PRESS RELEASE
Questions and answers at the press conference on 1 July 2020

Question: In April, currency outside banks hit a record.  As the economy was locked down and the major part of transactions has been oriented towards on-line banking services, what happened to explain this phenomenon?

Governor Sejko: The main factor driving to the increase of currency outside banks have been social distancing measures during the pandemic period.  Due to these measures, mainly citizens, also businesses have preferred to hold an amount of cash outside the banking system; they have preferred to withdraw and hold necessary amounts of cash.  This was due to the psychological impact of the crisis, to operate more simply and to avoid contacts at the branches of banks or ATMs.   Also, fiscal measures undertaken in the form of payment disbursements to the families in need and in the form of reducing the tax burden were another factor. 

However, there should be emphasised that the increase of cash in circulation during this period, deposits increased in parallel.  Hence, the situation of banking system has been stable with a high level of liquidity, notwithstanding the impact and consequences of coronavirus pandemic.  Only in April, deposits grew by ALL 8 billion in the banking system and currency situation increased by ALL 6 billion. 

Absolutely, the Bank of Albania has taken the measures to decrease the situation of currency in circulation, but it is impossible as we are a cash-based economy.  There are a lot of measures in place, which aim to reduce cash in economy and formalise the economy. 

For now we have taken certain measures, by forfeiting any charges on using electronic payment platforms in the banking sector.   That is, the Bank of Albania has removed its commission and indirectly banks should reduce commission to increase the level of on-line transactions. 

Question: After the issue of Eurobond, does there still exist in the contingency plan of the Bank of Albania the intervention in a severe scenario through quantitative easing policy?

Governor Sejko: In the statement of the Supervisory Council, we underlined that the contingency plans for an easing monetary policy - and in this context those to continue with the quantitative easing - non-conventional measures- are in force, nevertheless they are contingency plans. 

After the receiving of Eurobond by the Albanian Government amounting EUR 650 million, these contingency plans fade off, that is become less possible.  The quantitative easing measures or the non-conventional monetary policy means the purchasing of Albanian Government‘s T-bills in the secondary market.  Thus, the financing of budget deficit through quantitative easing becomes less possible, because Eurobond has ensured to the Albanian Government the necessary liquidity to face the pandemic consequences. This is considered a positive element because neither the liquidity of the Bank of Albania nor of the banking system is affected.

Nevertheless, we are monitoring the situation.  The Bank of Albania will continue to monitor the situation, and in an economic situation which is under the shock of pandemic consequences, absolutely that the contingency plans always remain active and in our attention.  The Supervisory Council, has continuously emphasised, in its press statements, the quantitative easing policy will be used if necessary, but the central bank will be always the lender-of-last resort (LOLR).   

Question: After the extension of the credit payments under a moratorium, how many clients have currently extended the credit payment after the opening of economy and how much is currently the value of the extended credit payment?

Governor Sejko: According to the data that the Bank of Albania has taken from the Albanian Association of Banks, that is the banking system, the value of the extended credit payments in the second quarter amounts EUR 1.9 billion, or in figures, 23. 000 cases.  This is a lower rate compared with the first quarter, both in terms of case number and the value.  In 2020 Q1, the value was EUR 2 billion and the number of borrowers who applied and benefited an extension was 25.000.  This means that with the mitigation of measures, a number of clients have preferred to not apply for a second quarterly extension. 

In this regard, I would like to emphasise that the banking system has reacted pro-actively and it results that 95% of cases that have applied for an extension in the banking system have been approved.  Following, we will see the reaction of the system, economy and performance of the financial indicators in the banking sector, but currently these are the figures. 

Question: Will there be any change of inflation?

Governor Sejko: I emphasised in the monetary policy statement of the Supervisory Council of the Bank of Albania that the inflation rate stood at 2%.  The Bank of Albania forecasts inflation to hit its 3% target, at the end of 2021, in the third or fourth quarter.

