PRESS RELEASE
Interview with Gent Sejko, Governor of the Bank of Albania. "5 questions by Babaramo". Report TV

I.BABARAMO: Good Evening Mr Governor!

GOVERNOR: Good Evening!

I.BABARAMO: I would like to start with a growth figure, by the Bank of Albania as a referee over parties and as one of the most specialized institutions about the country's economic growth. What is your projection on the economic growth for Albania in 2015?

GOVERNOR: Firstly, welcome to the newly inaugurated premises of the Bank of Albania.

I.BABARAMO: Very interesting premises indeed...

GOVERNOR: I'm glad you like them...

Regarding your question, economic growth is one of the main economic elements, an on-going subject of discussion. It is one of the main objectives of the Government, as well as of the Bank of Albania and other relevant institutions. Economic growth has been projected at 3%, in consultation with the International Monetary Fund.

I.BABARAMO: Does this mean... it was projected at 3% at the beginning of the year?

GOVERNOR: Yes, it was projected at 3% at the beginning of the year, but this rate was revised down during the year, driven by several factors. Currently, we expect growth to range from 2.5 to 2.7%. We cannot talk with preciseness because it is not about an accurate measurement, it is about projections.

I would like to clearly explain that the reasons of the downward revision are mainly related to a not so optimistic environment in the euro area, which is still not showing the expected results, with all the ECB reforms, such as the quantitative easing, i.e. ample liquidity injection into the economy. Despite this program and other measures to promote economic stimulus, growth in the euro area remains below 1.8%, according to the information that we have. Other reasons are related to domestic factors such as the decline in the minerals' price, the decline in oil prices and the crisis in Greece, which has affected the activity of many Albanian manufacturers and exporters, driving to falling exports.

All these elements provided drove forecasts downward, from 3% to 2.5-2.7 %.

Also, as we already mentioned at the beginning of the year, the flooding situation has affected the agricultural sector.

These are the negative elements that have contributed to the correction of economic growth. But there are also positive elements, such as the significant increase in foreign investments.

I. BABARAMO:  In what sectors in the Albanian economy are these foreign investments mainly conducted? From the public point of view, it seems as if everything has stopped and foreign investors are reluctant to come to Albania.

GOVERNOR: It is true that there is such a perception about foreign investors and we would normally urge for more major investments. However, foreign investments have already been made in some sectors such as, services, re-exporting and industry. All these sectors have been listed and declared by the Statistics Institute.

We expect more foreign investments and more lending to the economy, - for which we will discuss later on- so that the Albanian economy will grow, especially in the upcoming years.

Economic growth forecast is set above 3% for the upcoming years. This is our projection. We should note that all the elements and factors are correlated with each other. So, if foreign investments and lending to the economy increase, without any doubt, economic growth will increase, unemployment will decrease, and so on. So, there will be an overall improvement of the business situation in Albania. But, this is not that simple, it is not easy to be achieved.

I. BABARAMO: So you say that there are foreign investments, which have increased in comparison to previous years, but at the same time, an internationally acknowledged index, such as Doing Business, ranks Albania 37 places below. What can you say about this? Is there a hostile business situation in Albania? A hostile climate or what's going on?

GOVERNOR: I wouldn't say it is a hostile situation, but it relates related to the reforms. For example, a series of reforms were undertaken, associated with the construction industry. The Government stopped giving building permits, because of the chaotic situation in construction and now the aim is to reform it in terms of protection and regulation of the territory in order to have a consistent approach to this industry. This, however, has had its toll on the construction sector.

Further, the undertaken structural reforms have provided their own negative short-term impact. Many reforms in their early stages have had a negative impact rather than a positive one. But, if properly implemented, in the long term, they will certainly have a positive impact. For example, until the very moment that the market is properly regulated, the reform against informality will probably have a negative impact.

I believe that all these elements that we mentioned world have contributed to the Albania's the classification that you mentioned.

