Interview with Governor Sejko, Governor of the Bank of Albania, "Ekopolitike" OraNews TV

Publication date: 14.07.2016


OraNews: A few days ago, there was a Supervisory Council meeting and a subsequent a press conference. What is the situation of the Albanian economy for the first half of 2016, and which are the problems addressed by the Bank of Albania?

Governor: As I stated at the press conference, the Albanian economy continues to maintain a positive development trajectory. The data and indicators clearly show that the economy has been growing over the first half of 2016. The recent data from the Albanian banking system show that credit has grown, albeit at a moderate pace. Also, deposits and other indicators of the banking and financial system appear upward. The level of public debt has continued to consolidate its reduction trend. Inflation, which showed a drastic fall in the first months of this year, has started to pick up.

Thus, the overall core indicators show the economy has entered into a positive development trajectory. This does not mean that everything is perfect. The indicators, I mentioned, are not at the desired level for the Bank of Albania. Our inflation target is 3%. We aim to reach the target by the end of 2018, while in May 2016 inflation stood at 1.2%, considerably up from 0.2-0.3% at the beginning of year, though still below the Bank of Albania's target. In addition, employment data and other data were also below the aimed levels.

All the measures and efforts committed by the Bank of Albania and the Government through structural reforms, aim to drive the economy ahead, to achieve the target. In a few words, I would say that economy is moving along the right direction, in a positive growth trajectory, but it has not reached the destination yet.

OraNews: It is frequently said that economy is performing below its potential, due to the European crisis whose effects reached Albania in a second round. Yet, there are also the effects of governmental policies. In the latest report of the Bank of Albania, at a press conference, you called for public investments to be distributed throughout the year, and, increase at least for the remaining months. Is fiscal consolidation affecting negatively the growth of the real economy?

Governor: At the first glance, the impression is that fiscal consolidation is providing a negative impact. The truth is that it does have its effects. Albania has a high rate of public debt, and it is indispensable to reduce this level down from 72%. The new fiscal rule, made into a law, aims at reducing the public debt, which may be achieved only through a consolidated fiscal policy.

The Bank of Albania has continuously supported the fiscal consolidation implemented by the government. In this regard, the Bank of Albania has harmonised its monetary policy to the consolidated fiscal policy. This is in line with the lowering of the policy rate, in other words our accommodative monetary policy. Obviously, fiscal consolidation establishes some restrictions on making investments or increasing budget levels; however, this is indispensable for ensuring a long-term stability of public finances. The more stable the public finances are, the lower the public debt is, the more attractive Albania becomes to foreign investments in the future. The Albanian products will be more competitive in international markets.

OraNews: Data from the Ministry of Finance show that, at least in the realisation of public investments, capital spending has slowed down. This has been a problem for many years. The argument and explanation from the Ministry of Finance point to the procedures. Do they impede or disincentivise the economy?

Governor: In the last press conference on the Supervisory Council's decisions, we highlighted that we would prefer to have a more even distribution of public investments throughout the year. An investment carried out at the beginning of year, in January or in February, has not the same effect with an investment carried out in December, which is at the end of the year. We expect the level of public investments increases in the rest of the year. On the other hand, revenues are realised at a rather considerable level. That stands above the forecast. Public investments were at the projected level and there are expected to increase. Public investments, along with foreign direct investments and domestic investments, will provide a breath to economic growth. That is why; we require public investments to grow, as it will provide a balance in the fluctuation of the domestic financial markets.

OraNews: According to the recent data of the Ministry of Finance, unlike in 2014 and 2015, revenues have performed positively in the first five months of 2016. The Government, for the first time, is revising the budget up, not down. We all expected a reallocation of surplus revenues to increase wages and pensions, but its seems that it will not be the case - at least based on what was said at the last press conference with the Ministry of Finance, the IMF and the Bank of Albania. Would you advise for a possible raise of wages and pensions, given that consumption has contracted, notwithstanding the increase of inflation? At the beginning of the year you said that the fall in inflation would be a temporary phenomenon, and eventually inflation increased.

Governor: In our knowledge, there is no substantial revision of the budget for the remaining part of the year. If we had a raise in wages for this part of the year, it would weight on public investments. Budget review is an exclusive right of the Government. The focus of the Bank of Albania is maintaining key macroeconomic and monetary parameters. Absolutely, we would have preferred to have had a higher level of public investments. We talk about real increase of payments, because there is a nominal growth, as wages, as far as I know, are indexed against the inflation level. In line with the agreement with the IMF, the latest decision was to not have an increase of wages for the reaming part of the year. We would have preferred to see the realisation of the budget, and all the interconnected elements within the budget realisation, in a long-term growth plan. This will probably be seen in the next year, but at the moment the situation is as explained above.

OraNews: In the first part of year, based on the monetary policy statement of the Bank of Albania, the growth was mainly driven by the recovery in consumption and private investments. Meanwhile, only a few months earlier, the Bank of Albania published the Economic Sentiment Indicator, which shows a considerable fall in all indicators for consumers, businesses, and services and the industry, practically in the main branches of the economy. This obviously shows an uncertainty and a concern, a lack of confidence that economy agents have with regard to our economy. What is the situation? Have the Albanian consumers and businesses overcome this problem?

Governor: We may refer to uncertainty as a lack of confidence. It is an indicator that affects the level of optimism for consumption and investments from the Albanian consumers. The truth is that consumption has increased based on the figures for 2015 H2. The increase continued during this year as well. On the other hand, confidence indicators, according to the surveys conducted by the Bank of Albania, have shown continuous fluctuation. This is more obvious, as many factors contribute in this regard. There are psychological factors which relate to both the external and internal environment, but mainly to the external environment. We know that the euro area is not experiencing a situation of the desired recovery towards the economic growth. And the consumer is obviously affected psychologically. Meanwhile, in internal markets, the information is always volatile. There are also a number of other contributing elements, such as political conflicts, which affect the consumer confidence indicator.

The truth is that there is a mismatch between the figures, the indicators of economic growth and the perception. Confidence indicators are always a perception and overall the economic reality performs always some steps faster than the confidence indicator. The confidence indicator follows the economic reality in cases of both improvement and deterioration. Based on figures, we deem that the economy is moving moderately towards improvement. Also, confidence will follow growth, despite its fragile level.

OraNews: Has the aggravated political climate had its impact in this regard?

Governor: Like in other countries, the political climate always has its effect. Look at what has happened with the Brexit. In a small country, such as Albania, the political climate has its impact. There are also many other elements, but the political climate is one of the factors that affects the consumer confidence indicator.

OraNews: Have government reforms affected the disposable income of citizens?

