PRESS RELEASE
Interview with Gent Sejko, Governor of the Bank of Albania. Shqip Newspaper

• At the beginning of November, the Government renewed the Eurobond for EUR 450 million. Did the Government consult the Bank of Albania on how it is spending this amount of money?

The Government and the Bank of Albania communicate constantly on topics related to debt financing and performance of domestic financial markets. Of course, the refinancing of the Eurobond, through the issue of an instrument with similar terms but at a lower cost, has been a part of this communication.

The Bank of Albania has stated even before its opinion about this issue, both in bilateral exchange of opinions with the Ministry of Finance and in our public communication. The issue of a new Eurobond has released the necessary funds for paying the existing obligations of the Albanian government, around EUR 300 million, without exerting pressures on interest rates, liquidity indicators or the exchange rate in the domestic financial markets. On the other hand, it is true that the new Eurobond was issued for a higher amount than that of the maturing Eurobond. The difference, around EUR 150 million, in our knowledge, is being used and will be used to lower debt. This move keeps the budget deficit and public debt at the planned levels, and helps to further release liquidity in the domestic financial markets.

• Together with PM Rama, you have said you have a plan for decreasing the level of non-performing loans and increasing the level of credit to the economy. What does this plan imply for the Bank of Albania?

The plan of measures for decreasing the level of non-performing loans in the banking system consists in a series of legal and regulatory amendments to enhance the effectiveness of the judiciary system with regard to the compliance with contractual terms between banks and borrowers; it will also help enhance the effectiveness of the banking system in tackling the non-performing loans.

In more details, in the last meeting of the Supervisory Council, we approved the extension of the deadline for the prudential measures taken by the Bank of Albania to fuel up credit through the assessment of risk coefficients for the credit portfolio and placements abroad. Other regulatory amendments relate to the terminology of NPL write offs and the change of the timeframe for holding the collateral seized by banks. The treatment of larger groups with the highest level of past due loans, the improvement of the regulatory framework in relation to companies that buy non-performing loans portfolio and the improvement of the credit portfolio, to include in it, court cases currently in process and all other liabilities of households and companies are some of the other measures the Bank of Albania envisages. The last, but not the least measure is the decision that, as of January 2018, the Bank of Albania will require from commercial banks and other lending institutions to base the consideration and approval of a loan application only on the tax-compliant financial statements, as approved by tax authorities. This will be an important step towards the further formalisation of doing business.

• Have you drawn conclusions on the consequences of the Greek crisis on our banks and economy?

The so-called "Greek crisis" started in 2010 and peaked in two occasions, in year 2012 and summer of 2015. From the very beginning, we assessed that the most possible impact on the Albanian economy would be a possible contamination through:

- Trade exchange between the two countries:

The Greek crisis would, in this case, had a negative on the down side of exports, remittances and FDI flows. On the other hand, the contraction of the Greek economy would bring imported prices and inflationary pressures down.

- The banking sector, mainly through the financial situation of Albanian banks with Greek capital:

The negative effect, in this case, would be the decrease in the market share for these banks, as a result of necessary actions for restructuring their activity. Depending on the crisis course of evolution, the economic and financial situation of [Albanian] emigrants and the uncertainties about banking system stability in Greece could shake the public trust in Albanian banks with Greek capital. A possible stress transmission channel would be the exposure of Albanian banks with Greek capital to parent banking groups in Greece. The situation would have been even more complicated had Greece left the euro area and adopt a national currency.

In relation to the first channel, we have found that due to the relatively low share of exports to Greece (only around 1.4% of the GDP), the effect was totally manageable. Through adjustments in operational costs, businesses were able to hold on to the markets. When needed, they resorted to new markets. Due to the sectors where investments from Greece are concentrated (mainly telecommunications and banks) investment flows have been overall stable and Greece continued to be one of the main partners in the Albanian as regards foreign direct investments. In relation to remittances, the Greek crisis has urged many Albanian emigrant households to return and ultimately settle in Albania. As a result, in 2013 for example, remittances were up. Overall, remittances have been steady during this period and expectations on the down side have not materialised. About the exchange rate, the Albanian lek had some depreciation pressures over 2012-2013, but afterwards the exchange rate has been very steady.