The goal is to successfully conclude the reforms, speaking in terms of the Government. As the central bank, we have our reforms relating to the banking and financial system. I believe that in the next year we will see positive results

I. BABARAMO: What is the sector of the economy that somehow affects this modest growth?

GOVERNOR: The main sectors that have contributed to this modest growth are services, agriculture, tourism, during the summer, re-exporting sectors and processing of raw materials.

These are the sectors of the economy on which we should focus and stimulate more. Agriculture and tourism are two of the main sectors where reforms are implemented. The agricultural sector has seen a very good growth rates, albeit still low compared to the total of the overall growth.

I. BABARAMO: How has the agricultural sector improved?

GOVERNOR: Reforms are being implemented. The agricultural sector has grown significantly, but its growth is still low compared to the overall economic growth. But, in general, the 3% economic growth projection is revised down referred to the factors that I previously mentioned.

I. BABARAMO: Clear enough, you said that there will be stimuli for economic development and the biggest stimulus is lending. However, we notice bank lending in the Albanian economy has slowed down. How do you explain this? What has led to this performance?

GOVERNOR: This situation has started since the beginning of the economic crisis in 2008. It has gradually deepened, but there is no inhibition of lending. So, lending to the economy has slowed down, reflecting the general economic situation. Until the beginning of the crisis, end of 2008- beginning of 2009, the situation had been overly optimistic. Banks lent excessively to the economy across various industry segments, businesses, individuals, small and medium-sized businesses, as well as corporates.

The arrival of the economic crisis was not reflected right away, but rather gradually on the situation of lending to banks, in the form of a general situation in the euro area and in our region, and was then reflected in the Albanian economy and in the tightening of lending standards by commercial banks to customers and to the economy. Banks have tightened risk criteria, thus becoming more conservative. It is quite normal that in such a situation, banks become more conservative. Moreover, the demand for credit and the submission of long-term projects to banks have declined.
We have a liquid banking system, which has the needed funds to sustain the economy. And this is a core element, because we could have experienced what some countries in South-east Europe experienced, a banking system whose loan-deposit ratio stands at 100%, therefore not having enough funds.

On the other hand, commercial banks apply tight risk criteria and aggregate credit demand is weak, especially from major customers or corporations, in our jargon. These major projects would have a really big impact on the economy.

I remember when I worked for commercial banks during 2008-2009. By continual contacts with business, we had a considerable demand, a fairly large number of projects, which were submitted to us to finance and credit them. Of course, banks financed some of these projects in accordance with the criteria they had. But today such demand is not present for a number of reasons, as a consequence of an economic stagnation, resulting in a more discreet business situation. The business itself can't make long-term prognoses and predictions in order to know whether it would be profitable in the long run or not. But banks have their criteria. So there are problems in both sides.

The Bank of Albania is trying to find a solution to this stagnation, but we are not dealing directly with the projects by businesses.

I. BABARAMO: You said that non-performing loans are a difficult moment, to encourage or discourage by the commercial banks. What is their level, which once reached 25% of the total loans?

GOVERNOR: The level of the non-performing loans is still high, about 20.2-20.3%. It has decreased from 25% to approximately 20%.

I. BABARAMO: What happened to the 5%? Banks simply cleared the balance sheets and now non-performing loans are called lost?

GOVERNOR: In the accounting concept, those are called lost, meaning that for over three years they have not been performing and were not paid back to the banks. Therefore, banks have written off these loans from the balance sheet. But they are not totally written off, which means, that banks continue to follow them, and whenever banks have collections from these loans, they will pass to bank earnings.

To sum it up, because these loans do not perform, they are removed from the bank balance sheets under the international accounting standards, leading to the decline of the stock of non-performing loans. Including performing and non-performing loans, the total loans stock increased 4.5% (period on period). Meanwhile, due to the effect of writing off of non-performing loans from bank balance sheets, this increase is only 0.5%. The write off has led to the reduction of non-performing loans, thus it has improved bank indicators and increased their optimism.