Governor: The structural reforms of the Government have affected and will continue to affect. There are short-term and long-term effects, short-term and long-term perceptions. We have already discussed that structural reforms in the economy do have a short-term cost, which have adverse effects on the consumer confidence indicator. Certain reforms, such as the reform in the energy sector or that against informality are sensitive to certain groups of the population and the impact from the perception of the consumers is negative. Yet, in a long-term plan, these reforms will provide positive results and consumer confidence will improve gradually. Government reforms are undertaken to change the economic model, which is oriented toward a productive economy, not based on remittances in the model applied in the previous years. We should be somewhat patient in waiting for the results and the efficiency of these reforms. Then we will see that the consumers' behaviour for consumption and investments will go in parallel with the reforms. We are half the way and we are making the relevant assessments. It is important that reforms continue and not get stuck in the middle of the way, but carried out to the end.

OraNews: Following up on the economic model concept.... The current ruling majority promised a new economic model. Do you see this model materialised in these three years of governing?

Governor: A representative of the government would provide a better answer. However, I may say that the Bank of Albania monitors the situation. The structural reforms of the government alternated to the structural reforms carried out by the central bank related to the financial sector are expected to yield their results for the Albanian economy. These reforms are undertaken to boost the economy and economic growth, improve employment and the welfare of the Albanian citizens.

We have noted that several structural reforms are carried out in those fields and sectors of the economy that needed emergent intervention, such as the energy, pensions, and education sectors and the action against informality.

Some of these reforms generate some social costs; for example, the reform in the energy sector has affected the income of some of groups of the population. Also, the fight against informality had some effects on some taxpayers, who were in breach of their tax dues and the applicable legislation. They have realised higher income by not paying the taxes. But in the long run the budget, as we are seeing, will realise higher income than the actual realisation. It would establish the possibility to realise higher public investments, which would in turn affect the life of the Albanian citizens and provide more possibilities for investment in education, infrastructure, and health and other sectors of economy. It would provide a chain reaction.

A major part of these reforms have been carried out in consultation with and under the supervision of international partners. The Republic of Albania has an Agreement with the IMF and all developments take place in the framework of this agreement. Also, these reforms are assessed under this framework. I re-emphasise that it is crucial that these reforms continue with the right intensity and not stop half way. Only the successful completion of the reforms would make the economic model efficient and provide the expected results in the medium and long run. In this context, the Bank of Albania would be able to achieve its objectives and targets related to inflation, economic growth and the financial system stability.

Related to the reforms, our accommodative monetary policy stance has aimed to boost economic growth, in the context of the increase of consumption, investments and lending.

OraNews: To finish off with the inflation issue, which was one of the main concerns in the last months? INSTAT data showed that inflation stood at 0.2% in February, and then 0.3% and 0.7% in the following months. It appears that we have moved somewhat away of the deflation risk. The latest data show inflation stood at 1.2% in May 2016.

You have said in previous statements that inflation fall would be a temporary phenomenon; in fact, the fall was mainly affected by uncertainties in international markets, where oil and commodity prices were down, implying that the effect was imported from abroad. On the other hand, it appears there is a contraction of consumption. The uncertainties have been constantly shaking confidence, causing to be volatile, even though it may be a perception. What is expected from now? Another fact is that, during the first part of the year, you said that economic growth was driven by the private consumption, while exports and the government stimulus through public expenses were negative, at the opposite direction; that is what we should expect in the rest of the year, consequently. Seeing the inflation chart in Albania compared to the regional countries and euro area countries, the fall of inflation was not a typical only in Albania, but it is a trend affected by the performance of international financial markets, with oil prices falling throughout this period, and in primary commodity prices, mainly in minerals, which is the main item of Albanian exports.

Governor: First, consumption, from the available data, has not fallen. It has been up. Consumer confidence indicator has been volatile, for the above mentioned reasons. In February, inflation fell drastically. In addition, there was also an interpretation with alarming notes. And this is quite normal. But, we were not in a deflationary situation. Nevertheless, the fall in inflation at 0.2%, was absolutely a concern. We emphasised, based on our local and regional analyses, that this would be a transitional situation of inflation, from the view that the fall of inflation at 0.2 and 0.3% was affected by the external supply-side factors, such as oil and mineral prices. The drastic fall of these prices contributed to the inflation level. Also, the fall in the price of agricultural products affected the inflation level, but oil and mineral products provided the main impact.

Albania has had higher inflation rates. The fall in inflation at these levels coincided with the IMF regular mission. During the discussions, the IMF representatives stated that Albania seems to match the inflation figures to the international market, as we had been rather higher than the market. According to our analyses, we estimated that inflation would be low only temporarily to rise later. We expect inflation to increase in the second half of year, in the absence of other shocks on the fall of prices. We deem that the inflation rate has reached the minimum, with the lowest prices of oil and minerals. Inflation will also rise due to the growth of consumption and domestic investments, in the second half of year. The forecast of the Bank of Albania is that inflation will be 1.9% in 2016, revised down compared to 2.3% estimated at the beginning of the year. Inflation is acceptable, compared to the region and the euro area, albeit it is far from the 3% target of the Bank of Albania.

Businesses boost the economy, as the main contributor to the economy of a country, the main generator of jobs. It seems that recently the relationships between the business and government have been tensioned. We have seen a reaction of the American Chamber of Trade and Commerce, German Chamber of Trade and Commerce, Foreign Investors Association. Their surveys have shown that the business climate in Albania has deteriorated.

OraNews: How much is that affecting the economy and the fact that the Albanian economy is developing below the potential?

Governor: The main topic of discussion between the business community and the Government has been the tax issue. That is, the tensioned climate, as you said, was mainly related to taxes. Especially after the beginning of the action against informality, there was a reaction. This is understandable, as it affects the business performance. On the other hand, businesses have rights and obligations. The balance is attained only through harmonisation. On the one hand, businesses should first understand they have to comply with the law and pay taxes. In this regard, there is a reaction from businesses. On the other hand, the Government should be as correct as possible. It should lower the corruption level and react over the business' needs. Only through the support of businesses, the desired levels of economic growth may be achieved.

OraNews: Would you recommend a possible reduction of taxes in the fiscal package of 2017, as it is under discussion and is expected to become public?

Governor: The main objective of the Bank of Albania is maintaining the key macroeconomic and monetary parameters. Fiscal policies, the increase or decrease of taxes are an exclusive right of the Government. We would like to have a rather simple fiscal policy, to be functional and provide positive results in collecting the taxes. There are a lot of pros and cons, positive and negative sides, regarding the applied fiscal packages, flat or progressive tax. This is an exclusive competence of the Government. It is a political issue. It is important to have as less revisions as possible of packages in the fiscal system. Tax and fiscal systems should be revised rarely. They should be simple and functional. This would be our advice regarding the Government in choosing to either reduce or increase taxes.

