BANK OF ALBANIA
PRESS RELEASE
Meeting of the Supervisory Council of June 9, 2004.
Publication date: 10.06.2004
The Supervisory Council of the Bank of Albania in the meeting of June 9th, 2004, after reviewing the proposals of some departments decided to approve:
1. The Decision “On some changes on the Monetary Program of the Bank of Albania for the year 2004”.
The monetary program and the budget of the Government do not preview the earnings of Savings Bank privatization during 2004. The privatization of this bank brought supplemented revenues to the Government for the second quarter of the year 2004 at the degree USD 126 million. Pursuant to the previewed budget for 2004, the
Government will make use ½ of these earnings to pay – off a part of its internal debt, operation that will be reflected on the monetary program of the decrease of the deficit financing throughout 2004. The internal borrowing of the Government, at an absolute value, is expected to decrease from Lek 22.6 billion in Lek 16.0 billion. Budged deficit financing from banking commercial banks and Bank of Albania) is previewed Lek 13.7 billion, meanwhile that the other part of financing of Lek 2.3 billion is expected to be financed by the individuals. The domestic budget deficit financial in percentage of GDP of 2004 will be 1.9 pert cent from 2.8 per cent previewed in the present program.
The other part of Savings Bank privatization receipts, will be used from the Government on the increase of public investments and of other capital expenses. The increase of these last ones, at USD 63 million, will directly have impact on the increase of money supply. The preview on the annual increase of money supply during this year is 11.8 per cent, of 10.6 per cent that was in the adopted program at the end of 2003.
Bank of Albania expected that the ratio of currency outside banks to money supply to be at 28.6 per cent by the end of 2004. Nevertheless, interests rates have been decreasing, the ratio of currency outside banks to money supply has not reflected any sign of increase during the first quarter of 2004. The individuals’ tendency on the maintaining of the currency value, followed by an increase of individuals credibility to the banking system, are characterized by an increasing importance on the public decision on the way of keeping monetary balances. Under these conditions, a ratio of 27.2 per cent of currency outside banks against M3 appears more realistic.
The 27.2 per cent ratio of the currency outside banks against M3, means an increase of the currency outside banks at Lek 9.7 billion, at 7.7 per cent, compared with an increase of Lek 15.1 billion previewed previously. Meanwhile, lek deposits level is previewed to increase at 9.7 per cent or Lek 21.9 billion during 2004. The absolute degree of Lek deposits is previewed to be adequate to face the economy demand on monetary instruments. Thus, the commercial banks are previewed to cover about 90.0 per cent of the total financing of banking system during 2004.
However, their weight against the money supply is expected to decrease at 1 percentage point during 2004. This decrease reflects mainly the quicker rhythm of foreign currency deposits throughout this year. The ratio of foreign currency deposits against foreign money supply by the end of 2004 is expected to be 22.8 per cent, of 20.8 per cent that was this ratio by the end of 2003. Based on this preview, the increase of foreign exchange deposits will be 22.6 per cent. The difference between the decrease of assets interests rates in Lek and those in foreign currency is previewed to have impact on a more quicker increase of the foreign currency deposits in comparison with year 2003. The supposed stability of foreign exchange rate also will reduce the impacts that extended the Lek appreciation on the increase of foreign currency deposits during 2003.
Bank of Albania, in the monetary program of 2004, follows its expectations on the increase of credit outstanding for private sector at Lek 16.4 billion. However, the program previews a movement of the increasing structure of credit to the economy toward Lek crediting. The reduce of the difference between Lek interest rate and that in foreign currency is previewed to favor Lek crediting, thus causing a higher increase of Lek credit than the initial preview. The increase of Lek credit balance is previewed Lek 4.2 billion of Lek 2.0 billion expected at the beginning. This means an increase of credit balance of foreign currency credit at Lek 12.2 billion.
The increasing tendency of the private sector weight of the total demand of the economy of cash is considered an important development on the effectiveness of the monetary policy. The reviewed monetary program of 2004 previews a decrease of credit weight from banking system to the Government in relation with the total of domestic credit from 54.8 per cent in 45.5 per cent.