I.BABARAMO: Please, let me clarify a figure. At a first glance, it looks like 5%, which are the non-performing loans, are written off from the balance sheets and everything continues smoothly. Is there the possibility that more non-performing loans have been written off, say more than 5%? Also, is there a possibility for the non-performing loans to continue to increase, is this the case?

GOVERNOR: No, this is not the case. The figure represents many elements. That means the non-performing loans may have new loans as well as returning non-performing loans.

I.BABARAMO: What's the trend? Are there any non-performing loans added to those that are not anymore, do banks consider them lost?

GOVERNOR: There are loans that can become non-performing loans, but there are other loans that can be improved or restructured. The new loan has its own impact, because this is a ratio. If we have no new loans, the non-performing ratio increases. If the total loan ratio doesn't change, then the level of non-performing loans will increase. But, even if it doesn't increase, the level of good loans will decrease. If good credit increases, if lending to the economy increases, the non-performing loans will improve. But even if it doesn't improve, if the banks do not undertake the reforms they are undertaking for this portfolio, generating new loans to reduce the percentage is enough to give the banks and the economy a boost.

On the other hand, because the level of non-performing loans is high, other banks feel pessimistic about giving new loans. This, combined with the low aggregate demand, creates a deadlock situation, both in the financial system and the economy. It is exactly this deadlock that encourages us to undertake reforms and measures to boost lending. We also collaborate with the government to undertake other structural reforms to boost the creation of large projects, which will affect the whole economy, increasing the employment rate and providing further developments.

I. BABARAMO: Last month, I interviewed both the Minister of the Economy and the Minister of Finance. In relation to non-performing loans, they told me that in cooperation with the Bank of Albania, a law is drafted to provide a solution to this phenomenon. I asked them both to explain but I couldn't understand the technicalities of this law, how will it work? What does this law imply? What happens to someone who is an entrepreneur and cannot repay the loan?

GOVERNOR: This is not a draft law, but a set of measures which provides a series of legislative changes. Primarily, it is the law for bankruptcy which is reviewed. It is also about legal amendments relating to real estates, the legal treatment of borrowers, the enforcement of collateral, which is one of the most important elements affecting the loans performance. There are many other acts and regulations that we have discussed about what banks may do in relation to the treatment of non-performing loans. What I would say is that, basically in Albania, banks in relation to the courts are seen as capitalist institutions.

I. BABARAMO: Do you mean "Capitalist" in a pejorative sense?

GOVERNOR: Banks are seen as institutions that have money. This is the reality that we have experienced. Generally all court cases of banks dealing with customers have been ruled in disfavour of the banks. This has created a disadvantage for banks in judicial relations with the borrowers and this has certainly influenced the decision making.

I. BABARAMO: I would like you to answer my question as a former executive of a commercial bank. What is understood by this legislative package? As I understand, this package is aimed to assist the banks, right?

GOVERNOR: This package will serve to the legal treatment of all the elements, in assistance of both banks and clients.

I. BABARAMO: It wouldn't be wrong for it to be in favour of banks so the banks would take their money back and channel them again into the market. How will it work?

GOVERNOR: Of course, if the right were on the banks' side. Any legal change would give its impact on the treatment of problematic cases. I'll give you an example. In case a customer does not repay the loan and has left a real estate as collateral then the bank is entitled to execute this collateral to get back the money and to ease the loss as much as it can. In such situation, the normal functioning of this process would create a normal position of the bank on loan decision-making process. In case those banks, especially foreign banks, notice that there is no enforcement of the collaterals by courts, in case they notice that there are delays of this process, they will be much more conservative in terms of new loans. We accuse the financial system and the banking sector for being conservative, but we forget that if these banks do not retake anything, then of course they will be more conservative. We cannot ask them to tolerate the risk criteria, against the backdrop of an unregulated legal system.

I. BABARAMO: In the immediate execution of the collateral, the bank believes that it cannot....

GOVERNOR: With the proper execution of the collateral that the bank judges as such.