OraNews: Economic growth forecasted at 3%. You showed more conservative than the IMF and Government standing at the objective of 3.4%. You cited the objective 3% even a few days ago in presenting the monetary policy report at a press conference. In this second press release, are you loyal to this figure, do you think that you adopt a conservative or realistic approach in this regard?

Governor: We think we are realistic and not conservative. But, this does not matter. The important thing is to be correct in the results of our analyses. We implement a contemporary monetary policy model; however, there are many variables in it. We have continuously remained faithful to the model. But, we have always discussed the forecast. The forecast is a forecast. The higher the economic growth, the better it is. Even if the economic growth were 3%, I would say it is very positive. That is in line with the fact that economy has entered into a positive development trajectory. Economic growth trend is continuing and the effects of structural reforms, both by the Government and the Bank of Albania, are providing their results. Amid an unfavourable economic and financial environment in the euro area, the difficulties stemming from the international markets and the reluctance of external and internal agents, the 3% growth is positive. Of course, it is far from the 4-5% rate which would really contribute to Albanian citizens' budgets. Thus, such economic growth levels are desirable, but we are in a post-crisis period. It is important that Albania did not fall in recession after 2008. It successfully weathered the crisis shocks and now is oriented towards certain reforms, which will bring about an economic growth. Also, there are other unpredictable factors that may affect economic growth. That is, we try to make forecast, but a forecast is a forecast. At the beginning of the year, prices of oil and mineral products fell, and that was not forecasted. This fall affected the inflation level. Hence, we revised our analysis. Economic growth may be revised down, or even up, based on the events that may occur.

OraNews: The policy rate has been cut 16 times, in the course of the accommodative monetary policy that has started since 2011. What is its effectiveness, given that the lek cost, currently stands at the historic minimum, at 1.25%?

Governor: The monetary policy of the Bank of Albania has been effective. First, this was reflected at the level of credit growth in the domestic currency, as the monetary policy of the Bank of Albania has aimed to increase lending, also to encourage consumption and investments. Lending growth in the domestic currency, since the start of an accommodative monetary policy by the Bank of Albania, has been up. We have noted that the monetary policy is reflected in the reduction of the interest rates in three segments of the financial market, credit, deposits and Government securities.

OraNews: Has it been this even?

Governor: Yes. Since the beginning of the accommodative monetary policy implementation, interest rates across all the segments of the financial market have been down, by around 4 to 5 percentage points. Hence, the accommodative monetary policy of the Bank of Albania has been effective and is reflected in the interest rates. The reflection of the accommodative monetary policy, implemented by the Bank of Albania, drove to the increase of lending in lek. This is a positive element as it prevents the exchange rate risk in the repayment of loans.

First, we aim to boost lending, and as long as credit in the domestic currency is up, this is a positive element. Also, the monetary policy aims to bolster consumption and investments. On the other side, it lowers interest rates on deposits, which have a negative impact on savers. Obviously, any stance of the monetary policy will have its effects on one side or the other. We consider in total balance the effects of the monetary policy stance. The accommodative simulating monetary policy aims to boost economic growth.

OraNews: Regarding credit, while interest rates are lower, bank lending is still anaemic. Does that mean it is not the only contributing factor?

Governor: The truth is that, according to recent figures, credit has been up even during the last month. This is a positive indicator. The latest data of the financial system situation show a moderated growth of credit, though not at the desirable levels. This is the reason why we jointly organised the Albania Financial Forum IV with IMF, the World Bank, the local financial system and international institutions to analyse the Albanian economic situation and the growth potential of lending. We aim to have adequate lending that sustains economic growth, and on the other hand, have a stable Albanian financial system. That is, lending should not threat the stability of the financial system but positively contribute to economic growth. It is not only the monetary policy. We have had an effective monetary policy. The accommodative monetary policy has proven successful as shown by the figures. But, it also has its restrictions. First, the monetary policy is not the only instrument that ensures economic growth. Government's structural reforms and other broader reforms are crucial, which, in concert with the accommodative monetary policy, will drive to the wished result.

OraNews: That means you have been alone, in a certain way, with the monetary stimulus.

Governor: No, we have not been alone. In fact, we have been a team. We have continuously collaborated and coordinated our action with the Albanian Government. Absolutely, we have not been alone. We do have a harmonisation of the monetary policy to structural reforms, as I mentioned to the fiscal consolidated policy. Thus, we have not been alone in this regard.

Turning to the discussion on lending, we would have liked a higher growth, but not too high. If we refer to the figures on credit growth in the pre-crisis period, in 2008, this growth was at 30%. We would not like to have such a high growth of lending. It would be very good to the economic growth, if such. It is impossible to be because of the weak aggregate demand for credit. On the other hand, this would affect the increase of non-performing loans. We would prefer an increase higher than 2.5-2.7%.

OraNews: That would be? What is the optimum?

Governor: Between 5 and 10%. This would be an increase that would comply with the desired economic growth and at the same time would maintain the risk criteria. This would positively affect the financial stability situation. This is in the form of an equation. The Albanian financial system, rightly, states that the credit demand is weak. This system with the highest level of non-performing loans has its hesitations, as pessimism increased in taking the decision for new lending. On the other hand, it is deemed that certain industries of Albania have potentials which may generate sound credit. Hence, the monetary policy is restricted by many elements, such as the euroisation of economy, because our monetary policy applies only to the lek and not euro. The European Central Bank implements the monetary policy on euro, as it it's the ECB that sets the interest rates.

Question: Do Albanians prefer using the euro in loans, deposits and also in their transactions?

Governor: Even though the lek is the dominant currency, in several sectors, especially that of real estate, prices are set in euro. A considerable share of the loan portfolio is in euro, around 55%, from around 80% it used to be. Anyhow, the exposure remains dominant in euro. Obviously, we suggest that entrepreneurs, investors and bank's clients that perform their activity and generate their revenue in euro should continue to work with credits in euro. But others, who generate their revenue in lek, are advised against the unnecessary exposure in foreign currency. And in this aspect, the monetary policy, by lowering the interest rate, has provided a positive contribution by encouraging the clients to shift toward the lek credit. Of course, credit has increased, this is a good sign. In recent years, the goal has been to work with short-term loans and practically amortize the loan portfolio. The amortization rate means that credit growth isn't shown by numbers. But, we must be clear that banking system has continued lending in the post-crisis period as well. Hence, although growth appears moderate, lending has continued.

Question: You said that business' demand is weak and that is related to uncertainties and the overall climate of the economy. Are the banks showing tightening policies?

