PRESS RELEASE
Interview with Governor Sejko, Governor of the Bank of Albania, Kapital - Vizion TV

Vizion+:This is the first interview of Governor Sejko with "Kapital".In fact, the Governor rarely appears in television studios, but quite often in public, to present analyses of the monetary policy of the Bank of Albania, as well as to inform regularly on key interest rate decisions. Let me ask you a question to help the members of the public that are not economists. What is the level of the key interest rate and what is the importance of this rate, which the central bank determines periodically?

Governor: I would like first to thank you for the invitation. Turning to your question, the key interest rate is the main instrument of the central bank that influences the interest rates in the financial market, i.e. the interest rates on: loans, deposits, securities and bonds.

At this rate, the central bank finances the market and the financial system and lends to commercial banks. This rate is then transmitted via other interest rates in the financial market. The key interest rate is the instrument employed for the monetary policy transmission, about which we can say that we have been successful. We are talking about the interest rates in the domestic currency, the Albanian lek, since the central bank of Albania, sets the interest rate for the Albanian lek.

Vizion+ : In April and May, the Bank of Albania lowered the interest rate at the all-time low. In fact, is the current 1.25%, the historically lowest rate or is this level similar to other moments?

Governor: No, this is the historically lowest key interest rate. As we have stated in our monetary policy statements, it has been the lowest level ever. Years ago, the interest rate for the Albanian lek has been at quite high levels, 14-15, maybe even 17%. Over the years, however, the interest rate has been declining.

Vizion+: If I am not mistaken, the drastic decline of the interest rate started in 2011

Governor: The decline has started since 2008, but it has been more drastic since 2011.

Vizion+: Is the decline of the interest rate linked to the global crisis?

Governor: Yes. The decline of the interest rate is linked to the global crisis, the domestic macroeconomic situation, and other elements that affect this situation. The interest rate is one of the basic instruments of the monetary policy and central banks across the globe, including the United States and the euro area, have lowered it. So, the phenomenon of lowering the key interest rate has continued throughout the post-crisis period, from 2008 onwards.

Vizion+: What are the implications of low interest rates for the currency and for the economy, and of high interest rates, by contrast? What is the difference for this instrument of the Bank?

Governor: We have repeatedly stressed in our monetary policy statements, interviews and other reviews that by lowering the interest rate we intend to boost consumption, investments and lending. A lower interest rate means that households and businesses can get loans at a lower cost, hence a cheaper price. The interest rate on loans in the domestic currency has fallen sharply in recent years and this has led to significant increases in credit.

Vizion+: But the public, the households and the businesses do not necessarily respond to this stimulus from the Bank. What are the data that you have? Is it true that this interest rate has brought this result?

Governor: It is true. This is evident from the figures. Often there are comments and opinions that are based only on phenomena and analyses without considering the figures, but we talk on the basis of figures since they are undisputable. They show the transmission of monetary policy to the economy and the effect of the interest rate. According to figures, lending in the domestic currency since the beginning of the application of the accommodative monetary policy stance has increased by 8%, annually. In other word, loans in domestic currency share 45% in the total credit.

Vizion+: That is to say, the country's economy has received 8% more bank lending every year?

Governor: Yes, credit in lek has increased. Households and businesses have preferred to take credit in lek and this trend is growing. This means that the monetary policy of the Bank of Albania has functioned in terms of lending and the monetary policy transmission has been positive. So, the impact of the monetary policy on lending has been complete and continuous. We are talking about credit in lek, because the euro is widely used in our economy and foreign currency loans continue to account for the major part of the credit portfolio.

Vizion+: So, in Albania one can borrow both in lek and euro, but the bulk of loans today is denominated in the domestic currency?

Governor: In Albania one can borrow both in lek and euro. Banks have lent in lek, euro and US dollar, but there is no demand for the latter, due to a number of elements.

First, credit is taken depending on its price. Households and businesses have preferred credit in euro as its interest rate has been significantly lower than that in lek. So, the instalment has been lower for euro loans. Based on simple calculations, households and businesses preferred to take credit in euro. As interest rates on the lek credit have fallen, the interest rates are almost equal to those on euro credit. The European Central Bank has also cut the interest rates. We mentioned earlier that the accommodative monetary policy stance is implemented in the euro area and other countries. The interest rate is lowered by other the central banks as well. Therefore, the cost of credit is reduced for the foreign currency as well as for the lek.

Vizion+: What is the main underlying reason for the Supervisory Council to lower the interest rate? Which is an indicator that the public can understand?

Governor: I said it; the reason is to boost lending, consumption and investments.