I. BABARAMO: What else does the plan specify?

GOVERNOR: In the case of the write-off, fiscal facilities are foreseen for the banks in order to not affect the payment of taxes, the closing of balances at the end of the year.

I. BABARAMO: Let's talk about this a bit more. So the taxpayers have to pay for all the non-performing loans?

GOVERNOR: No, it has nothing to do with that.

I. BABARAMO: But since there are fiscal facilities does it mean that the bank will not pay the taxes?

GOVERNOR: If the bank has incurred a loss, certainly it will pay less tax. The profit tax is what defines the profit in accounting terms.

 I. BABARAMO: What else is provided in this package?

GOVERNOR: Other regulatory changes introduced in this package relate to the treatment of bad borrowers and debt restructuring. What we want to address are not only the non-performing loans or collateral execution, but also cases which might have positive performance therefore they need a restructuring. It can be a debt restructuring with some terms and other facilities.

I will not go into technical details, but practically banks are viewing the non-performing loans from two aspects: in terms of the execution or bankruptcy of the hopeless cases and in terms of restructuring of cases that have the opportunity to move forward. In such situations, we would like to support banks as well as the businesses so they will be able to overcome this delicate financial situation.

Normally, the Bank of Albania is not the only one helping. This is an institutional reform, coordinated with the executive and other stakeholders. The Ministry of Justice has its own specific role within the executive, which is working on the review of the whole legislative package. The Albanian Association of Banks is also involved in the identification and the treatment of specific cases. Meanwhile, the Bank of Albania has a specific project with the World Bank (WB) which is dealing with the treatment of the non-performing loans in cooperation with the Association of Banks, and with all the institutions.

I. BABARAMO: What does the assistance consist of? Is it a technical assistance through the World Bank?

GOVERNOR: It is technical assistance to the process since they have similar experiences.

I. BABARAMO: Will they reimburse the damages?

GOVERNOR: This is not the issue. Neither the World Bank nor any other institution has to pay for the damages.

I. BABARAMO: In the specialized economic press it is written that 35 Albanian companies share over EUR 1 billion of non-performing loans. Can you confirm this figure, Mr Governor?

GOVERNOR: What's more important than the exact figure is the fact that a number of large companies have the largest share in the portfolio of non-performing loans. What is happening is a phenomenon. In the Bank of Albania's annual conference, the Chief Economist of the central bank of Macedonia presented more or less the same situation. Practically a limited number of large corporations have the majority of non-performing loans.

These clients are the ones I mentioned above, who are being judged and evaluated whether they are to bankrupt or if they should be restructured thus to continue with the business.

I. BABARAMO: In what therapy will of this intervention consist? The public perception is that these- "oligarchs" are the tumour of the economy. How will the intervention be?

GOVERNOR: On a case-by-case basis, we'll see.

I. BABARAMO: On what financial criteria?

GOVERNOR: Financial criteria are clear. If the business has positive prospect, has positive development projections, then the decision to support this business will be positive. In case that the business does not have positive projections, then of course this business should be closed. Sometimes, businesses themselves can decide to do so. If a business sees that it has no positive prospect, it may decide to close the activity.

In practice, this is a bit more complicated because these clients or these corporations own more than one business (they own many businesses) and are exposed to more than one bank. Their balance and financial situation need to be consolidated and only after this consolidation, judgement and evaluation need to be done. You can simultaneously own a construction, a telecommunications, a complex financial business, so you could own a conglomerate of businesses, some of which could be positive, some not. Then as a corporation you have to decide whether a business should be closed or not. All this should be seen in relation to banks as well. In some of these banks, these businesses appear better, while in some other banks they appear worse. So, the situation needs to be carefully analysed in order to understand which are the businesses that have no future - by taking the decision to close them, accompanied by the necessary actions from legal authorities, and which are to be restructured, for which banks on their part should be more proactive.