Governor: Surely what you say is an element. This is a consequence of the banks tightening policies. On one hand, the lending rate renders economic agents hesitant about certain investments, to embark on certain projects as a consequence of the overall economic climate, in the region as well as in the euro area. Certain bank policies have reflected precisely this reality. After 2008, international banks operating in Albania have adopted policies not as "aggressive" as in the pre-crisis period; hence they have had a certain contraction. Their objective has not been growth, but a decrease in dominance. This is reflected as well in the objectives these banks have had about lending in certain countries, including Albania. In this aspect, we do not have an appetite by banks for credit growth. Another factor is the effect from the level of non-performing loans (NPLs). The growth of the rate of the NPLs certainly influences the pessimism of the banks for lending. This is a quite negative element; therefore, we have addressed it and have created a plan of measures, in collaboration with the Albanian government and other actors to decrease the NPLs level.

The low aggregate domestic demand is a consequence of the economic agents' hesitation for projects and investments, as well the banks' tightening policies for growth, which in turn have led to moderate lending growth. But, fortunately the growth has continued. All our efforts as central bank in collaboration with the banking and financial system are to discuss and review the best ways for lending growth in accordance with the potential and the new economic model of the country, if we can call it this way. Thus, it is important that the banks are well oriented, despite NPLs, which will be treated according to the plan of measures. The important thing is that lending continues in the right direction, where there is less risk and more opportunity for development and growth. We have seen that banks have responded positively to the regulatory policies of the Bank of Albania, but this is a process that takes some time to implement.

Question: You have recently appealed to banks to begin lending to businesses, and not be too conservative. For someone who listens as an outsider and does not work every day with lending and its problems, it seems that businesses are in trouble and do not want credit. This may be normal because they are not sure if they can make an investment, thus do not have reasons to borrow money from the bank. On the other hand, banks do not give loans because of the overall situation, NPLs situation and it seems that all this is a vicious circle. Meanwhile, the banking system continues to generate profits, so it is a comfortable situation to continue in this kind of environment. Is there a solution to this situation?

Governor: The banking system is not exactly in a comfortable situation, since their business is lending. The other revenues that are generated through a passive activity would not be very long term. Bankers surely are aware of this point. But, the issue is that we have a clear orientation toward the lending potential in relation between demand and supply, we are working with banks. There is potential; there are industries that have development opportunities for the future.

Question: If we look at the ratio of non-performing loans, it has been a growing indicator despite the plan of measures that we will discuss below.

Governor: The ratio of non-performing loans is high. Currently stands at 19.5%.

Question: What are the lending potentials?

Governor: The potentials firstly are oriented toward risk differentiation and mostly toward the level of microcredits, for small and medium-sized enterprises and households, more than toward supporting corporative clients, big clients. The latter bear a greater risk and the banks are "frightened" as a consequence of this level of non-performing loans.

Question: Which have been the vast majority, 36 larger companies, 65%?

Governor: Numbers do not matter.

Question: These larger companies have the major part of NPLs, meaning they are the bad clients, not the small businesses, this is the idea?

Governor: This is the reason, in this situation, for banks to have diversified risk by reorienting toward the so-called retail loans. Growth has come mostly from supporting this segment. There is nothing wrong, despite that generally the engine of the economy are big businesses, and those must be supported. But since big businesses are in trouble and they don't have projects or initiatives for projects the support for these businesses must be more studied and financially greater. Thus the banks have reoriented in this direction. The Bank of Albania, also as result of analyses carried out by other institutions (the Ministry of Economy and other institutions) have noticed that there are quite a good number of potential industries like agriculture, tourism, mineral processing, etc. that have potential and are easily creditable. It means that despite the economic difficulties, there are clients with the potential to take loans and to develop businesses.

Question: So you are optimist for the lending trend in the future?

Governor: I'm very optimist about the lending trend in the future, with better harmonization or better identification of the market needs for credit. But, that is affected by the informality rate. We must not forget that in addition to the high level of NPLs, a difficulty for the banks is the level of informality and financial reporting.

Question: Two balance sheets... Are there still businesses that require credit with two balance sheets?

Governor: As a rule we have avoided it and banks have inserted this in their risk criteria. This creates difficulties for the clients that take loans, since they have to be correct with their tax payments, they must have certified and consolidated financial statements. On the other hand, there might be clients with a healthy business, which are correct in their payments. They generate revenue in their business and their relation loan/investment is in quite a good condition, thus the banks practically can support very well these clients with loans. In this aspect, there is a potential that might be untapped and the banks should identify. Since we are talking about banks, let's say that from the 16 banks that operate in the Republic of Albania, some have a greater impact, some smaller, but in their total they have a net of 500 branches across the territory of the Republic of Albania. They are mostly concentrated in big trade centres and cities. Meanwhile, the agriculture sector is covered by several microcredit financial institutions.

Question: Remaining with the banking system, there have been several bank robberies. There have been many questions surrounding them, about the physical transport of cash and so on. Currently, what would be the comment of the Bank of Albania about this attitude, since you have approved a regulation too?

There have been many questions related with the fact if the physical transport must be allowed, and about the manner it is done.

Governor: Firs, for the part of the question related to the physical transport, and relevant comments, there has been a certain reaction, which is right, and anyone would have been worried when hearing about millions, but the question is, where this money goes. Historically, the surplus cash is transferred by airplane toward foreign banks. This has to do with cash management and the issue here is not at all whether Albanians' money goes abroad, since the money comes and goes. Meaning, we are supplied with cash and we transfer the surplus cash, this is a question of cash management. The need for cash obviously is managed in the same way, taking the money back from these banks when needed. The quantity of cash corresponds to the bank accounts and these accounts are reconciled through the corresponding banks. Obviously, this discussion has been done when discussing deployments abroad too. Albanian banks have excess liquidity, the loan to deposit ratio is 50 to 50.

Question: So they do not give loans, they cannot keep the cash, hence obviously they transfer it abroad...

Governor: The surplus funds in foreign currency are established by foreign banks, since there is a form of interest rate there; while lek would be invested in treasury bills of the Albanian government. In this logic, the surplus cash would adjust through the inflows and outflows transferred.

Question: So it is a normal procedure.

Governor: It is a very standard and normal procedure. There is no issue with this procedure, which has functioned and will continue to function, since this is how it functions throughout the world. The issue is the security of the cash from hits by criminal activities. So, do the safety criteria ensure that the money will be protected during their transport or on the premises where the banking activity is exercised within the offices and bank branches? The record has shown that this money has been attacked several times during their transport. So, transport carries a greater risk than the banks' own premises. This is logical, since the banks do a management within their premises, keeping lower amounts in their branches and the hit would have smaller consequences given that this money is also insured. The central bank, after the various robbery events and in close collaboration with the State Police, has revised the regulation for the security criteria to increase them. First, for the situation that the banks have in their premises, since they are responsible for the physical security of the cash within the premises where the banking activity is exercised. Simultaneously we have advised the State police through a very productive collaboration to increase the security measures during transport. Also, there have been some regulatory changes. The companies that transport the money are private security companies, which are licensed by the State Police. The State Police also declared that it is reviewing the law in terms of increasing security measures, while private transport measures are increased as well. The Bank of Albania through the regulation enforces banks, first to perform the transport of monetary values with private security companies; and second, the money to be insured by insurance companies. These are the two main elements.