Vizion+: It is noted that the economy is not credited enough and the bank intervenes. Is it that simple?

Governor: It is both simple and complex. Lowering the interest rate comes from several models of complicated macroeconomic monetary policy. I would rather not go into the specifics and spare the public of explaining these models; however, the Bank of Albania, like all other central banks, aims to boost credit growth, consumption and investment, and consequently economic growth and improving the welfare of the population.

The main objective of the Bank of Albania is to maintain price stability and safeguard the financial stability. By easing the monetary policy, meaning by lowering the key interest rate, which in the central bank terminology is called "application of an accommodative or easing monetary policy", we aim at the growth of consumption, investments and lending. On one hand, we said that lending in the domestic currency has increased, supported by figures despite comments and analysis. On the other hand, we aim to encourage depositors to find alternative forms of investments, since the decrease of the key interest rate also contributes to the decrease of the interest rate on deposits.

Vizion+: I will ask you especially about deposits, because people are particularly interested in them. But, let us focus on the last question, perhaps, about the interest rate. How are interest rates in Albania compared with the region? Have the economies and the central banks of countries with similar economies operated in the same way as the central bank of Albania? What does this comparison show?

Governor: All the banks of the region have operated similarly; they have reduced the interest rate on an on-going basis. The central banks of Macedonia, Montenegro, Hungary and other countries have started to apply unconventional monetary policy methods in addition to interest rate cuts. But, generally interest rate reduction was applied in all the economies of the region, since they have all had similar macroeconomic phenomena to Albania. Also, they are affected by a trend of low inflation.

Vizion+: You mentioned a little the issue of deposit. Lowering the interest rate lowers the cost of credit, but also lowers the interest of the people to put their money in the bank, because they go hand in hand, isn't it the case? So, people do not make significant profit by putting their money in banks. Perhaps they want to keep it at home or make an investment that they probably did not intend to when they were profiting interests from deposits. According to some data, citizens' savings in banks have shrunk by 10% over a period of about a year. Is that a concern for the banking system?

Governor: For the moment, this is not a concern for the banking system. According to figures released by the Albanian Association of Banks and reported by banks to the Bank of Albania, the banking system has ample liquidity and is well capitalized. In Albania, the loan-deposit ratio is 50%. So, the banks have a huge surplus of deposits, which is also a cost for them, and these deposits are often put in other banks. Our goal as a central bank, but also of the commercial banks, is to translate this deposit portfolio in the loan portfolio, since lending profitability is higher. The decline in deposits is a result of the monetary policy. Given a lower key interest rate, households and businesses will try to find alternative forms of investment, since profitability from deposit interest rates is not as high as it used to be. We did not go into negative rates, despite comments on nominal or real rates of interest.

In simpler words, yesterday citizens preferred deposits as interest rates were higher than, for example, a specific rent that they might have taken. Now interest rates are reduced and individuals may be encouraged to invest in real estate, which will bring a better income than keeping the deposit. So, the income from rent would be higher. In this case, the purchase of real estate would be boosted; therefore consumption would be boosted indirectly. We took a very simple example, but it is valid for all other sectors.

Vizion+: Lowering the interest rate apparently boosts the desire to invest in financial schemes outside banks, whose lawfulness is doubtful. Recently signals for the revival of several such schemes seem to have intensified. For example, citizens claim they receive calls from so-called companies, inviting them, enticing them, to invest say 2,000 euros for a faster profit, etc. What is the position of the central bank and how does it see this phenomenon?

Governor: Regarding your point about these companies, there are several online platforms that exist and operate worldwide. Of course, there may be such platforms that try to benefit through abusive methods in certain financial situations. These phenomena are observed in Albania, too. Fortunately, the Albanian citizens after 1997, when they lost huge amounts of money in the pyramid schemes, are now more aware and more sensitive. But, while they are more cautious, the risk still exists. For a more lucrative offer, citizens may become victims of fraud. The central bank is a member of the Financial Stability Advisory Group (FSAG), which consists of the Minister of Finance, the Governor of the Bank of Albania, Chair of the Financial Supervision Authority, the Director of the Deposit Insurance Agency�

Vizion+: Is this group alarmed by the emergence of such phenomena?

Governor: In FSAG meetings, we have analysed situations and informed the public through a press release, so that the citizens are more aware and do not fall prey to these schemes. We have clearly stated that any kind of investment in money should be done through the institutions licensed by the Bank of Albania, such as banks and other non-bank financial institutions.

Vizion+: Some of such companies may be licenced whereas others may be not, but they perform similar operations and call people on the phone, to make a similar offer.

