PRESS RELEASE
Speech by the Governor of the Bank of Albania Mr. Ardian Fullani at the round table on: "Collateral, loans, market and legislation" 12 July 2011

Dear bank representatives,

Dear participants,

It is a special pleasure for me to address the periodic Bank of Albania forum, which will this time discuss on 'Collateral, loans, market and legislation '. Today's round table will aim at a careful analysis of all factors that affect qualitative and secure lending to the economy. For that reason, we have an added presence of state institutions; I take this opportunity to thank and welcome their representatives at this round table.

Over the last three years, we have witnessed some events that have gone beyond normal limits of expectations, imposing a series of changes. Consequently, markets, structures, institutions and even economic concepts have been affected in all aspects. Nevertheless, while the Albanian economy has been influenced by global financial developments, we are proud to say that it has demonstrated high resilience and stability.
I have stated many times that Albania is one of the countries that:

• Did not experience bank bankruptcy or capital injections from the state;
• Handled courageously the crisis of trust and confidence in the banking system; financial intermediation never halted;
• Continued to mark positive, though decelerated, growth rates;
• Continued to keep well-anchored inflation expectations all the time;
• Experienced inconsiderable and fully absorbable additional costs following the shocks generated by the global crisis.

This performance and immunity is not a product of accidental circumstances. The growing economic activity and financial sector stability reflect the following:

• Successful coordination of economic policies before and during the crisis;
• Structural reforms before and during the crisis;
• Special attention by the Bank of Albania, particularly in the period preceding the crisis, as regards strengthening the financial stability through a series of regulatory and administrative banking supervision actions;
• Market consolidation and expansion through including all non-bank financial operators in banking supervision scheme, as well as through licensing new factoring operators. 

The actual positive economic development provides us with the possibility to take structural reforms further in the long run, in order to consolidate the country's comparative advantages in the national, regional and global context. Return to previous growth rates, on a global perspective, is a difficult challenge that requires a combination of high productivity of land, capital and labour. 

In concrete terms, economic growth for 2010 was at 3.9%. This growth relied mainly on foreign demand and increased exports, while domestic demand slowed down. The Albanian economy is expected to reach 5% growth for the two years ahead, thus reflecting optimistic expectations. The Bank of Albania has also informed in its earlier statements that the inflation rate is in check and, by the end of the year, it will be within the Bank of Albania's target band.

Developments in the banking system indicate that its activity continues to grow although at lower rates compared to the pre-crisis period. Since 2010, banking system activity has grown significantly, relying on higher deposits and increased lending to the economy, which were up respectively by about 18% and 10% in annual terms, as at May 2011. The banking system continues to be adequately liquid and well-capitalised.

The capital adequacy ratio is about 15%; considerably higher than the legal regulatory benchmark of 12%, showing banking system adequate capacity to cope with future development challenges.

The Bank of Albania has constantly conducted periodic stress tests. According to the latest test results, all the banks operating in Albania are capable to continue with their activities even in the event of extreme shocks to the economy. Conclusions drawn from the stress tests are not accidental. Our supervision model is prudent, proactive and preventive.

It has been uniform throughout the pre-crisis period, following its outburst, and up to this day. We, deliberately, in the years of loan expansion, paid particular attention to:

• Cover every single lent Albanian Lek with adequate collateral;
• Complete on time the credit registry;
• Not lend in unprotected foreign currencies, such as in Swiss franc and Japanese yen;
• Apply a very prudent policy on loan provisioning, especially in terms of unprotected foreign currencies;
• Improve governance, internal control and risk management;
• Create the required flexibility to restructure existing loans and supply the economy with new loans.

Allow me to recall our first open forum in the spring of 2008, when, in my address to the forum I said, and I quote: '...monetary policy and financial stability are inseparably related to each other. It is difficult for me to establish which one weighs more nowadays. However, I am convinced that any investment made today to guarantee the financial stability will turn into greater efficiency of monetary policy.'

 This leads us to the conclusion that these achievements are not by mere chance. They are the outcome of long, persistent, visionary and comprehensive efforts. Another argument I would like to focus on is lending to the economy, one of the key factors to promote economic development. It should be seen not only as an economic catalyser, but also as a source of future stability for banking operators. In this process, special emphasis should be placed on lending, the analysis that should be associated to it, and the management quality of risks related directly to this process or other banking activities.

One of the first shocks generated by a financial crisis, among other, targets lending. Financial crisis pose more difficulties, because they are lengthy and affect every cell of the economy. There are no exceptions to this 'rule', neither for advanced nor for emerging economies, which include the countries of our region as well.

Therefore, the current leitmotif of structural reforms, in the global context, is market regulation, expansion and  further development.

The real estate and corporate stock and securities markets should be open round the clock, for anyone who wishes to buy or sell. This is the basic concept of the market economy. Without this function, the market is fragmented, stands still, does not function, thus affecting the activity of the economic agents, leading to more non-performing loans.
The latest data reveal that non-performing loans have reached the level of about 15%. This increase reflects the struggle for liquidity on a part of businesses and households, leading to their incapability to repay regularly their obligations to the banks. The Bank of Albania finds that the banking system is paying increasing attention to the customer relation management, especially with those customers in difficult financial situations.