Question: About this last robbery, was the money insured?

Governor: Of course the money was insured. But, the important thing is that such events do not happen anymore. Therefore, the security measures should be strengthened. I want to highlight that the repetitions of this events, for the values involved, does not hurt the stability of the financial system.

Question: What is the negative effect?

Governor: First, the negative effect is the loss of the banks. They have a consolidated financial situation, but it is still a loss. The greater negative effect is not the financial loss, but the loss of image we have about security for foreign investors. The banks themselves are direct foreign investors. In case the events repeat themselves - because sporadic events happens everywhere in the world, but is the repetition that turns them into a phenomenon - then this will be another alarm signal, like the high level of non-performing loans. This would create insecurity in the banks' situation as foreign investments in the Republic of Albania. For this reason we have addressed this and for this reason we want that these events to be transparent and minimized in the future ...

Question: Mr Sejko, as consequence of the monetary policy of the Bank of Albania, the deposits interests have fallen noticeably, nowadays it is almost inconvenient to keep your money in the bank, at least for the one year deposits. Has this had a negative, perceivable, effect on the consumers?

Governor: I highlighted that the easing monetary policy of the Bank of Albania aims to encourage consumption, investments and lending. This is an international debate, related to the savers and revenues from saving. We have seen this debate lately in Germany as well between the Minister of Finance and the Governor of the central bank, but also in many other countries. Of course the monetary policy will be reflected on both sides. It is reflected in the deposits interest rate, but we must not forget that we have a great number of citizens that are borrowers. The low interest rate has affected positively this side. We must understand that we are in a period of economic difficulties, and not only us but the entire euro area. It is a monetary policy that is being implemented as standard by all the countries. First, it was implemented by the United States of America and has given its results, and then it spread in the euro area. The same policy is implemented by the European Central Bank.

The low interests rate policy aims to grow the level of consumption, otherwise depositor will keep expecting revenue only from their deposits, without investing, without consuming. We aim to grow consumption and to grow alternative investments.

Question: Is this happening?

Governor: Obviously it is happening, since consumption has grown. We said there is a correlation between the consumer confidence and the real economy indicators. Naturally, consumption has grown based on figures, but growth rates, the response rates will be seen in times to come.

Question: It remains a great dilemma where can you invest your money. Treasury bonds interest has fallen noticeably, it was almost 1.3% in the last auction for one year bonds, two year obligations were 1.5% in the last auction, and deposits interest has fallen noticeably and is not convenient to keep the money in bank. For those who have money, where can they turn? Since there are several online trading schemes, which you have appealed to be careful as well, where can you put the money today?

Governor: The best would be for the banks to increase lending, in a healthy manner, in the sectors we talked about. And gradually with increasing profitability as the economy grows, we will raise the interest rates and naturally the profit of depositors will increase as well. So this is the ideal situation, which for the moment we aim to achieve in time. I cannot give a practical orientation, since actually it is not the duty or the role of the central bank to say where someone might invest and where are the alternative investments. There are many alternative investments according to the many segments.

Question: I'll make the question simpler. There are investments in electronic platforms, online platforms. First, it was the Financial Supervisory Authority that appealed for caution, by this is also the institution that should monitor these kinds of investments, and then it was the turn of the Bank of Albania. You have had as well the meeting of the financial stability with the participation of not only the FSA, also of the Ministry of Finance. How much worrying is this problem currently and what do you recommend concretely that the citizen should be careful of?

Governor: The Minister of Finance, the Financial Supervisory Authority and the Deposit Insurance Agency, as the responsible authority for licencing these online platforms participated in the meeting of the Advisory Group for Financial Stability. ,. The discussion about this element was started rightfully so by the FSA. We analysed this. The truth is that this is not a phenomenon alarmingly spread, but the first signs of these platforms are appearing in the market. We have reacted in order to sensitize the Albanian citizens as much as possible to invest their money as safely as possible. So, after the meetings of the Advisory Group for Financial Stability, we had a press release, where we have drawn the attention of all the citizens not to invest in unknown platforms, since they are going to be prey of fraud schemes, in case they are attracted by high interest rates. Citizen should invest only in licenced platforms. To grow the transparency on our webpage we have tried to release their list as well, but the Financial Supervisory Authority has published the part of online platforms licenced by this authority. There are a limited number of licenced platforms, about whom the authorities take responsibility.

Investments in international financial markets have several elements that are unknown in the Albanian market. There is a lack of information, and practically only licenced institutions and some banks can provide this type of service to the clients. These are the appropriate institutions that will be transparent and will give the appropriate counselling to the client for the risks he undertakes.

Question: It is individual, every person must control online if the platform is licenced or not, right?

Governor: We have advised clients that they should invest their money only in licenced institutions, either from the Bank of Albania, or from the Financial Supervisory Authority. Every investment outside the licenced institutions bears a great risk and the probability of fraud schemes is very high. In this case, the citizens must be very careful. Especially in this situation where the interest rates are so low, prevail schemes that try to attract citizens, and not only, they won't get the promised profit, but they will lose the principal.

Question: Meanwhile the informal lending market has been developing in Albania. It is found mainly in the construction sector, but also in some other sectors of the economy. It is booming, at a time when banks are deterred from lending, despite the growth which as you said is not at the desired levels. How disturbing is this phenomenon currently?

Governor: The informal market has always existed. The central bank has performed several surveys related to the informal market. It is a little difficult to derive accurate indicators from surveys, since there is a hesitation in reporting. The main concern related to the informal market has been that the depositors interests are not touched, meaning that we do not have so many borrowers that a good number of depositors cannot enter in a certain investment. Meanwhile, by law, individual borrowing and lending is legal and there is no issue there. Obviously the informal market could be a parallel market as well. Some positive business projects can solve each other necessities without going through financial intermediation. This would not be that much of a problem with the depositors, since the informal market has certain contracts. The agreement would be done on the base of a notarial contract, maybe even giving some collateral.

The main concern has been that financial institutions not licenced by the Bank of Albania should not be able to conduct business without a licence for lending. Hence, they should not collect deposits and give loans since this can create the premises for pyramidal schemes, which can cause losses to the citizens. As we have observed, this element has not evolved and we will put the maximal effort so that this phenomenon doesn't develop. Related to the informal market, we would like to draw the attention of the citizens so that they would be as careful as possible in alternative investments and to analyse risks. It is advisable that any type of investments should be done through licenced financial institutions and banks, since these are specialized to conduct analyses for lending and to evaluate all the risks' elements. Individuals themselves are not specialized to do risk analyses on investments. But, on the other side, it is the right of any individual to choose individually his own form of lending and borrowing, taking upon him the risk.