An aggravated situation in terms of non-performing loans would affect decision-making of the banks, as they often have excessive bureaucracy. If banks in 2008-2009 had been proactive in restructuring the portfolios of non-performing loans, exactly the portfolios that we have today, the situation would have been better. This situation would not be so deteriorated for banks and businesses themselves. Faced with a difficult situation, the bureaucracy made them waste time in the decision-making process and now they are facing this situation. At some point, someone has to decide which should be restructured, which should move forward and which should file for bankruptcy.

I. BABARAMO: Let me ask you for the last time... Based in your experience, are these loans based on substantial collateral that covers the loan value or are we dealing with fictitious figures, figures that even if the bank tried to collect this collateral, it wouldn't serve them any good.

GOVERNOR: This is one of the most positive elements of the financial system. The portfolio of non-performing loans is collateralized. This means that there is enough and substantial collateral to cover these loans. When provisioning the portfolios banks ask the Bank of Albania to consider the collateral, because we ask them 100% provisioning. Banks seek to provide less provisioning, as they say their loans are collateralized and there is no need for 100% provisioning. This is a technical discussion. You are asking whether there is or not collateral. Loans are well collateralised, with the exception of particular cases. So overall, the portfolio of non-performing loans is well-collateralized. The real estate market is the problem. The problem is whether this collateral is executed or not, if it is sold at the right time at the right amount.

I. BABARAMO: Have there been collateral executions?

GOVERNOR: Yes...

I. BABARAMO: Has there been any effect, has there been a market?

GOVERNOR: There have been executions of the collateral. But there are difficulties, intertwined with the judiciary, the enforcement process, etc. However, a serious undertaking, a serious commitment by the banks would make it possible for the collateral to be sold.

I. BABARAMO: Mr Governor, I would like to insist on a fact. For at least six years the Bank of Albania has cut the key interest rate at each meeting to historical minimum levels aiming to help commercial banks, to boost lending to the economy by lowering interest rates even below the level of inflation, banks apply interests on deposits which are below the level of inflation. However there is no boost to lending to the economy. What other incentives would discourage banks from this stagnation of their operation?

GOVERNOR: First it must be said that lending has continued. Throughout this situation, there have been discussions of this kind. Citizens and the media have requested from banks to lend more. In the first place, I must say that banks have continued to lend. Lending has been increasing. We say that lending has been increasing, but this increase has been moderate.

I. BABARAMO: How much was this increase?

GOVERNOR: This increase has been low, as I previously mentioned, at 4.5% this year. If we exclude the effect of the write off of the loans from the balance sheet, it remains 0.5%. Banks continue to fund annually. There may be EUR 500-600 million new loans in the economy by commercial banks. This is a fact. Given that the portfolio and the loan stock are depreciated, we get the net increase. Of course, not all banks lend equally, some are more active, and others are less active. But, overall, we lending has continued, it hasn't stopped. This must be said firstly.

However, we would like to see higher credit levels to reach the levels of the economic development we are looking for. Albania has not fallen into recession; the lowest level of economic growth was at 1.3%, in 2013. In 2014, we were at 2-2.1% and this year we expect to reach 2.5-2.7%. Here is the IMF mission and practically everything is under review. What's important is that the trend continues to be positive. If we end this year at 2.5-2.4%, I'm being conservative by saying 2.4%. I would consider this as a positive trend. If this trend continues during the next year, although above the 3% - our projections are for 3.3% - this means that we are on the right path to achieve it. This means that the reforms taken by the Government and by the Bank of Albania are having effect.

Your question was about the interest rate, monetary policy of the Bank of Albania and its effects on the lending increase and the economy. It is true that we have reduced the interest rate about 13 times over the past two years, including the period before I became the Governor. We have not made any interest rates cuts during my term. I have also emphasized at other times that the transmission of the monetary policy in the economy has been the right one. So this monetary policy has had its effect.