Governor: The Albanian capital market is not that developed. Indeed, banks are the primary institutions. Other than bank deposits and government securities, we do not have developed instruments like other countries do. The stock market and other capital markets are underdeveloped. If one would like to invest in international markets, the information would be limited, since we have no access to financial information of international markets. Individuals and businesses would like a guarantor within the Albanian market to trust, to invest their savings or money in international markets.

Vizion+: In this case, there is no guarantee?

Governor: There is guarantee only if the investment is made through banks or institutions licensed by the Bank of Albania, but not in the cases that you say. In such cases, there is absolutely no guarantee, these may even be scams. Frankly, citizens should not make investments over the telephone. Taking advantage of this interview, and the opportunity to address the audience, I want to stress once again that no investment, no deposit must be made over the phone.

Vizion+: Who should intervene among the state structures hierarchy? For example, in Vlorë, there are two or three schemes that sell virtual products and people who present such schemes. Which is the relevant state structure that will have to intervene in this case and stop the phenomenon?

Governor: The Financial Stability Advisory Group, including the Ministry of Finance, has informed the public through our press releases. The Bank of Albania is responsible for financial institutions that are licensed by it. On the other hand, we have alerted the other law enforcement bodies too, including the Intelligence Service, the State Police, and the Prosecution. So we have consulted and shared this concern with other institutions as well. The truth is that the phenomenon has not grown much. There is a possibility for the phenomenon to increase; these fraudulent schemes can benefit especially in periods when interest rates offered by licensed financial institutions, such as banks, are downward. Besides pure fraudulent schemes, there are schemes that are based on the pyramid concept, the so called Ponzi schemes, which initially perform, but their final destiny is loss for citizens. So any scheme, which operates without a license and does not pay taxes, is built on fraud. They are obviously subject to prosecution and investigation from other institutions, such as the Criminal Police, the Economic Crime Police, and the Prosecution. Raising the awareness of the population is very important, and that is why I emphasized that we have been very careful to disseminate the information, especially to households. They have limited financial information and could be lured by a particular situation. So they have to be very cautious.

Vizion+: Now let's talk about inflation. In Albania, for three months in a row, inflation is low, around 0.3%. In other words it is 10 times less than Bank of Albania's target. What does this rate mean for the economy and the Bank of Albania and what are its consequences?

Governor: Low inflation was outside the forecast of the Bank of Albania, and it is worth mentioning that this does not constitute any problem. Inflation as a concept has to do with the price increase. If we do not have high inflation, it does not mean we do not have price increase. On the other hand, we can see that we have price decrease, but it is important to note that we do not have a deflationary situation. We have said it several times, this is a temporary situation.

Vizion+: Deflation means prices dropping, an anaemic economy that is to say, for the general public to understand.

Governor: Yes. The problem would be if there was a prolonged disinflationary period, with inflation rates outside the levels forecasted by the Bank of Albania. This does not mean that there will not be a projected economic development.

We have noticed that consumption is one of the main drivers of economic growth. The price is demand-supply related; if there is no sufficient demand, supply prices will not increase. This is the basic economic logic. Currently, the consumption level is not enough. As we stated, consumption is the main driver of economic growth; therefore, this is the main reason for which we want to see inflation increase.

If we take it as a separate concept, outside the general macroeconomic concept of economic growth, there is nothing wrong with lowering of prices, because in the end, the population would benefit from it.

Vizion+: But not such a lowering of prices that would suppress the economy and demand...

Governor: That's the issue.

Vizion+: Any extreme is harmful...

Governor: Of course, any extreme is harmful. Until recently, our main concern has been inflation. Bank of Albania's inflation target is at 3%.

Vizion+: According to INSTAT data, consumption has increased in the second half of the previous year. But, you know that there are economists whose outlook for the economy is gloomy and associate low consumption with the low level of inflation. What is your opinion about the relation between consumption and inflation and specifically with the current situation of the economy?

Governor: Inflation in the last two months was at the lowest levels. Now we wait for INSTAT for the next month figures. We have stressed that the inflation rate has come as a result of external factors, mainly from the fall in oil and mineral prices in international markets, but also from lower prices of agricultural products. So, according to INSTAT and our analyses, we did not perceive that the low inflation has come as a result of a strong decline in consumption. In the second half of 2015, consumption has resulted in an increase of 6% and this trend persists. The available data do not show a contraction of consumption, which affects disinflationary tendencies.

We are monitoring the situation. We stressed that according to the projections of our macroeconomic models, this is a temporary situation, which will continue during the first half of 2016 and is expected to adjust in the second half of this year. We expect closing 2016 with the inflation level standing at 1.9%, revised down from the previous 2.3% forecast. According to Bank of Albania forecasts, the level of inflation is expected to return to the 3% target by 2018.