Question: In the conditions when the credit market in the country is stuck in a stalemate, so we do not have the pace we would like in lending to the economy, will you advise the reopening of the Tirana Stock Exchange? That was an old project, it was a department at the Bank of Albania, became independent, as an institution on itself, until a year and a half ago the government closed it at all, because it did not perform any function, simply had operative expenses. In the conditions where the Albanian economy currently is, do we need a capital market?

Governor: The development of capital markets would surely be quite a positive element, not only in the conditions of the Albanian economy, but in the condition of the region's economy. Obviously a secondary market, a parallel capital market would have had a great effect in the efficiency of the financial intermediation. Banks would not be the only financial institutions to support lending and economic growth, but we would have also capital transaction through the capital market. There have been several initiatives, which have failed. The major one was the Tirana Stock Exchange, that closed since for years did not have any activity. The main element that affects the development of the capital market is the level of formality. Quoting, listing, certifying must be done on the base of certified balance sheets, since stock transaction must have a certain level of verifiability. In case we have a high level of informality, the capital market would become more a speculation centre than a centre where capital as sold and bought properly.

Question: Is the right moment now since we have the anti-informality initiative and the control of the level of risk base of the large companies?

Governor: In any moment, there can be private initiatives to create the Tirana Stock Exchange. Surely, this should be consolidated. It is one of the objectives of the Bank of Albania, but anyway this objective will come at the right moment and the right time, there is no need to be hasty and take an initiative, which would not have any effect. It is welcome and it will be analysed any initiative on the base of predetermined criteria. To be realist, the market is still at primitive levels and with high levels of informality. The level of informality must fall and the market must be regulated so that the creation of a stock exchange is efficient toward stock transactions and the development of a parallel capital market. This is my judgement in this moment, it will need time.

Question: Several investment funds have been licenced, some economy experts cast the doubt that through them are bought part of the non-performing loans we mentioned, which have reached 19.5% and that we will discuss further on. Is this true?

Governor: Investment funds are funds which manage the liquidity surplus and mainly have invested in the purchase of securities of the Albanian government, because it is the only instrument, the only government security. The Financial Supervisory Authority licenses and supervises these investment funds.

It is not true that they are buying part of the non-performing loans. We have not detected it and we do not have this concern. There are some analyses done by certain "analysts", which might create some conspiracy theories which are unfounded. I have heard them, but I have no concern.

Section III

Question: The monetary policy is accompanied by a reduction in treasury bills' interest rates and bonds. One investment less for the Albanian citizens, and they are expected to further decrease. It seems that the Government was the only one which benefited from this. In the factual budget report there are approximately ALL 1.4 billion less that are paid for the domestic debt by the executive.

Governor: The government has borrowed mainly through Euro bond in international markets. Such thing was done in order to let the excess liquidity in the banking system free to support with credit the growth and the development of the Albanian economy. We have stated this before as well. Of course, the government has also benefited from the reduction of interest rates, concerning the domestic borrowing. But the biggest cost of debt has been associated with the Euro bond. Thus, the impact of monetary policy, interest rates have decreased in all three segments of the financial market, loans, deposits and securities as well. The latter is a segment that would certainly feel the impact. At the moment, we are not planning a further reduction of the interest rate because as we previously mentioned, the indicators at the beginning of the year had a positive performance. And if we meet the foreseen objectives- at the economic, inflation, and credit growth level as well as at the level of other indicators- then of course, the accommodative monetary policy will or maybe not be in such levels. Everything needs to be adjusted.

Question: So, hasn't the monetary stimulus been exhausted?

Governor: No, it has not been exhausted.

Question: Can we expect a further reduction?

Governor: Monetary stimulus has not been exhausted and the policy rate stands at 1.25%. There is still room. Only if the consumption, investments, economic growth and inflation are to be lower than our prediction; If there will be foreign shocks which would led to the deterioration of different macroeconomic indicators, then we will be forced to undertake a further reduction or unconventional measures. But at the moment these are all alternatives. At the moment we are monitoring the indicators.

Question: What do unconventional measures imply?

Governor: As we have already discussed, unconventional measures are quantitative easing, pursued by the central banks of various countries.

Question: In order to be produced and then injected into the economy?

Governor: Not exactly. That would be the last step. There might be quantitative easing measures aiming to stimulate lending, yet again to have their impact by lowering credit price and inject the liquidity in the financial system with lower prices compared to those of the market in order for the lending to be stimulated. This has probably been one of the very first unconventional measures that England, Hungary and other countries in the region have pursued.

Regarding quantitative easing, unconventional measures are far from the Albanian reality as there are several criteria that must be met. Firs, the ratio of liquidity is high, and we do not need liquidity. Second, we are not in recession like some EU countries that have undertaken these measures after they have fallen into it. Inflation indicator was at deflation level, while are neither in deflation nor in recession. We have enough liquidity. Based on the macroeconomic indicators, we are not ready to undertake unconventional measures. All central banks have had an easing monetary policy. We will have to wait and see what is going to happen.

Question: One of the concerns raised in the Bank of Albania's report is the fact that the collateral executed by banks in the last four years has significantly increased. In other words, due to credit repayment, the banking system has taken the collaterals or mortgages that were left as collateral for granted loans. It seems as if the banking system has already taken the nature of a real - estate or real estate agencies. How concerning is this phenomenon?

Governor: The phenomenon of the non-performing loans is concerning and this is related to the execution and collateral being owned by the bank. When non-performing loans' rate is high, banks are forced to manage or execute the collaterals, as they would have to retrieve their funds and liabilities. The growth of non-performing loans portfolio is associated with increased collaterals obtained from banks. It is not true that banks have become real estate agencies. What is happening is a worldwide standard. Of course, within their departments, banks may create certain units for the real property management.

Question: What's the risk at a time when construction market itself is a little stagnant, there is no demand, or there maybe demand for small apartments only? They may be left with the property instead of having the money they are in need of. Is this the concern?

Governor: This poses no risk regarding the construction market. There isn't a single problem.

Question: Can the value of the property which is used as a collateral drop?

Governor: The market regulates itself. Banks have attempted to sell these collaterals within the market values. There might be a tendency for price drop, since the bank will want to cover its obligation. Although there is a standard rule that any reversal from the property sale which is bank's obligation is returned to the customer. Not all the money is taken from the bank. The rest, if it happens to be above this level, is returned to the customer.