I. BABARAMO: And let me make another intervention. As far as I remember, the figures of one report of the Bank of Albania overturned the politicians claim that the Greek crisis was a fatality to the Albanian economy. I think it is the opposite, due to the crisis of the Greek banking system, Albanian immigrants no longer send remittances; they have withdrawn all the deposits they held in Greek banks and brought them in Albanian banks. Not sure whether you can confirm this to me or not, but since 2008 up to today, the deposits portfolio in Albanian commercial banks has doubled. So, for 5-6 years Albanian banks have double the amount of money they held say five years ago. What happens to these, which economy do they fund?

GOVERNOR: This does not apply only to the Greek crisis. This has also to do with the overall economic situation. In a situation where we do not have the appropriate level of economic growth and optimism for the future - like before 2008 - people have no investment or consumption initiatives. Therefore, consumption drops because the consumer feels the need of security more than the need to invest and of course this affects the growth of deposits.

Regarding the Greek crisis, we've had remittances from migrants. We have highlighted in the previous discussions that the Greek crisis may be associated not only with the risk for Greek banks operating in Albania - a danger perceived  during July and was successfully overcome - but also with new deposits. In fact, this was accompanied with new deposits. Fearing the safety of the banks in Greece, non-Greek banks operating in Albania are seen as safer. A large number of immigrants have practically returned from Greece during this period. Certainly by returning, they not only brought their knowledge, but their savings as well, thus increasing the deposits. But the increase of deposits in Albania has come mainly as a result of the failure to undertake investment initiatives and the decrease in consumption as a result of the psychological effect, which makes people tending to save more, fearing they will end up unemployed. These are phenomena which are expected in certain situations.

To answer your question, interest rates have decreased and this means that the monetary policy has given its transmission effects on the economy, because domestic loans have increased considerably in comparison to the foreign loans. Domestic loans are affected by the reduction of the key interest rate of the Bank of Albania, since we can only reduce the interest rate of the lek currency. There has been a decrease in the interest rate of the euro (as one of the main currencies used in Albania) because the European Central Bank has lowered its interest rates. So, overall interest rates are lowered, the transmission of monetary policy of the Bank of Albania has given its effects. I repeat, what is lacking is the projects and the long-term undertakings from businesses.

I. BABARAMO: So you're saying that banks are willing to lend, but there are no projects?

GOVERNOR: There are no projects that meet the criteria to be credited.

I. BABARAMO: They also say something else. About 60-70% of Albanian's deposits are held by the subsidiaries of European banks that operate in Albania and implement European Central Bank regulations. These banks should use a part of the deposits for provisioning, i.e. not lend but keep it as guarantee. They have chosen to keep the Albanian's deposits as guarantee, since being a not very consolidated market, we should not take risks. Is this a reality?

GOVERNOR: Not at all.

I. BABARAMO: How can this reality be discouraged?

GOVERNOR: It's not what it is, and I want to clear things up. There is no restriction, or any request for deposits held at foreign banks, which operate in Albania, to be used as provisions.

I. BABARAMO: Not at headquarters I imagine.

GOVERNOR: Yes. I want to specify it without getting into too many technical aspects. Funds movement is free. . Liquidity surplus in the domestic currency, it is held at the Bank of Albania, the central bank of the country which is the regulatory authority, whereas surplus in a foreign currency are held in the corresponding foreign banks, just like in every other country. Banks would result in a loss if they did not place these free funds on a deposit.

So, once again, the domestic liquidity surplus is given as a loan, the rest is put in deposits at the Bank of Albania. The foreign currency surplus is placed at non-resident banks. Measures have been taken for the exposures, i.e. with its regulations the Bank of Albania takes actions to diversify the risk, so there won't be a concentration of these deposits in certain banks. There are several terms that 10-20% of the surplus in relation to the bank's regulatory capital should not be concentrated but must be distributed in order to share the risk. The criteria require these funds to be placed in the best banks of zone A, and not in offshore banks. For the implementation of these criteria, we supervise and check whether these deposits are placed in the safest banks in order to have a better distribution and diversification of the risk. But, these funds are not provisions, and are not as you said, blocked from the parent bank. They are simply available funds. We want these funds to be injected into the economy. Therefore, to encourage banks in this regard, we have prepared a package of countercyclical measures and a package of macroprudential measures.