About the second channel, I would like to point out that our prudence has been present and evenly distributed over the period. Thus, I may say that thanks to the ongoing efforts, we succeeded to see:

a.Gradual decrease of the share of Albanian banks with Greek capital, driven by the need for these banks to focus on the restructuring of their activity, to improve the financing infrastructure, reduce the level of non-performing loans, cut operational costs, and improve the financial result and capitalisation levels;

b.Evident improvement of the liquidity and capitalisation situation throughout the period;

c.Complete transformation of "branches" of Greek banks in "subsidiaries", thus enhancing the legal control of the Bank of Albania over these institutions (following amendments to the law "On Banks in the Republic of Albania" at the end of 2011);

d.Reduction to almost "zero" exposure to parent banks. As a result, the introduction of capital controls and closure of banks in Greece in summer did not affect, not even peripherally, the capacity of Albanian banks with Greek capital to carry out normally their daily financial operations.

About this topic, I would like to ultimately say that despite the psychological effect on bank clients around Greek crisis developments, in no case did these banks or the banking sector had any problems related to the operational liquidity, that is their ability to settle in due time all the liabilities to their clients. Throughout the period, the Bank of Albania was in communication and close monitoring of the financial situation and developments in Albanian banks with Greek capital, and in communication with the respective authorities in Greece and euro area. Moreover, we have been in close communication with the supervisory and regulatory authorities of the financial system in Albania, to consolidate joint actions for monitoring the situation.

It is our pleasure to say that the Albanian banks with Greek capital, and the banking sector in general as well as the Albanian authorities were well coordinated in their efforts to secure the resilience of both individual banks and the overall banking sector, and to withstand the financial stress of that moment.

• According to BoA's observations, how is the Albanian economy performing in the last quarter, and will the economic growth forecast materialise?

It has been around a month since the last analysis on the Albanian economy, at the beginning of November. I would like to draw the attention once again that, based on the analysis of the entire corpus of available direct or indirect information on economic and financial developments, the Bank of Albania updated the economic growth forecast for 2015. New forecasts for 2015 point to economic growth ranging 2.5 -2.7%, that is revising slightly down our previous forecasts. Based on available information and Bank of Albania staff analyses, the Supervisory Council concluded that this revision owes mainly to temporary supply-side shock and the trend in the medium-term and long-term development remain positive. However, judging on the balance of factors affecting inflation, and to address the weakness in the credit channel, the Bank of Albania deepened the monetary stimulus in the economy, by lowering the key interest rate to 1.75%, a new historic low rate. This move generates more monetary stimuli to boost lending, consumption and investments, thus contributing to boosting economic growth and achieving our inflation target.

New economic and monetary data do not diverge significantly from our expectations, which renders us optimistic about seeing the forecasts realised.

• How will the Bank of Albania contribute to achieving the goal for GDP growth?

The Bank of Albania has a direct legal mandate for maintaining price stability. However, in compliance with our philosophy and modern central bank practices, price stability may not be considered as separated or unrelated to economic stability. In other words, inflation may be under control only if the economy is in balance, and in this perspective there is not long-term conflict between price stability and sustainable and long-term development. On the contrary economic stability is a precondition for price stability.

This parenthesis says that our monetary policy, which in a narrow meaning aims the return of inflation to the 3% target, serves at the same time to bolster aggregate demand and economic growth. By lowering the key interest rate we have lowered the costs of funding for the economy. In the meantime, constant liquidity injection aims to provide a functioning within normal financial markets of businesses and households. The transparent communication and forward guidance on the monetary policy is useful as it orientates economic agent expectations, reduces uncertainties and creates further stimuli for the recovery of consumption and investments. All these are part of the classic arsenal of central bank instruments and we will not hesitate to use them, even in higher dose if necessary.

Yet, monetary policy is not the only contribution of the Bank of Albania to fostering economic activity. In parallel, as the supervisory and regulatory authority of the banking system, the Bank of Albania has undertaken a series of supervisory and regulatory measures, some of which serve directly to boosting lending or improving bank-client relations. For example, measures to boost lending by reducing capital requirements and credit risk, measures to discourage foreign currency outflows, and other measures to alleviate the financial burden of businesses by stimulating the loan restructuring process. Other measures, such as those to enhance banking system transparency, improve the payment system functioning, establish and maintain the payment registry contribute to this purpose, i.e. to stimulate lending and economic activity.

The Bank of Albania will continue to take all the necessary measures for compliance with its price stability objective and other duties related to financial stability. These actions sustain steady and long-term growth for the Albanian economy.