The problem is that banks are financial intermediaries. They are not real estate agencies. This is a burden for banks. This is why we changed our regulation, in order to make it easier for the banks to keep these properties in their balance sheets. We have created a time extension up to 7 years, in order for them to be covered with provisioning loss as well.

Question: So this is not a concerning situation right?

Governor: Right, this is not a concerning situation. This is a consequence of the high number of non-performing loans.

Question: In regard of non-performing loans... Despite the fact that banks removed from their balance sheets ALL 23 billion of loans that were not expected to be returned, non-performing loans decreased to 18.2% by the end of December 2015. During the first months of 2016, this indicator increased up to 20% according to the association of banks, whereas indicators of a few days ago decreased to 19.5%, which is still considered high. What is happening, why aren't the loans being returned?

Governor: The level of non-performing loans will definitely fluctuate, it can't just keep declining. It is important that starting from 25%, the indicator has continued its downward trend. So, the plan of measures we have undertaken has affected, both the issuance of loans from the balance sheets, and restructured loans which are turned into still performing loans.

Question: Do such cases exist?

Governor: Of course. In some cases non-performing loans grew from 18.2% to 20%. This happened mainly because of our two clients Kurum and Armo, whom we have previously mentioned in the Economic Commission Report. Kurum has given the main contribution to this, being provisioned by 100% after the declaration of bankruptcy. Although the customer has paid and performed in the banks where he had his accounts, as a result of the regulation requirements for the management of reserve funds for covering loss loans, banks were forced to provisioning at 100%. Armo's provisioning had been done earlier. Both these cases have impacted the growth by 1% of non-performing loans.

Question: So, the fact that there are other customers as well who are not returning the loan, is not considered a concern?

Governor: No, this has been the main impact. There might be other clients as well who might worsen and others who might improve. It is important for the tendency to follow the upward trend. We can't expect to have 0% NPL since such thing is impossible. On the other hand, NPLs that are above current levels are a concern. In general, we would prefer clients who perform and return their loans to those who do not pay. Despite this, lending remains important. We are referring to a percentage, since non-performing loans ratio is a non-performing loan in relation to outstanding loan. If the outstanding loan, and lending would increase then non-performing loans would decrease. This would improve the overall economic climate and indirectly non-performing clients would be able to generate incomes and there would be an improvement. Generally speaking, a better economic situation, supported by an increase in lending would lead to the reduction of non-performing loans.

Question: Which were the main recommendations and messages that were given in the last forum that you organized with IMF?

Governor: The forum addressed these objectives: identification of the potential of the Albanian economy; assessment of the Albanian economy; and the possibilities that the Albanian economy has to grow. In what way do Albanian banks identify these opportunities, what are their strategies to harmonize, to share thoughts and concerns with other banks and to make a good presentation from different parties, Albanians and other countries of the regional economies, to make the right comparisons and to understand the ways through which they can develop. It was also discussed and analysed the impact that non-performing loans have, since last year this forum focused on non-performing loans. I emphasise that non-performing loans influence the optimism or pessimism of bank' decisions in terms of lending. We must consider all the opportunities for credit growth except of one element which we have addressed in cooperation with the Government. Credit growth is an element which impacts the economic growth. It is a prerequisite and it is not the only one, because we have had economic growth that was not a result of credit growth, rather it was a result of the increase in foreign investments, other investments, and consumption. There are many other elements which affect the economic growth. Lending is one of the most important prerequisites that affect economic growth, but sometimes with the good will to encourage economic growth, it is somehow stressed too much, and while doing so, we forget all the other functional elements that affect economic growth.

Question: Mr Governor, there has been a plan of measures of the Albanian government and the Bank of Albania also to lower non-performing loans. There are some large enterprises, non-performing loans of which make up to 65% of the total stock, there is this law on bankruptcy which was drafted by the Ministry of Justice and IMF. It is now in the Parliament awaiting approval. How is this plan being implemented and how will the debt of these large enterprises be solved. It appears as if this debt is dictating the lending policy in the Albanian banking system.

Governor: The plan of measures was drafted last year. One of my main objectives as the Governor of the BoA, is addressing the problem of unreturned loans, because as we mentioned this is a big obstacle that prevents credit growth. We tried to include all the elements that would impact the banking sector for the return performance from these loans. Of course this plan had its own results. It included legal, regulatory and fiscal amendments After being discussed for many years, this plan led to the write off of loss loans with over 3 year maturity from balance sheets. Although, I highlight it once more, this does not mean that these loans were forgiven, financial statements simply are eased and they were left as items outside the balance.

Question: Businesses will pay the liabilities anyway.

Governor: Banks are acting in the same way. We discuss in terms of accounting aspect, financial aspect in the balance sheets and financial statements of banks, which while eased, will improve the banks' financial indicators, such as capital adequacy, liquidity and profitability indicators. Based on these indicators, lending decision-making continues to get optimistic. These loans continue to be there and they lead to the decrease of non-performing loans, only in terms of figures. And as I previously mentioned, many other loans were restructured. The difficulty was caused by some large exposures, which have been present in more than one bank. They were syndicated loans.

Question: So, you are saying that there are loans in several banks and this fact makes them difficult to be treated.

Governor: This makes the decision-making process a bit difficult since it is not only one bank involved in this decision-making. There are two, three, four banks which need to agree with each other on the restructuring scheme. This has been under the supervision, monitoring and the coordination of the Bank of Albania. We've had our role in the framework of a project of the World Bank which provides assistance for the Bank of Albania in order to coordinate the work through banks for the restructuring of loans. At the same time, there is the insolvency law that you mentioned. We discussed about the collateral execution. The impact of regulatory incentives is related to the collateral execution with extra-judicial procedures. For those companies that see no future, the insolvency law would create the possibility....

Question: for banks to be the first to get repaid...

Governor: Banks would be the first to get repaid. It would also affect borrowers' situation, since some borrowers have businesses that are not profitable and they continue to keep going through other companies' expenses. The closure of these companies would make the economic and financial situation of the borrowers' easier, thus having better income and the same to have a correct relationship with banks. These are key elements of the measure plan regarding the decrease of non-performing loans.

Question: Is there a determined/established deadline on which the issue of large companies having this problem with several banks will be solved?

Governor: There aren't and there is no need to have such deadline. Cases differ from one another. Banks have deadlines. Deadlines are legal. There are some regulations and in accordance with them, in case the client does not respond within a certain period of time, it will be classified as doubtful, substandard, with loss loan. After 360 days, the bank will start with the procedures for the execution of the collateral, with respect to the law.

Question: To cover the risk....

Governor: It is important that non-performing loans portfolio is well collateralized, i.e. fully collateralised.

Question: Is there any risk regarding depositors?