I. BABARAMO: What do these measures consist of?

GOVERNOR: These measures relate to the capital adequacy ratio. For the banks that have a loan increase from 4 to 10% per year, we have eased the requirements on the capital adequacy ratio, so we ask to inject less capital in order for them to be encouraged to give more loans. For banks that have placed their funds in the form of deposits mentioned above, we ask for a capital increase, a capital addition. We cannot force them to do so as banks have their own operational independence. Within the regulatory framework, they perform their commercial activities. Otherwise, we would assume the direct management of these banks. But they are not in administration; they are in a sound financial situation and operate in a market which has and its own spaces. With our macro-prudential measures we are trying to steer these banks' activity towards the economy stimulation and lending. As the central bank, this is our role and function. These measures have provided their effect on lending. For this reason we've have prolonged the applicability until the next year, since they were temporary.

Besides the interest base rate, we are looking for other measures that we can take in order to boost lending. Now we are analysing, studying the best practices of European and East European countries.

I. BABARAMO: We won't have to apply negative interest rates, we hope?

GOVERNOR: I do not think so. Now it is too early to say anything, but I believe we won't have to. The cut of the interest key rate, the injection of liquidity into the economy and the pursuit of a monetary policy with a long-term message on the interest rate are some of the measures that we have taken. We have oriented the market that will implement an accommodative monetary policy stance for the period ahead as well. This has transmitted a message to the market.

I. BABARAMO: Governor, are Greek banks in particular safe since they are subsidiaries of a country which is in deep crisis? Is there any bank that is on the verge of collapse? Or is this a naive question to ask?

GOVERNOR: This is a good question.

I. BABARAMO: So, there isn't any banker that says that the bank is on the verge of collapse...

GOVERNOR: If there were a bank on the verge of collapse, then we as a central bank would have to exert all our legal and regulatory rights to manage its collapse situation. As the central bank, we are the regulator of the banking system, and the bankruptcy is managed by the regulators.

There is no bank on the verge of collapse. The most delicate situation occurred in summer, not only for Albania but also for all the countries where the subsidiaries of the Greek banks operated. During that period, we were constantly coordinated with the governors of the region, of Serbia, Macedonia and of all the countries where Greek banks have subsidiaries. Greece itself passed a very difficult period and we were very concerned about the difficult period of economic policies during the summer, as this not only impacted the overall economic situation, the import-exports and decline in remittances, but also the  financial system and the banking system in Albania.

Practically, we have three banks, which, as I've highlighted before, had a very good liquidity situation and adequate capital.

I. BABARAMO: Did panic affect these banks?

GOVERNOR: Yes, it did. Panic was the reason these banks had a significant liquidity withdrawal during those days. They endured the panic with their own funds, and could resist the withdrawal of liquidity for several months. Despite the withdrawal, the situation was normalized. Liquidity returned to those banks, so the situation is the same as it was before.

It must be said that Albanian banks with Greek capital are banks that have been operating in Albania for years and not only have these banks contributed to the Albanian economy but they also have a sound financial situation. In fact, not only these banks, but all banks in general that operate in Albania have a sound financial situation. We say that they have excess liquidity and capital adequacy. These are two basic elements that indicate that the banking system is healthy.

The banking system is sound. The Bank of Albania in its role to regulate and to maintain financial stability is satisfied that the banking system is sound.

On the other hand, in terms of monetary policy transmission, we need a banking system that contributes to and stimulates the economy.

Banks benefit from this because the more loans they give the more profit they make. Their profits would increase, the economy would grow, deposits would be invested, customers would be more inclined towards consumption, and employment would increase. So everything would work out in a situation of economic recovery. The situation in Albania is also a reflection of the situation in the region and the euro area. The European Central Bank has passed to the negative interest rates and has also made strong liquidity injections into the economy through their Quantitative Easing Programme. This program was a theory of Stanley Fischer, Vice-Chairman of Federal Reserve's Board of Governors. This programme has shown positive effects, has been proven in the United States during the crisis.

