PRESS RELEASE
Interview with Gent Sejko, Governor of the Bank of Albania. Voice of America

Voice of America: I would like to start this interview with a question about the current problems facing Albania. Apparently economic growth in the past year was 1.89%, against the 2.1% target; in other words, growth rates were not at the expected level. What might be the problems, in your view?

Gent Sejko: First, I would like to thank you for inviting me for an interview in your studio. 

It is true that, in 2014, the Albanian economy posted 1.9 or 1.89% growth. But, accurate decimals are not what matter most in these growth rates. What is important is that economic growth in 2014 was higher than in 2013. The Albanian economy grew 1.4% in 2013. For 2014, the Bank of Albania had forecasted 1.8% growth, whereas the Government of Albania and the IMF had forecasted 2% growth. Irrespective of the small difference, this figure shows that the economy grew progressively in 2014 compared to 2013, and this is a good signal for the Albanian economy. Our forecasts for 2015 show that growth rates will be higher. We expect the economy to grow faster than in the past year. There are, however, a number of factors and complex problems connected to economic growth.  

 Voice of America: To the best of my knowledge, the IMF's growth forecast for Albania is 3%, and EBRD's 2.5%. What is your projection in figures and what do you think will drive such growth?

Gent Sejko: As I pointed out earlier, the Bank of Albania also projects higher economic growth. It does not matter whether it is 2.8 or 3.2%. What truly matters is the trend of growth to remain positive. The Bank of Albania, similarly to the IMF and in cooperation with the IMF, projects 3% in 2015. But the Albanian economy is facing many challenges and difficulties, just like many other countries in our region. At present, the Albanian economy is facing problems, like any other country in our region, relating to the investment climate, consumer confidence and consumption. The problems that are present in the Greek economy would inevitably spill over to the Albanian economy. This is an element that may have a negative impact on Albania's economic growth in 2015.

Moreover, the low lending and credit levels had a negative impact on the economy. We expect, in 2015, an increase in lending to the Albanian economy. In other words, we expect banks and the banking system to be more active. It will be a factor with a very positive impact on economic growth ...

Voice of America: I would like to say something at this point. The Bank of Albania has intervened 13 times to lower the key interest rate, to boost lending to the economy. This has not happened, though. What is the path you would choose?

Gent Sejko: It is true. The Bank of Albania has lowered the key interest rate several times, consecutively during 2014. It has been in line with the policy and strategy of the Bank of Albania for an accommodative monetary policy. We will continue to implement this policy during 2015. We must note that in 2014, though at low levels, lending, nonetheless, grew. Credit growth posted 4.6%. This growth is certainly a result of the accommodative monetary policy of the Bank of Albania and the lowering of the key interest rate to the all-time low of 2%.

Voice of America: Is this an enduring or seasonal trend?

Gent Sejko: This is an enduring trend in the long-term. It may be seasonal, in terms of the first quarter of 2015, when growth is not as high as expected. This is a normal development at the beginning of the year, if we see the history of growth of lending and of the economy over the years. This happens because both businesses and banks are not proactive in lending at the year start, as this period corresponds to the closing of balance sheets. Generally, both credit and economic growth is higher around midyear, especially in the second half of the year.

Returning to monetary policy and interest rate, I would like to answer the question more precisely. Growth was around 4.6%, but had the Bank of Albania not implemented its policy to lower the key interest rate, lending would have seen lower rates, with a subsequent lower contribution to economic growth. It must be noted that the instrument of the key interest rate cut, a conventional method employed by the Bank of Albania, has had an impact only on the national currency portfolio, but not on the euro portfolio. Albania is an euroised economy and the highest level of outstanding loans is denominated in euro. But, the share of Albanian lek loans has been increasing, approaching a 50/50 ratio to euro loans, and its trajectory is upward. This is a very positive element, which not only contributes to growth in the national currency, but also prevents the risk arising from exchange rate on non-performing loans, which are very problematic presently.

Voice of America: Let us talk about bad loans. Payment of arrears to businesses was expected to contribute to trimming down bad loans. But such a thing was not verified. Do you have data on the share of arrears paid to businesses that has been used for bad loan repayments?