I want to bring to your attention that the decrease in inflation is a regional and European phenomenon. Inflation has fallen drastically in Italy and Greece, 0.5% and 1.3%, respectively. In some countries, the level of inflation is in negative territory. Albania has a lower-than-forecasted increase, but we are not in a deflationary situation. The level of inflation in the past two months has been 0.2% and 0.3%, so we are not in the minus price level.

Vizion+: Is there a risk of deflation or is it just theory?

Governor: There is always the risk of deflation in situations of economic stagnation, since we are an open economy. We do not expect deflation, but a temporary situation of low inflation rates. Officially, based on our models, we forecast that 2016 will close with inflation standing at 1.9%.

Your question is: is there a risk of deflation in theory? To say that there is a risk, it does not mean that the risk will occur. For example, there is a risk that there may be an earthquake, but we are not saying that it will occur. The sharp decline in the prices of oil and minerals showed that there is a supply-side risk too; meanwhile, we also may see an increase of supply from abroad.

Inflation is measured on the basis of a basket of consumer goods and services, with a particular formula. The basket includes the prices of some goods and services that provide the main impact on the final result of inflation. So, some of them have a higher impact. The prices of oil, minerals or food products have fallen sharply in international markets, and that has certainly affected the calculation of inflation. But this should not be confused with the decreasing level of consumption.

It is not only the issue of consumption, but also that of exports. These are prices that affect the level of exports and are associated with the increased levels of economic growth. It is a known fact that Albania is importer and exporter of oil, exporter of minerals and exporter of agricultural products; any decline in prices in these three categories would reduce revenues from Albanian exports.

Vizion+: There is a concern for the level of credit to the economy. In fact, the economy is currently credited at lower-than-expected levels. What is happening?

Governor: Good question. Commercial banks have continued to credit, but at lower levels than we expected. This has been for two reasons: a weak aggregate demand for credit from all business segments and a tightening policy from the commercial banks, mainly due to the strategies of their parent banks attributable to the adverse impacts of the crisis in the euro area.

We have repeatedly urged banks to be more proactive in terms of lending. We have constantly emphasized that the Albanian economy is operating below its potential, which means that there is still untapped potential. Therefore, we have called on the banks with their expertise and their network of branches - 500 branches of 16 banks across the country - to exploit these potentials and continue lending.

Vizion+: However, the popular sentiment is that banks are tight-fisted, that they do not give money easily; I'm talking about the popular sentiment...

Governor: We must bear in mind that banks are very sensitive, because they are institutions of trust. As such, all of us, including the two of us, entrust our savings to the banks, which means that we have entrusted them with the endeavours of a lifetime. So, the bank is the most trusted institution where we leave all our labour and life savings. What happened in 1997 with the pyramid schemes should not and cannot happen ever again with banks. They are regulated and monitored institutions, which work with customers' deposits. The Bank of Albania's main objective is to achieve and maintain price stability and the level of inflation, in view of economic growth, which comes as a result of a vital and sufficient crediting. Also, Bank of Albania is responsible for safeguarding the financial stability of banks. If the bank credits in such a haphazard way, then that would affect financial stability and not just the capital of the banks, but mostly the deposits. So, maintaining the balance between the goal of the monetary policy and the economic growth and financial stability is one of the objectives, and one of the most delicate issues in our work as central bankers.

Vizion+: A naive question. Why don't banks give more credit? You said that banks have liquidity, are solid and have 50/50 loans and deposits ratio, at a time when, as to my knowledge, in Western countries there are more loans than deposits. So, what should be done to encourage lending?

Governor: In line with what I was saying, two elements are combined: the sensitivity of banks and the prudence of the central bank in terms of financial stability. On the one hand, banks should be stable, liquid, with adequate capital in order to safeguard deposits. On the other hand, they must contribute enough to the economy of the country through lending. Banks have a set of rules through which they operate; there are laws and regulations that govern banking activity and we, as a central bank, strictly monitor their implementation. Meanwhile, banks themselves, from their parent banks, have strict rules to abide by. During the period of economic boom, banks have been more active and this has created a high level of non-performing loans. This is the reason why banks are no longer as active in crediting currently.

Vizion+: At the beginning of the previous year, non-performing loans stood at around 25%, and at the end of the year they fell to 18%, also thanks to some actions or decisions by the central bank. Can you explain them to us? By writing them off the balance sheet, what happened with the non-performing loans?