Inflation has been stable.  Of course, inflation stability reflects the combined effect of the increase of production costs in the circulation of goods, and on the other hand the hesitation of the demand in the market, due to the pandemic.  But, the level of the exchange rate affected positively the stability of inflation.  We hope, particularly in the view of Eurobond, the exchange rate will continue to be stable.  In case the exchange rate deprecation was strong, the inflation would have increased more, but this is not preferred by us, as a central bank.  In nominal terms, that is, by considering a stabilised exchange rate and other factors that impact the inflation rate, we forecast that inflation will hit the target of the Bank of Albania, by the end of 2021.

Question: Have you had any consultation with the Government regarding the possible plan on the use of Eurobond (the money remained after the payment of debt)? That is, where are they going to be invested? If no, what does the Bank of Albania suggest?

Governor Sejko: The recent issued Eurobond worth EUR 650 million will be used in October, to liquidate the reaming part of the Eurobond issued in 2015, at the amount of EUR 250 million. Meanwhile, the other part amounting EUR 400 million will be used to finance the budget needs that the state may have given this situation.  Normally, the Ministry of Finance and Economy, the Albanian Government, is revising the budget, and we are expecting the reviewed draft of the budget.  Hence, the way how will be expanded the remaining part of Eurobond will become clearer. 

However, I would like to emphasise, once more, that there will be an increase of public debt, that is, Eurobond will increase public debt.  The increase of public debt is an indispensable bad thing in this situation, in order to avoid the bankruptcy of firms and to guarantee the monetary and financial stability of the country. 

First, the issue of Eurobond provides to the Albanian Government necessary funds to face the pandemic crisis.  Second, Eurobond eases the work of commercial banks and –provides to them the needed liquidity to credit the economy, in order not lend to the government, but to the private sector.  Hence, we consider Eurobond as an indispensable instrument and a positive issue, a very positive element to the Albanian economy suffering this difficult situation due to the shock of Covid-19 pandemic. As I said previously, the interest rate stands at a rather good level and the financial markets are in a very good situation.  The Eurobond was issued in a positive moment, with an interest rate of 3.625%. This rate is considered a successful/ positive rate to receive a debt in this moment. 

Also, regarding the rest of the question, if there was a consultation with the Bank of Albania? Experts of the Bank of Albania are in a joint team with the experts of the Ministry of Finance and economy, to take a debt both in national or international markets.

Question: So far, what is the number of applications and how many have benefited from the sovereign guarantee?  Why are businesses unsatisfied? Would there be any possible innervation of the Bank of Albania for commercial banks?

Governor Sejko: The first guarantee was targeted for wages, the second one for firms’ activity. Regarding the first guarantee for wages, there are around 530 cases that have been approved who have benefited an amount of EUR 51 million. Meanwhile there were 220 cases in process, up to the deadline of 20 June 2020.  This term has already passed, but we do not know if the Ministry of Finance and economy will announce a second term for this guarantee.  The second sovereign guarantee has a lower benefiting level because the risk criteria have been higher.  Risk appetite on this guarantee was 60% from Government and 40% from banks, unlike the first one.  For this reason, so far, a total amount of EUR 9 million is disbursed to around 50 borrowers who have benefited, while 65 borrowers are in applying process. 

Absolutely, business has its own stress in this difficult financial and economic situation.  First, business is unsatisfied because in this difficult and stressing situation it has high exceptions on both the Government and banks.  On the other hand, in this difficult situation, the Government itself, the central bank and all the other market players are facing with difficulties and obviously such a crisis causes displeasures as well. 

The situation is being addressed. The actors should better coordinate their efforts.  We have continually appealed and coordinated the efforts, but in such a situation there should be considered that the crisis cost should be and is being shared fairly and proportionally among all actors.  So, neither the Albanian Government, nor the banking system and the private sector should not take alone the cost of this crisis.  This cost should be shared proportionally among all the economic and financial actors and factors, and let’s hope we will have an economic growth according to the forecast. 

Thus, this year will be a difficult one.  We hope to overcome it without bankruptcies in business sector and expect a rather rapid recovery in summer and during 2021. This latter, according to the forecast of the Bank of Albania, will be the year of the economic recovery.