Gent Sejko: We certainly do. The Bank of Albania has conducted its analyses on the part of payment of arrears. It is a fact, as you said, that the payment of such arrears by the Government to large firms did not produce a significant effect on reducing bad loans. We should, however, be aware that had arrears not been paid, non-performing loans would have been much higher. What happened is that businesses had many liabilities and great need for liquidity. We should mention that the payment of arrears was a very positive step, which has given an impetus to businesses, regardless of its impact on reducing non-performing loans.

After the arrears were paid, businesses have been able to pay back a significant amount of the debt they owed to other companies or subcontractors. As a result, the business climate improved and surely a share of the paid arrears has contributed to reducing non-performing bank loans. The payment of arrears has improved businesses balance sheets, rendering them more creditworthy. This is a positive factor that will contribute to the cooperation between banks and businesses. We are cooperating with the Government of Albania with regard to all factors and elements that help reduce non-performing loans.

Voice of America: After the latest IMF mission, You and the Minister of Finance committed to undertake concrete steps for measures that need to be taken for reducing non-performing loans. What is the current situation?

Gent Sejko: There is a very serious initiative by the Bank of Albania, in cooperation with the Government and the Ministry of Finance to address the issue of non-performing loans. Though downward, the NPLs are still considerable, currently standing at 22.5% from 25% they used to be. That is, there is a downward trend, which is a very positive element. We aim at lowering it further, as non-performing loans mar the business climate and keep banks from lending, which would, in turn, contribute to economic growth. The Bank of Albania, in cooperation with the Government and the Ministry of Finance, is drafting a plan with concrete measures to help banks and tackle all problems that affect credit performance and non-performing loans repayment. Both the Minister of Finance and I have met intensively with commercial bank executives. We have offered our full support and assistance on all problems they are facing in the legal and regulatory aspects. In the meantime, we expect the banks to be more proactive in tackling the non-performing loan portfolio. Practically, there is a plan of measures on loan restructuring and write off from balance sheets. In this regard, the legal system and Ministry of Justice play an important role. Regarding the execution of collateral, the law has been amended, but oftentimes we see that problematic cases get stuck in courts and deadlines are postponed; these have a negative impact on the return of cash in commercial banks. Concerning these problems, in cooperation with the Ministry of Finance and the IMF, in June, we will organise a special forum, and in September we will draft a strategic programme to tackle this problem, and find an ultimate solution for it.

Regardless of all the steps taken by the Bank of Albania and the Ministry of Finance, the main element that will help reduce non-performing loans is the growth of lending to the economy, as non-performing loans are related to the total granted loans. If more room is provided, commercial banks will be able to lend proactively, and the ratio of non-performing loans will fall. If we include the measures taken insofar, the issue of non-performing loans will no longer be a problem in the Albanian financial system. We expect from banks, and encourage them, to be proactive in lending; however lending should be prudent, regulated and well monitored. That is, to have sound and healthy new loans.

Voice of America: Has the Bank played its role in monitoring these loans?

Gent Sejko: The Bank of Albania has certainly played its role and continues to play it through banking supervision and other functions and units at the Bank of Albania, such as the monetary policy, financial stability, analyses and statistics. This problem is not present only in Albania, but also in many other countries. During the Spring Meetings, we learned that all the countries in our region are facing similar problems. Non-performing loans are not only a regional but also a global problem now, accompanied by elements of the crisis, and Albania is not immune to it. Neighbouring countries are facing challenges, and their problems are reflected in the situation of our imports and exports, as well as of businesses operating in Albania. 

Voice of America: On the same topic of troubles in neighbouring countries, the financial situation in Greece is worrying for the European Union. An agreement has not been reached yet. Are you prepared for the potential scenario of Greece exiting the euro area, and how is that expected to affect Greek banks operating in Albania? 

Gent Sejko: We are undoubtedly prepared for any potential scenario. We would not want to see Greece exit the euro area, if we take the worst case scenario. However, it is our duty to be prepared for all scenarios. This is one of the primary roles and duties of a central bank, as a regulatory and legislative body in the financial system. The Bank of Albania has been, since long, analysing all potential scenarios to be prepared in the case of an eventual exit of Greece from the euro area.