Governor: In Albania, non-performing loans rose, this is not something to be proud, to the highest levels in the region along with Serbia. Albania's non-performing loans amounted to 25% of the total credit. This turned into an alarming situation; one in four loans was a non-performing loan. Hence, we had to address this situation.

This situation came from many elements: primarily by a proactive or an overoptimistic situation by banks before 2008, combined with a general deterioration of the economic climate after 2008, when businesses faced financial difficulties in their operations. We needed to address this situation in cooperation with the Government of Albania. We developed an action plan, which addresses several elements, because no institution would have been able to resolve the situation of non-performing loans alone. The solution or the address of this situation was a matter of national emergency since it had an impact on the level of lending and economic growth, and consequently the level of welfare of the population.

Vizion+: And therefore it was decided that some of the loans should be written off from the balance sheets?

Governor: No. This decision was based on the principles and the standards of international accounting. There is nothing special or new here. All institutions, not only banks and corporations, but also other legal, financial or commercial entities, in case they have a loss which is carried in the balance sheet for more than three years, have the obligation to write them off from their balance sheets.

Vizion+: What happens then to the debtor? So, who has taken a loan and for three years does not pay any instalment, with this intervention of the central bank, does it mean that he has gotten away with it; i.e., he has enjoyed the borrowed money and will not be held accountable anymore?

Governor: Absolutely not the case. The borrower or the debtor, who is unable to repay the debt to the bank, does not get away with it, since the contract is in force. We are talking here about a financial operation that has to do with the balance sheets of the banks. We have stressed several times that the loans that have been written off are not forgiven. The majority of these loans are brought to court in enforcement proceedings or are blocked - a problem that we have stressed as the courts have blocked many cases and has adversely affected the performance or the return of these loans to the banks. Meanwhile, many other collateralized loans have been executed; banks have taken possession over these collaterals and are trying to sell. Overall, the portfolio of non-performing loans is well collateralized. Although banks have difficulty in recovering liquidity or in selling these assets, they are not exposed to loss in any way. If a loan is not performing, then the bank assumes ownership of the collateral.

Vizion+: Meanwhile there has been rumour that there are also several large companies, to the point of insolvency or in difficult conditions, which are in the group of those companies that have not repaid the loans, hence they are bad debtors. What is the impact of these major companies in the domestic economy?

Governor: These companies have a large share in the total of non-performing loans. These companies are actually groups of companies and not all companies within a group are failed. Generally, these groups have a business model, where some of the companies are profitable and others are failed, but the shareholders of these companies have refused to close the failed part. Thus, within the group, good companies continue to fund the bad companies. These companies within the group are borrowers in some banks and create difficulties in their financial situation, in the banks as well. This becomes a chain reaction among companies and banks. Obviously, if it were acted early on the bankruptcy of companies that do not generate enough income, it would be good not only for banks but also for these financial groups themselves. These companies must accept a defeat policy at a certain point, in the event that their business does not generate profit. This is a matter of mentality and concept. What we have noticed in Albania is that many businessmen find it difficult to accept the fact of failure and insist stubbornly that these businesses are not failed. In fact, they have failed and it is better to shut down and not generate other losses, so that they do not survive at the expense of other businesses.

Vizion+: They must go into a bankruptcy process, right? Meanwhile the new bankruptcy law is in progress as well. What is the role of this law or what is missing in this process, since it has become essential or necessary to have a new bankruptcy law? What is the most harmful behaviour for the economy?

Governor: Before we explain the bankruptcy law, it should be clear that the loan agreement is an executive title. This agreement includes a collateral, whether a real estate asset or any other debt title. So, the loan is taken against a pledge, which means that if the loan is not returned, the bank executes the collateral.

What has happened and is happening is that individuals using legal loopholes have gone to court and blocked the execution of collateral by the banks. This has prevented banks from repossessing the collateral. If the court respects the law and the contractual relations borrower-lender, the bank will be able to execute the collateral. Certainly, banks would be a little tired, but would have these collaterals translated in liquidity and the level of number of non-performing loans would not be so high.

Albanian courts have favoured businesses and individuals against the banks, since banks are seen as cold, capitalistic, and rich institutions. As long as Albania is governed by the rule of law, of rights, contractual relationships should be applied equally to both sides. This has created major problems, since the phenomenon is aggravated and influences the overall situation of financial stability or overall economic growth, where banks and the financial system have a key role. We are concerned about the financial stability, the macroeconomic situation, the economic growth, to increase the well-being of the Albanian citizens and these are all related phenomena. The issue is not whether the central bank is seeking to do justice; the issue is related to the effect we expect the justice reform to have on the improvement of these processes I just mentioned.