Governor: There is no risk regarding them. Being a financial intermediary, banks need money not properties. The bank has assets, but it should turn them into money in order to cover losses from the failure to return the loans and at the same time, to respond to the depositors, because loans are granted from depositors' money.

The Bank of Albania considers the justice reform as very crucial in this regard. This helps in the perfection of the judicial system for granting the right to the party that actually deserves this right. In concrete terms, the bank has its right to execute the collateral in order to answer to the depositors, who ultimately are Albanian citizens.

Question: Did the delayed processes have any impact on bank's balance or on the high level of non-performing loans? There are some cases that are above trial...

Governor: There are many cases above trial, but this was the exact problem, court delay of this cases. Thus, it is in banks right to use the loan agreement as an executive title for the collateral execution, on the other hand, no progress is made since they are delaying these processes continuously. Certainly, at the end, the trial might be obtained from the bank but worth mentioning is that as long as the bank cannot take its money back, there is an additional cost.

Question: Mr Governor, during these last minutes of my show I wanted to know your opinion on Brexit's impact, the British referendum which puts Britain out from the European Union. The concerns of the International Monetary Fund were made known to us, a few days ago, during IMF position on the level of the euro area economy being affected. We suffered the consequences during this second phase of its effects, what happened in the neighbour countries and countries of the old continent. In Albania during 2008, we experienced the financial global crisis. Does Brexit poses any risk to Albania?

Governor: Britain comprises approximately one-sixth of the EU's economy. Only as a result of this indicator, the International Monetary Fund and all the international institutions, during their analysis, will take into consideration the impact that Brexit has. This is an element that will have its impact, but for now the impact is still unclear. There was a very large fluctuation in the international markets at the very first moment the referendum results showed the exit of the Britain from EU. London itself is known to be an international financial centre. We will have to wait and see what is going to happen since it is still unclear, stock exchanges' fluctuations and the loss are quite large.

Question: Two trillion pounds were estimated by Standards & Poor's...

Governor: Obviously, large losses. This was the first effect of Brexit, it was the expected effect, but no one could tell whether Great Britain would leave EU or not, and no one knew how much would be the loss. These are results of perception and they are unexpected. Responsiveness to stock exchange is the sensitivity and the perception created by the exit, thus it is not a real economic effect.

Question: Money scares most, is said in economy. Are we prepared in case this risk happens to be not just a perception and not affect only stock exchanges?

Governor: As we have previously stated, Albania is not fully integrated with the UK. Foreign investments level is close to zero. Import-export trading exchange is approximately 0.6%. In Albania remittances are the highest in percentage. They account about 10-11% of the total remittances. We do not expect remittances to drastically drop, but as a result of the devaluation of the pound, this would affect the income that Albanian families would have when they'd exchange this currency with ALL in Albania. But this is a not so indicative income when it comes to influence the increase or decrease of the Albanian economic growth. What impact it will have in euro area and our main trading parents we will have to wait and see. Euro area is known to be Albania's main commercial partner, especially Italy and Greece.

Question: According to the latest data, with Germany as well.

Governor: Yes, correct. So, any impact of the euro area would affect the region as well as Albania. To be realistic, Albanian economy is smaller, but we can feel the influences. It was thought that the financial crises of 2008 would not affect Albania since Albania has a non-integrated market, but within two-three years, Albania was affected by the consequences of the crises. Albania managed to survive the crises but its effects were felt. The same will happen with the emergence of Britain, whether to have a negative impact on the euro area. It is important for the euro area to remain united, in terms of economic and political perspectives. So, it is important, to have no does not have further exits, not have a chain effect which will then create further volatility in international markets, especially in the euro area. Any effect would be unpredictable. It would then affect our region and Albania.

Question: Then, it would be a general effect.

Governor: It would be probably a general effect, but these are just assumptions. What can be seen from the survey results of the early days, is that there is a setback from the political perspective, or "regret" from the UK, knowing the loss caused by the Brexit. So knowing the losses it seems to have repented, but this is the result of surveys and the media. It's a very complex situation.

Question: Is there the possibility for Scotland to exit UK?

Governor: Normally it might be. These are all positive elements for the consolidation of the euro area. Lately, we have noticed that far-right parties in the euro area lost points whilst the Chancellor Merkel earned.

Question: It seems as if there is no risk for extremism or other exits, apparently.

Governor: After a certain loss, it is normal for unity situations to be created, but this doesn't mean it will be consistent in the future. We will see. Many challenges lie ahead of the euro area and consequently for the Albanian economy. What really matters is to be guided in our model and our structural reforms. It's important that we do our job.

Question: Pound is falling. It reached the lowest decline since 1985 in Britain. The reaction was immediate in Albania as well. In exchange agencies in Albania, pound is exchanged with ALL 159. Does the foreign-exchange reserve of the Bank of Albania get affected since part of it is in pound?

Governor: Bank of Albania's foreign exchange reserve is well diversified, and just a small part of it is in pound. In total we had a profit of EUR 7.5 million, since the initial changes after Brexit. So this was the profit as a result of the change in exchange rates of pound, Euro and US dollar. This is an everyday assessment. Bank of Albania's foreign reserve is consolidated and what's in pound is negligible. Worth mentioning is the fact that we have sufficient pound to meet the economy and citizens' need in case there will be such requirement. Again the effect that pound has on the Bank of Albania's foreign reserve is negligible. To highlight it once more, the exposures of the system to pound are really low, both for banks and households. There are very few deposits in pound and almost zero credit granted in it. Given the fact that we have no trading activity with the UK, we have no savings or currency circulation in pound, like we do with Euro.

Question: Will this affect Euro? It seems as if there is a weakening of the Euro and a strengthening of the US dollar due to the internal factors since it is the tourist season. Many immigrants come back from abroad, and no one can tell the impact that can only be felt in September when the new season starts and the situation becomes clearer.

Governor: Only when September finishes will we be able to tell the impact it had on Euro. Lek strengthened whilst Euro and Pound weakened. Meanwhile, during the summer season, immigrants' revenues in Euro lead to the strengthening of Lek and weakening of Euro, but such thing remains to be seen.

Albanian currency, however, remains stable. It was able to resist extremely well in time compared to foreign currencies. Currencies of the regional countries, that are not part of the Euro area, fluctuated and depreciated much more than Lek. This implies that the Albanian economy has resisted quite well throughout the crises and it continuous to do so.

Question: So it's for our own good to demand for loans in lek, keep our money in deposits in Lek and invest in Lek?

Governor: Loans in Lek are convenient for us in case we generate our income in ALL. In case we sell our products or our income is in ALL then it is for own good to demand loans in Lek, in order to avoid the foreign exchange risk. Regarding deposits, it doesn't matter whether we keep them in ALL or foreign currency.

Question: Mr. Governor, thank you for this interview here in "Ekopolitikë"

Governor: Thank you!