I would like to iterate that the Greek crisis started years ago and the Albanian economy has been subject to adverse shocks and negative effects from the Greek crisis since a few years ago. Practically, we have seen downward remittances. And we somehow expected it. Also, the high unemployment rate in Greece has led some Albanian emigrants to return and, with their savings, make some investments at home. On the other hand, as regards the level of imports and exports, it is true that Albania has a high level of foreign investments originating from Greece, but the level of Albanian exports to Greece is low, merely 3%. This is a positive factor that shows that we are hedged, to some extent, against exports to the Greek economy. What is more sensitive is the banking and financial system. We have three Greek banks operating in Albania. I would like to underline, to be honest and accurate, and not simply give a positive message, but state the truth about it, that these banks are well capitalised and have added capital from their parent banks in the last years. Their capital adequacy ratio stands at 17%, well above the required rate by the Bank of Albania and have ample liquidity. In other words, the two basic security elements in these banks are very stable and at very good levels. On the other band, the Bank of Albania has taken measures to... 

Voice of America: According to the press, you have called on these banks not to be very exposed...

Gent Sejko: No, we have not made such a call. Greek banks, just like the other foreign banks operating in Albania, have their investment portfolios both in lending and in placements in foreign banks, since the excess liquidity will be placed in foreign banks. What is important is that these banks are from important and robust countries, Zone A banks. We have observed and monitored so that Greek banks do not have, and they do not have exposures to the home country, parent banks, against the risk that they may have. Greek banks do not have placements in the home country, first. They are liquid. They have placements, just like other banks do. We have not urged these banks, because we see no reason to do so.

On the other hand, we have taken regulatory measures for the Greek banks to be "isolated", or immune to any shock from the Greek crisis. They are licenced to operate in the Republic of Albania as separate banks and, a deterioration in the Greek economy, except for depositor's confidence, would not have real and strong factors against these Greek banks, as their capital is dedicated and paid in Albania. These banks are financially self-sufficient. They hold the deposits of Albanian depositors and conduct their business in the territory of the Republic of Albania. Under these circumstances, we see no concrete serious reason, but certainly confidence. We should be clear that confidence would affect not only Greek banks, but also any bank. It is crucial not to shake unnecessarily the confidence of depositors and clients.

Voice of America: The latest report by the Bank touches on the issue of business and consumer confidence, which has decreased due to the economic and financial situation. How do you see this trend? Is the economy moving in the right direction?

Gent Sejko: We conducted a survey. It is a statistical survey we regularly conduct. In the first quarter of 2015, data from the business and consumer confidence survey showed that the confidence was down, indeed. This result is due to the situation in the region, not only in Albania, but also in Italy, Greece, etc.

Voice of America: Let us speak about the internal factors that have contributed to this performance of confidence.

Gent Sejko: Among the domestic factors I would highlight the level of exports and imports and of foreign investments, which are then followed by employment. Of course, we have not have not had the right level of foreign investments and I would say that the challenge of the Albanian economy, the Government of Albania, and all the other regulatory and institutional stakeholders in Albania is to attract foreign investments. If we have a higher level of investments, employment will increase, economy and lending will grow, and, consequently, consumer confidence will improve. From the surveys we have seen that figures are low for the first quarter, but expectations, especially from businesses, are positive for the rest of 2015. It is important to emphasise that we should be aware that with regard to attracting foreign investments, the Government has the major role, through structural reforms and packages that need to be prepared for this purpose. 

Voice of America: Do you agree with the economic policies implemented by the Government of Albania?

Gent Sejko: Insofar the Government has undertaken a number of structural reforms. We are aware that Albania has many problems and not all of them may be addressed at once. It is impossible. It is important to start with the main concerns, those that are a priority. And the Government of Albania has started with reforms in the energy, infrastructure and other sectors of the economy. They have produced their positive results, of course. It takes time for reforms to produce results. It is important that we are on the right track and that economic growth in 2014 has shown that the Albanian economy is moving towards growth, as our expectations and cooperation with the IMF are showing that we can achieve the expected growth. I would like to reiterate that the situation in our region, situation in Greece, could have its negative impacts. At the start of the year, exports fell. So, we are facing challenges and difficulties, and should be aware that there are positive elements and factors that render us optimistic, just as there are factors that we need to address. We need to keep focusing on structural reforms. The Bank of Albania has been a part in these structural reforms, especially in the banking and financial systems. We have used all our instruments relating to monetary easing, and boosting lending to the economy. But these instruments need to be complemented by comprehensive structural reforms across all the sectors of the Albanian economy.

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