Vizion+: Often you talk about structural reforms in the economy. Obviously this is a bit of an abstract term, probably not very easy to grasp for the general public. How can we understand in simpler terms what you have in mind when you put emphasis on structural reforms in the economy?

Governor: Structural reforms are comprehensive and very broad. Practically, we have divided these reforms into three groups, structural reforms in the public and financial institutions, structural reforms in the real economy and structural reforms in the financial sector.

Vizion+: So financial institutions too.

Governor: Structural reforms include a very wide range, since they deal with all the aspects of the economic and social life of a country. Obviously that is a standard expression, but there are many things inside. Structural reforms are related to the economic level of the country. For Albania, we can mention the reform in economy, in employment, where currently the Albanian Government is addressing the issue of providing trained workforce in line with the market demand, the reform in the energy sector, which has been the most problematic vis-a-vis other sectors. Another reform is in the field of fiscal issues and fight against informality...

Vizion+: I just wanted to ask you about the fight against the informal economy. What are the effects of this fight? Has it been efficient?

Governor: Recent data suggest that the fight against informality has been efficient. Income collected for this quarter is much higher than the income collected the same period in the previous year. Apparently, the tax administration, despite all the problems that might be facing, is collecting more.

Vizion+: There have been discussions or debates in this regard. There are also those who think that this fight is too fierce probably and did not give positive effects, or that has contracted the economy, or that has contracted consumption or people may be frightened somewhat by the fact that they must pay the bills and there is not anymore tax evasion etc.

Governor: There are many positive and negative factors in both sides. The level of informality in Albania was a problem, because it was too high. It is difficult to measure it because it is informal, but based on the estimations by the IMF, or the World Bank or other institutions it was assumed at around 50% and higher. At these alarming levels of informality, a determined intervention was necessary. I do not want to emphasize the principles, since principles and rules of the game are standard ones.

As long as we want to integrate into Europe and our final goal is European integration, for which there is undisputed political and social consensus, we do not need to question some reforms. These reforms may have their "costs", like the energy reform which affected a poor part of the population. Purchased goods must be paid; the same we can say about the fight against informality: taxes must be paid. If there is a fiscal regime, of course every taxpayer, business or individual is obliged to respect the law. On one hand, courts must protect banks, which are powerful financial institutions, foreign or Albanian ones. On the other, individuals, whether rich or poor, should respect the law and pay the taxes. Of course the state should make allowances for the poor with other social reforms, but these are matters for discussion. In principle, there is no question that there should be a formality, taxes should be paid and no one is against this.

In the current situation, when the level of informality was so high, the Government undertook a reform. I am very confident and I have stressed that this was an emergency situation and a reform was necessary. We congratulate and support the fight against informality. Was this fight 100% perfect? I do not know about that; it might be impossible to do everything 100% perfect. But has this operation yielded results? We are seeing that result, since figures suggest revenues are higher. This reform must continue, this what we have advised. As we have noticed there is a fiscal reform, which is being implemented by the Ministry of Finance. More details may be given by the General Directorate of Taxation, which will affect the on-going improvement of fiscal structure in Albania.

In principle, it is important to break the mentality of tax evasion. This is important and must function. Taxes must be paid. The banking and financial industry, the public administration and all its employees are regular taxpayers of this state and this is not a small part. The same should be true for the private sector. There is no reason for the private sector to work with two standards. This sector should work, like the part of the foreign investors who are mostly serious. Informality brings distortions, unfair competition and a contortion of the market.

You question pointed to the severity of the fight against informality and its tightening effects, but in fact there are other negative effects, which distort the market. At a first glance, it seems like with informality there is higher income, but in the long run there is no development, there is no space.

Vizion+: You mentioned the cooperation with the Albanian government. By law, the Bank of Albania is an independent institution. Is the bank truly independent? What is the relationship with the government? Does the government interfere with the work of the Bank? Because the experience of the past years has shown that in certain moments in Albania the Bank occasionally did not know or was not able to maintain its position as an independent institution. What happens nowadays?

Governor: The Bank of Albania over the years has increased its role and independence. The Bank of Albania operates under the law "On the Bank of Albania", which clearly defines the role, objectives, tasks and functions of the central bank. We may revise it soon, to improve it on the process of European integration, but not to change the role and its main objectives, since they are well defined in the law. The Bank is protected in terms of independence and functioning by law. In a few words, historically, the role and independence of the central bank have increased. Quality, expertise, professionalism, and the independence of the institution have been increasing over the years. During the period that I have served as the Governor of the Bank of Albania, relations with the government have been very correct. For the sake of truth, there has been no interference, neither directly or indirectly.