The high rhythm of the annual increase of monetary supply, from 10.6 per cent to 11.8 per cent, and the decrease of deficit financing from Lek 20.0 billion in Lek 13.7 billion will have as a counterpart the increase of net foreign currency assets of banking system. These last ones are previewed to increase at Lek 23.7 billion during 2004 or Lek 15.1 billion more than the preview of the standing monetary program.
The total impact of Savings Bank privatization revenues in net foreign currency assets of the Bank of Albania is accounted to be at Lek 13.2 billion meanwhile, that foreign currency assets of commercial banks will increase at Lek 14.4 billion, mainly as a result of foreign currency deposits increase.
Table. Monetary aggregates performance (Lek billion).
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2. Information “ On the assessment of the financial situation of the Albanian banking system for the first quarter of 2004”.
The banking situation appears, for the first quarter, of stability and continues to follow the main tendencies being identified during the previous periods. Banking system is already composed of 16 banks, after the effective entering in the market of the Popular Bank, while the process of Savings Bank ownership to Reiffesien Bank has followed a normal direction. The positive developments are reflected on the increase of the banking system assets, their good quality, the good performance of deposits and the reduction of currency outside banks. The system profitability, that is assessed to be a good one throughout the aspects, is followed by a narrowing tendency of the costs of interfering as well as by an increase and consolidation of the banking business, the satisfactory level of capital adequacy and its adequacy capacity to draw the possible losses of unfavorable developments in the future. Liquidity indicators, also continue to consolidate their satisfactory situation in the system, even during this first period of the year. It is useful to emphasize the tendency of some banks to further enlarge and consolidate the specter of banking business, particularly toward crediting and presentation of systems that make possible the drawing of money in an automatic way (ATM).
The macroeconomic spot, within which banks operate, has been deemed generally as favorable. The macroeconomic environment suggests that the economic increase of 6 per cent for 2004 is previewed to be supported in continuance. The average annual inflation rate was within the target of the Bank of Albania. By the end of the first quarter it resulted at 3.14 per cent and in April recorded the value of 3.22 per cent, while monetary supply has continued to be shifted toward less liquid monetary instruments, being expressed by the ongoing decrease of the currency outside banks against M3 ratio.
Banking system assets are increased at Lek 17.4 billion or 4.6 per cent compared by the yearend 2003. Ïnterbanking operations with the treasury, of Lek 15 billion has given the main contribution on this increase, while lending recorded an increase of Lek 2.4 billion while “Other securities investments” an increase of Lek 0.9 billion. In the analyses of group banks of the system, the group of banks G1 identifies an increase of total assets, Lek 3.5 billion, G2 group Lek 0.88 billion and the group of banks of private capital G3 Lek 13 billion compared with the yearend 2003. The positive tendencies of the group of private banks confirm the right decision on the privatization of Savings Bank, and extend the opinion on the entire privatization of the other two joint –capital banks. It is concluded in this finding arguing on the quite stable performance of this group (G2) for a long period of time.
The new credit, for the first quarter of the year, results Lek 28 billion or about 60 per cent higher than the same period of the previous year. The increasing rhythm is assessed as satisfactory and reflects the positive tendencies of the banking system toward the enlargement of crediting. The Banking system identifies a shifting of the short-term credit balance in medium – term credit and credit of real estates. Such a behavior composes a security on the stability of the credit portfolio balance in the future and its increase if the extending of the new credit continues with the previous rhythms.
The increasing tendency of Lek credit during 2003, changes the moving direction for the continuing periods, not only of the high rhythm increase of foreign currency credit, but also as a result of Lek depreciation against American Dollar and Euro.
The indicator “bad loans/net credit balance”, that measures the degree of banking system exposure against credit risk, records a decrease of 1.2 per cent, of 1.8 per cent it resulted by the yearend 2003 ( a result of provision funds increase). The ratio “net bad loans/regulatory capital” that denotes the ability of banking system to cover capital credit losses is amounted 3.2 per cent of 4.9 per cent of the previous yearend.
It is important to mention the portfolio of other securities regarding the quality of banking system assets. The analyses identifies that these banks have mainly invested in countries of AAA classification (extremely strong), AA (rather strong), or A (strong, but also exposed to the risk).
During the first quarter of the year, the main elements of the revenues and expenses structures that have had impact on the net result from the other operations and the expenses of the activity. While net result of interest (the main contributors of the system result) as well as the operation expenses follow a stable trend, from one period to an other, the result of the other operations and provisions expenses have had a considerable increase in comparison with the previous period, of having respectively positive and negative impacts on the net result performance of the system.
