The establishment of a stable financial system, which will collaborate with the banking system, shall contribute intensively in the country's economic development. These are two systems closely linked with each other, and the development rates are subject to a very effective collaboration between these systems. The first cells of creating a stable financial institution already exist. We can mention here the case of some credit associations, which may play not only the role of a financial and banking mediator but also a role in rendering the market as liquid as possible. At the same time these may become tomorrow very powerful companies that can collaborate in a very good manner with the banks and possibly merge with them. It's the occasion to give the example of insurance companies, which are growing in number and are also being consolidated, but they need reorganization and support. This necessarily implies their institutional regulation, but also their supervision, which is very important to have a clear picture on their activity and raise the standards of their work. In this view, a great impulse should be given towards increasing the standards of these companies.