Vizion+: Mr Sejko, you have been Governor of the Bank for 16 months. Has the shock been overcome, following the theft in August 2014 from the central bank? There were stolen about USD 7 million in cash at that time and the Bank went through a not that easy psychological shock? How did you find it and according to your opinion what is the situation today at the Bank of Albania?

Governor: I believe that the difficult situation that the Bank of Albania underwent over the ugly incident of theft of the treasury, which created a shock in the trust and the image of the central bank, has been overcome. We are witnesses that all the main papers and television news featured bad comments about the central bank regarding the theft. I stressed earlier when we were talking about that commercial banks that they are institutions of trust and the central bank, as the bank of banks, is the main trust-enshrining institution for the state treasury; it does not take deposits, but maintains the state treasury. Any shock at this level of trust can accompany the entire financial system and this was a very bad news that weighed on the psyche of the Bank of Albania itself and its employees.

This was the situation when I was appointed. I have said it previously, also for the sake of independence that I mentioned, the Bank of Albania is a consolidated institution with a very good group of professionals and works quite well. The central bank was jeopardized in some elements of its administration, not essential ones. The central bank was not affected in its basic functions like the monetary policy, financial stability, banking supervision and cash operations. It has grown professionally and the expertise has not been affected.

The central bank was jeopardized in some other elements like the treasury, the administration, etc. This has been the main challenge for me as the Governor. Meanwhile, being also a period of economic difficulties, in this situation, it was difficult not only in relation to improvement at the Bank, but also in relation to reacting vis-à-vis the economy.

The central bank has overcome the difficult situation. We have made radical changes over the past year; we have made procedural changes, human, infrastructural, and technological changes in the internal control system. It's a very long list and I do not want to be boring for the viewers.

Vizion+: Has the central bank regained the trust?

Governor: You can evaluate this in a public survey, but I believe it has regained it. I know that within the institution, the bank has regained the confidence of its employees. We work with maximum capacity. If it has won or not the public's confidence that is for the public to say; however, I believe that it has.

Vizion+: A few days ago you held a meeting with the ambassadors accredited in Tirana. Since it was not a tradition, why was such a meeting with the ambassadors necessary? What did the Bank of Albania require from the ambassadors of the other countries?

Governor: In the process of communication with the interested groups I have tried to address all of them. We conduct regular meetings with the managers of commercial banks, which are somehow ambassadors in Albania for the financial sector and the economy, meetings with big companies, meetings with the media, and conferences with academia. I consistently receive requests and have conducted bilateral meetings with almost all the ambassadors of the larger countries and all these meetings consisted in the discussion of economic developments since the central bank obviously can speak only for the economy. Seeing that there was a fairly large demand by the ambassadors I decided to hold an annual meeting with the ambassadors, as an interest group.

In the first place, this meeting served to share and make transparent the information that we have. Moreover, given the current situation, we note that there is enough interest and Albania needs foreign investments. Increased foreign investments contribute to economic growth and ambassadors have an important role in this regard as interlocutors for many foreign investments.

In the capacity of the regulatory institution, the Bank of Albania is interested in the financial sector. The ambassadors play a role in the commercial aspect, thus we wanted to make a presentation of the financial and economic situation and to invite the ambassadors to help in attracting foreign investments, and improve Albania's image. The image is a different issue. We are aware that Albania has a worse image than it is in reality. We noticed this during contacts with many foreign investors as well as visitors. Those who come for the first time are positively impressed, because perception is much more negative than the reality. Albania is a country with many infrastructural problems; on the other hand, there are also many positive elements. Therefore, we need to promote a positive perception for our country.

Vizion+: In your speech to the ambassadors, you said that the Albanian financial environment is characterized by: ample liquidity, low interest rates, stable exchange rate and eased lending standards. But what are the biggest risks for the Albanian economy today, beyond these standards that you have seen in a positive way and have presented as such to the ambassadors?

Governor: These statements relate to what I just said: in order to make clear to the ambassadors that there is real potential for some banks. We have stressed that we may have bank mergers, something that has happened in the region, and it is good that the ambassadors become aware that the financial system is sound, if there will be foreign investors. On the other hand, it serves as a positive element in the whole Albanian economy, to show that there is ample funding capacity. If a foreign investment comes to Albania, besides other necessary elements, the soundness of the financial system and its ability to support any type of project with loans and financing are also important. This was the reason why I presented the situation of the financial sector to the ambassadors.

Vizion+: Economic growth and inflation in 2016, according to the Bank of Albania, will be lower than earlier forecasts. What is the meaning and the implications of these revised forecasts?