For the first quarter of the year, ROAA Return Of Average Assets), on annual bases is at 1.26 per cent. This indicator is assessed as a good one for the system and within its normal parameters. ROAA, for this period, appears 2 percentage points (0.02 per cent) higher than the yearend 2003 and 35 percentage points higher than the same period of the previous year. The other main indicator of profitability, ROE, appears of the same tendency as ROAA. ROE, for the first quarter of 2004, results at the level of 21.11 per cent and higher compared with ROE of the yearend, at 659 percentage points (6.59 per cent), than ROE of the same period of the previous year.
A survey on the profitability (ROAA) of the system, from viewpoint of the banks group, identifies the profitability of G1 at the level 1.45 per cent, G2 at the level -2.86 per cent and G3 at the level 1.52 per cent. These indicators of the reviewing period, reflect the highest effectiveness of private banks against other banks of banking system, particularly against G2, while the contribution of each group in ROAA total is respectively 0.75 ( mainly for the higher weight of SB), -0.15 and 0.66. Compared with the yearend, ROAA for G1 and G3 are again comparable and respectively 1.39 per cent and 1.34 per cent, while compared with the same period of the previous year, results respectively1.33 and 1.72 per cent, that shows an improvement of profitability from the Savings Bank toward the finalization of its privatization process. It must be emphasized that, the profitability of banks of G2 group, appears throughout this period (March’03 - March ’04) of negative figures, confirming the necessity on structural changes and in the philosophy of their administration.
The cost of banking system mediation must be reduced, mainly as a result of assets interest, thing that might be interpreted as a good moment of the increase of competitiveness in the banking system, if the analyzed developments are not casual. The ratio of efficiency results of a positive trend, reflecting a quicker increase of banking system as a whole, in the viewpoint of business volume compared with the expenses on the necessary assets to make possible the banking business, characteristics of a on going consolidated system.
Deposits level of the system records a considerable increase for this quarter, at 5 per cent or Lek 15 billion compared with the yearend 2003, meanwhile that the annual increase at yearend 2002 recorded only Lek 11.2 billion. The yearly deposits performance and their increasing tendency, show the increasing developments of the proper banking system and also of the entire economic activity as a whole from one side, and from the other one the higher approach of the public to banks. This tendency is reflected also on the reduction of currency outside banks, whose level against monetary aggregate M3 for the first quarter of year 2004, is confirmed as the lowest throughout these last years for the Albanian economy.
Deposits performance analyses, per groups of banks, continue to consolidate the higher contribution of G3 banks of in the system at Lek 11.3, meanwhile that the group G1 records an increase at Lek 2.8 billion and G2 at Lek 0.9 billion. In G3, some banks appear to be more active in the deposits market, thus impacting the group contribution in the system in this quarter.
The equity capital of the system by the end of first quarter recorded the value of Lek 22.6 billion or about Lek 670 more than the yearend 2003, meanwhile that its ratio against the total of system assets – the financial leverage- is identified 5.8 per cent, within the normal limits, from 5.9 per cent that appeared by the yearend 2003. The light decrease of the financial leverage levels is explained with the law rhythms of the increase of share capital (3 per cent compared with yearend 2003), than those of the system assets (4.6 per cent compared with the yearend 2003).
The ratio of capital adequacy for the banking system appeared to be 30.1 per cent, of 28.5 per cent that appeared by yearend 2003. The analyses of the composing elements of this indicator compared with yearend 2003, shows an increase of regulatory capital, 10 per cent or Lek 1.8 billion, meanwhile that the classified assets pursuant to the risk, increase 4,4 per cent or Lek 2.7 billion. The tendency of the ratio of capital adequacy per groups of banks continues to appear of it slowest level in G3 (26.4 per cent), meanwhile that G2 and G1 know a relative high level (respectively 32,6 and 55.9 per cent). This is explained by the highest level of the more risked operations that G3 banks continue to undertake.
Liquidity indicators continue to consolidate the satisfactory situation in the system even during this first period of the year. Banks have mainly used overnight deposits on investing the free funds, meanwhile that the borrowing within the interbanking market, has recorded a decrease and is used to cover the short-term necessities, result of the adequate liquidity in the system.