In many cases, negotiations between the banks and their clients have led to loan restructuring, in order to infuse a fresh spirit to business performance.

Certainly, there have been cases of complete incapacity of a borrower to repay the debt, which case has been channelled in court procedures to an eventual execution of the mortgage.

It is this very phenomenon - execution of collateral - which has been a key concern for the banking sector and led the Bank of Albania to call this round table. In addition to legal difficulties, often a bureaucratic attitude is observed in relevant institutions. The Bank of Albania has analysed these difficulties in cooperation with stakeholders, such as banks and private and public bailiff services.

Allow me to list a few of these problems as per their categories:

Objection of bailiff procedures

For a considerable number of cases, the banks pose the following claims:

• prolonged obligatory execution procedure;
• courts suspend bailiff procedures without evidence submitted by the debtor and ignore arguments presented by the banks;
• courts have failed to call in banks as third parties in the process, thus violating the principle of the appropriate legal process.

Moreover, it is noted that the chances to suspend a court proceeding until a final decision increase relative to the amount subject to execution or objection.

Securing the claim

Another concern of the banks relates to the court decision on securing the claim. Examination and decisions of the court are often made in the absence of the creditor, and, consequently, its loss is not examined, violating therefore the principle of equality between the parties and prolonging the suspension of execution procedures for months.
The situation worsens since conform to provisions of the Code of Civil Procedures, action to secure a claim should be based on written evidence and not on estimates at the time the loan is granted, which vary substantially from the estimates at the time of the court proceeding.

Deadlines of case decisions

The banking community claims that delays in issuing execution orders consist in the publication of these decisions and, subsequently, in breaches of legal deadlines envisaged for deciding on a case.

Unfortunately, it is found that delayed decisions and procrastinated processes have encouraged debtors not to return the debt, favouring thus the problematic borrowers.

In addition to court-related concerns, there are a number of issues faced during bailiff procedures as summarised below:

• fictitious sequestration or recovery of the object;
• speculative reduction of the object's price, to the disadvantage of creditors' interest;
• lack of procedures on immovable property built without a construction permit;
• absence of transparency and guarantee for a process with integrity for objects under execution.

The list of concerns is even longer, which indicates that the problems faced are numerous. However, it seems that the relationship with bailiff services has seen qualitative improvement after the approval of the legal framework and introduction of private bailiff officers in the market.

• Cooperation of the banks with these services demonstrates that there is:
• clear rising tendency to respect execution deadlines and better use of legal provisions;
• increased effectiveness in notification procedures;
• increased assistance in dealings with relevant public institutions, and active and specialised participation in court sessions, initiated by the debtor;
• impartiality, professionalism, and transparency in handling the cases.

With a unified position of all participating  institutions, today's round table will convey a clear message to raise the awareness of all stakeholders in the process: the general public, businesses, individuals and potential borrowers that execution of collateral remains an important pillar to preserve banking system stability, and in a wider context, financial stability.  

In the framework of this forum, and in order to have an overall picture on this matter, information has been obtained from the banking system and the private and public bailiff services. Additionally, preliminary technical meetings have taken place with representatives of stakeholders on the execution of collateral.

In these meetings, some ideas were shared, which may be subject to further discussion in the near future to address the raised concerns and may be subject to discussion in today's table as well.

More specifically, it is necessary to:

• organise training of various groups participating in the collateral execution process, with a view to identify problems rising from the legislation, as well as to better the understanding of legislation;
• promote unification of decisions on conflicting cases. For that reason, interest groups need, through their legal representatives,  to encourage the presentation of the cases to the Supreme Court to request a unified decision procedure;
• see the possibility of revising the relevant regulatory legislation so as to eliminate all identified difficulties;
• have various stakeholders assist with the development of an awareness-raising campaign on this issue;
• draft a manual on practical issues on execution of collateral, with the assistance of EURALIUS mission in Albania.

These measures shall be subject to following discussions. It is important that, after agreeing, we need to translate them into an action plan to find a timely solution for problems related to the execution of collateral.

Ladies and gentlemen,

The Bank of Albania has played an important role as the guardian of the country's macroeconomic and financial stability. Macroprudence has been the dominant word in our communication with the market, authorities and the general public.

We have translated it as a necessity for more capital, liquidity, and paying capacity of the banking system. Hence, the Albanian banking sector has never reached an impasse.

The Bank of Albania has provided and will continue to provide the necessary liquidity to the banking system, injecting a fresh spirit to the market and the entire economy.

Prudential policies and timely legal regulations have guaranteed an effective banking supervision and have provided adequate access of businesses to bank loans.

Banks are surely created to lend but, above all, they need to bear in mind that stability of the public, i.e. individuals' deposits, is more important than lending to a specific business, or the portfolio of a specific bank. Moreover, businesses need to recalibrate their position vis-à-vis the latest developments in the domestic and external economies.

Businesses need to aim at higher productivity, through identifying all competitive advantages, in relation to overall global changes.

Bank of Albania has and will continue to voice it views on lending impact and support to the economy. Its vision for the future is: more stability, foreign investments, and loans to ensure sustainable development and natural integration in the European family.

Thank you!