Governor: We have highlighted that the economic growth in 2015 was close to 2.6%, while in 2014 at 2%, and in 2013 at 1.1%. We have emphasised that Albania has entered a positive development trajectory. We expect growth to be over 3% this year, but the figure does not matter. It does not matter if the economic growth is 3.2 or 3.3 or 3.4%; what is important is the positive trend.

Of course, Albania would need an economic growth rate of over 4% - 4-5% - in order to reach the target levels that will lead us towards the European integration. Despite this, taking into account the context of the situation in the region and in the euro area, we consider that if we keep a positive trend of growth it means that the economy is improving and along the way we will overcome the defects and our time will come. It's important that we do not have stagnation, that we continue to grow.

The economy has been growing and the central bank expects growth to continue. This is expected also by other international institutions like the World Bank, International Monetary Fund and the European Bank for Reconstruction and Development. Often, it becomes a game of numbers, but it does not matter at all because it is just a forecast. The important thing is the steadiness of growth and that the structural reforms are undertaken, including our role as central bank with our accommodative monetary policy stance and the role of the financial system, to provide a steady contribution, a positive contribution towards this economic growth.

Vizion+: Nowadays, little is discussed about the impact from the crisis in neighbouring Greece. In Albania we have a large number of banks, whose parents are established in Greece. What is the situation of Greek banks in Albania today?

Governor: The crisis in Greece created a difficult situation for us last summer. For the sake of truth, I was in my early days as Governor and we went through a very worrying period. We have experienced the crisis in Greece, as if it was a crisis in Albania itself. I can say this without any misconception, because the Albanian economy is very much linked to the Greek economy and we have three Albanian banks with Greek capital operating in Albania. All three of these banks are important, or as we say in our language as central bankers, they pose a systemic risk, and therefore we have been monitoring this situation closely.

Fortunately, in the first place, this situation was overcome by Greece and the Greek citizens themselves, and then by neighbour countries like us, who are highly integrated, since over 40% of direct foreign investments in Albania are from Greece. Most of the Albanian emigrants are employed in Greece. Most of the import-export activity is carried out with Greece. Greece and Italy are our two main trading partners. Any deterioration or improvement of these two countries would have a positive or negative impact on Albania. Increasing unemployment in Greece has brought down the level of remittances and this has contributed later on to the decline of the GDP in Albania.

Psychological situation of Albanians in Greece was aggravated. We are in constant contact because of the large number of Albanians living there. Almost every Albanian family has a member or a relative who is employed in Greece. Therefore, the crisis is felt both financially and psychologically. This also affects the consumer psychology in Albania. Of course, this crisis was felt more in the banking system, because as we said banks are those that keep the deposits and we were afraid of the risk of contagion due to panic. This was a frightening situation for us. But the banks survived very well. Banks were well capitalized and with a good liquidity situation. There was an intense withdrawal of deposits; banks responded to depositors, deposits went from Albanian banks with Greek capital towards other banks. This happened over a period of several weeks, until an agreement was reached and deposits returned back in these banks as people calmed down. Banks resisted quite well and continued their normal operations.

Now, these are banks with very stable parameters, with a sufficiently high capital adequacy, operating quite normally, despite the financial crisis and the psychological stress they went through. Based on our stress tests, which we perform as a central bank to test the stability of banks, these banks have withstood the stress, and have successfully passed this period, are sustainable and continue their normal operations. I believe that we are not in a situation to discuss anymore the sustainability of Albanian banks with Greek capital, it is been surpassed.

Of course the financial and banking markets will have developments in the future, there will be mergers or sales; we are not against this. As the regulatory authority we will look very carefully at any new foreign investor who will enter the financial sector. This was one of the aims of the meeting with the ambassadors: to have a financial system as sustainable as possible and to entrust the money of the Albanian depositors to powerful financial institutions.

Vizion+: You have led for about 15 months now the Bank of Albania. You went through a difficult period for raising the marred image of the bank, the Greek crisis. Perhaps someone might say that you are too young to run the Bank of Albania. How is your age compared with the previous governors? Are you really the youngest governor?

Governor: I'm not the youngest governor. In terms of experience, I graduated in 1991 and I have worked in the banking and financial system for 25 years; I believe it is adequate experience. All governors in Albania, starting from the first Governor Ilir Hoti, have been younger than me. I was appointed as the Governor of the Bank of Albania at the age of 47. The youngest governor has been Mr Kristaq Luniku, at the age of 34. Also Mr Cani, when he was appointed Governor, I am very sure that he was younger than me. I am the oldest governor appointed, compared with all the other governors appointed in the Republic of Albania. I believe that around the age of 50 years old, it is quite normal in one's career to be appointed governor.