At last, “Stress Testing” method concludes that banking system as a whole is exposed in a limited way against risks, while particular banks might present problems in the future, if conserving the present levels of the capital.
Albanian banking system analyses concludes that its situation for the first quarter of 2004 appears to be good.
3. Information “On the implementation of international codes and standards from the Bank of Albania”.
The harmonious functioning of the globalize world economy requires the implementation and following of a range of common rules. The economic crises of the last years denoted that the effective implementation of a range of codes, norms and standards might have contributed in strengthening the financial stability in the domestic prism, reflecting the risks of crises spread.
The codes, whose principles are part of the business of the central bank and that are implemented from the Bank of Albania, are listed following:
3.1. On the implementation of the Accounting International Standards
The Accounting Department of the Bank of Albania is assessed, to be in general in accordance with the International Accounting Standards, regarding the accounting techniques and data reporting.
3.2. On the implementation of the International Auditing Standards
The international standards principles of Auditing are in general implemented in the Bank of Albania. The Auditing Department, Bank of Albania, has worked to continue the implementation of the international accounting standards.
3.3. On the implementation of the Core Principles on the Payments Systems, Systematically Important.
These principles, in general, are implemented even if analyzing the present situation of the two payments systems that presently function (AIPS system and the clearing one). It might be said that, in general they are in accordance with the 10 core principles of the payments systems of systematic importance, established from CPSS/BIS. However, there are still shorts in the principles 1, 7 and 8.
3.4. The Code of good practices on the Transparency of the Financial Monetary Policies.
An estimation of the principles implementation of this code is performed during the period 1999-2000 from the technical assistance mission of the Fund. In a general view, there are noted achievements in performing the requests of this code, which are necessary to become object of a new assessment.
3.5. The Code of Good Practices on Transparency on the Financial Monetary Policies.
In compiling the regulatory system of supervision, the Bank of Albania is based on the international experience as well as of the 25 core principles on an effective supervision of Basel Committee – principles that are followed from the countries of the European Union.
3.6. The implementation of the 40 recommendations for the war against money laundering.
The following and assistance for these recommendations is part of the work- program of Supervision Department and the assessment of their implementation, based on the respective methodology is presently under the process.
3.7. Data dissemination.
An assessment of these standards is performed by a mission of the Monetary Fund in 2000. As a result of the collaboration with the Statistics Department of the Fund, it is ultimately assessed to have been recorded developments, among others, toward the standards of presenting the monetary and financial statistics.
4. The information “On the performance of the international markets of the financial instruments”.
USA
The American economy increased at 4.2 per cent during the first quarter, as a result of the high level of both private and public consume, as well as the increase of capital investments, mainly in the technology. The indicators of industrial production show a strong and stable increase, while the strong figure of employment in April confirmed the positive tendency of the beginning of the year 2004, suggesting that the work market is considerably improving. The Inflationary pressures seem to appear of a high rhythm than the tendencies. Under these conditions, Fed, in its last meeting let open the possibility on the reduction of the expansionary monetary policy that has to do with a more moderated rhythm. Financial markets, after the strong figure of employment, reassessed the expectations for the increase of fed0funds interests that in the Fed- meeting of June, while the prices of Treasury issuances recorded a considerable decrease. The American issuances market of treasury is previewed to remain under the pressure of interests increase, meanwhile that the future economic figures, particularly those of labour market and inflation will determine the moment of the beginning and the degree of monetary policy reduction.
EUROPE
European economy, throughout the first quarter of 2004, increased at 2,4 per cent, in annual terms, compared with the previous quarter, this level is close to the economic potential of Euroarea. The strong global demand appears to help the European economy to be gradually improved, meanwhile that the domestic consume still remains on modest levels. The monthly economic data have continued to show a mix view. Meanwhile different observations as well as the reliability indicators have been partially positive. Real economy data are weak. ECB continue to believe on the gradual improvement of the economy that will be accelerated during 2005 wile inflation in medium – term is previewed to be under control, nevertheless of the short – term inflationary pressures, as a result of the strong increase of the oil price. The prices of the European Treasury issuances of the last month remained under the pressure of the positive developments of the American economy and the expectations for the increase of Fed-Funds in a short-term period.
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