PRESS RELEASE
Q&A at the Press Conference on the Monetary Policy Decision, 4 May 2016

Question: The Bank of Albania has been active in accommodative monetary policies to promote lending, but we have not seen an expansion of lending yet. What are the actual reasons we do not have credit growth and what may be done in this regard?

Governor: As emphasized in our statement, first two months of 2016 saw a moderate credit growth, excluding the effect of written off loans from the balance sheet. Credit grew in 2015 as well. More concretely, the expansion of outstanding credit has been at 2.4%, (excluding the effect of written off loans) at the end of the first two months of 2016, from about 1.8% at the end of 2015. So, I would like to highlight that lending has been upward, though slightly. It may not be at the level we would like it to be and that we aim through our stimulating monetary policy.

Speaking in absolute terms, during 2015, the banking and the financial the banking system accounts for over 95% of the financial system), lent the Albanian economy more than EUR 1 billion. Despite that, to support better the economy in its course toward realizing its potential, we aim to have more lending to the economy, in accordance with our forecasts and objectives for stable economic growth. Our aim is for credit to expand, but not at the pre-crisis pace, i.e. 20-30%. Such credit growth would create many issues with the quality of the credit portfolio. For that reason, without referencing absolute figures, I would say that 5-10% annual growth would be preferable and very healthy for boosting the economy.

I want to point out another important fact. The accommodative monetary policy of the Bank of Albania has been transmitted and has given its effects in lending. The decrease of the key interest rate by the central bank has had an influence and this is reflected visibly in the growth of the portfolio of loans in lek, which has grown over the level of 43% and its growth trend continues. This performance, therefore, demonstrates that on the lending side the monetary policy has worked and has been transmitted.

Meanwhile, the foreign currency loans too, as a result of the monetary policy of the European Central Bank, have been granted at very low rates for a relatively long period of time. So, on the side of supply, the Bank of Albania has fulfilled its role through the implementation of a stimulating monetary policy, the adequate transmission of this policy and the quantitative growth of lending to the economy in the national currency. What needs to be emphasized is related to problems beyond this ambit, which will be solved and corrected over time due to the positive effects by structural reforms. Unless the business environment recovers and improves, private agents and the investors will continue to be hesitant as far as lending is concerned.

For 2016, as we said in our Monetary Policy Report, we expect lending standards to improve. Banks have eased the lending standards and this will bring higher credit growth, which will contribute to the economic growth forecasted for this year.

Apart from lending, we expect to see an increase in foreign investments during 2016. Today, we analyzed and reported on the first quarter of 2016. Obviously, we are constantly monitoring the performance not only of lending, but also of other macro-economic and monetary parameters.

Question: Lowering the key interest rate in today's meeting of the Supervisory Council of the Bank of Albania was a surprising decision. You said that the economic growth is not at the forecasted levels, but lower. Can you tell us how much lower it is from what you forecasted? And, when you say that monetary policies should be accompanied with structural reforms, which reforms do you refer to, specifically?

Governor: We have underlined this before; we have revised our forecast for economic growth in 2016. If you remember, for 2015 we had forecasted 3% economic growth and later we revised it in our subsequent forecasts. Likewise, for this year economic growth was forecasted to be 3.5% but was later revised it. The International Monetary Fund, and the Albanian government, forecasted economic growth at around 3.4%. But the central bank has always been conservative in its analyses, and has revised its forecast for economic growth at 3% for 2016.

However, forecasts are forecasts. We analyze the indicators constantly, month after month, quarter after quarter. I wanted to emphasize that despite the revision of the economic growth's forecast, the important thing is the trend or the pace of economic growth, which is constantly growing, from 2% to 2.6%, to 3% and so on. As I said in the monetary policy statement, we expect the economy to return to equilibrium during 2017 and inflation to return to target around the end of 2018. In case the economy performs along these forecasts, irrespective of momentary volatilities in economic growth rates, I would say that it is in a positive trajectory. So, whether 2.8% or 3%, it is very important that we have a positive trend of economic growth. However, we must be mindful that there are autonomous elements and factors, internal and external, which affect key economic indicators. For example, the low inflation in February and March is estimated to have derived primarily from supply shocks, as a consequence of the fall in prices of oil, agricultural products and food items in international markets.

Governor Sejko: Statement to the Press Conference on the Monetary Policy Decision of the Supervisory Council, 4 May 2016