The United States have now overcome the crisis. Now it is being applied in Europe. According to the European Central Bank statements, we have positive messages of the return of the economic growth despite it being below potential. We say that our economy is below its potential and we are working on closing the negative output gap. The same situation is found in the euro area. Under these circumstances, given that the measures taken by the European Central Bank are gradually giving effect, the overall situation is expected to be reflected in the Albanian economy, financial system and banking system.

Returning to the discussion about banks, the banks themselves have criteria that are in a consolidation process in their home countries. There are banks operating in Albania that are originally from Italy, France or Greece, all euro area countries regulated by the European Central Bank. Of course, these banks are subject to the measures and regulations taken by the European Central Bank. Some banks have reflected the economic activity of the period before the crisis and have large exposures to risk. This situation makes them more regulated and less aggressive than they were before. It orients them toward rearrangement processes rather than toward big investments. To put it in simple terms for the public these banks have stepped back.

Greek banks as well. Yesterday, we heard that the latest reports and analyses require a recapitalization of these banks with a capital injection of EUR 14 billion for all the 4 major groups that operate in the economy. This was called a success, because the expectations were for higher values of recapitalization. So they need to be recapitalised. They have identified exactly what their need for capital is and have potential to do so.

I emphasize the fact that the banking system in Albania is capitalized, healthy and there is no risk of collapsing. Right now, we are discussing about lowering the level of non-performing loans in order to boost banks' optimism regarding loans. We are trying to make them invest their deposits and lend to the economy. But, on the other hand, we try to create a positive environment and economic situation, with healthy requirements projects, funded by the commercial banks.

I. BABARAMO: The last question I'd like to ask you concerns the former Dajti hotel, which was bought by the Bank of Albania 4-5 years ago and remains a ruin. What will happen with that building? There is this speculation that the government will buy it back from the Bank of Albania to restore it into what it was before, a hotel.

GOVERNOR: We held the inauguration ceremony and perhaps you heard the Prime Minister's speech. But despite this, when I came to the institution of the Bank of Albania as its Governor, I found the Bank's staff working in two separate buildings. DAJTI hotel was purchased in the amount of EUR 30 million. Currently, half of the employees of the Bank of Albania are accommodated in the headquarters, in the original building of the central bank and the rest is working at the building that is rented by the Bank of Albania, until the complete reconstruction of former hotel Dajti building. Projects had started and were under construction. This was the situation in which I found these projects. So the former-hotel Dajti was purchased and registered under the Bank's ownership.

I. BABARAMO: And there is no turning back.

GOVERNOR: There is no turning back because it was such a legal and financial situation in which it would be impossible to go back. The media has discussed and commented a lot regarding Dajti Hotel. Normally I haven't had any discussion or any problem, except the questions I had in the Parliamentary Committee of Economy and Finance regarding the future of hotel Dajti. Meanwhile, the clarification procedure has continued by submitting the respective documents to the National Territorial Planning Council. It decided that DAJTI hotel will become a bank. For your information, there has been some discussion regarding the back yard of hotel Dajti building, for both the underground and above-ground parking space as there are many bridges around there. Because Lana stream used to run in that area long ago, it needs a lot of investments. Hence the former hotel Dajti will be part of the central bank. Hereby, in every South Eastern Europe countries I have seen, central banks are the most classical looking buildings, symbolizing the stability of state treasury. Central banks are located in the best, most beautiful and most solid part of the city. On the other hand, central banks are institutions that can preserve the cultural heritage and simultaneously invest in this regard for the buildings. Whether it would be better as a hotel or a bank is an old story now, and it's not up to me. I've found it in this situation and I am obliged to abide by the law and follow this situation

I. BABARAMO: Mr Sejko, I thank you for the interview.

GOVERNOR: Thank you for visiting.