Bankieri No. 13 - October 2014

1 www.aab.al Bankieri

Bankieri

No.

13,

Oct

ober

201

4

Publication of the Albanian Association of Banks

an imperative and objectivean imperative and objectiveBANKSBANKSPROFITABLEPROFITABLE


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Content BankieriNo.13, October 2014Publication of the Albanian Association of Banks

PROFITABLE BANKSan imperativeand objective

Editor’s DeskProfitable banks. Think positive! 5

Elvin MEKA

FrontlineProfitable banks. Is it good or no good? 6

Silvio PEDRAZZI Lending downward, profits upward?! 9

Arben MALAJ

Journalist cornerIncreasing bank profits, aprelude to credit recovery? 11

Ersuin SHEHU

InterviewUnited Bank of Albania - A bank within the framework of moral and ethical values 13

Emina ŠIŠIĆ

Banking SystemInterest Rates - The Complex Equilibriumbetween deposits and loans 14

Gent SEJKODeposit insurance - quality steps forward 17

Renis ZAGANJORI

Experts’ ForumBanking system and the new VAT law 19

Fatmir KAZAZI Loan sharks - A phenomenon to be considered 22

Besart KADIAECO Investments in business 24

Alda SHEHU

Economist CornerA weakening Euro or a strengthening DollarWhich scenario lies ahead? 27

Adrian CIVICI

Social capitalBank activities 31

News First SWIFT Business Forum Albania 2014 34

Interview with Mr Michael Formann,Head of SWIFT Austria 35

Rudina HOxHA

OpinionAn overview on Thomas Piketty’s "Capital in theTwenty”-First Century" 37

Erjona REBI

Tech TopicsHeRa - A module for most efficient use ofhuman knowledge, talent, skills and capabilities 38

Dritan MEZINI

Financial AuditoriiumFinancial education through Junior Achievement Program 40

Rezarta GODO

AAB Trainings 42

Bankieri

No.

13,

Oct

ober

201

4

Publication of the Albanian Association of Banks

an imperative and objectivean imperative and objectiveBANKSBANKSPROFITABLEPROFITABLE

ALBANIAN ASSOCIATION OF BANKSStreet ‘Ibrahim Rugova’, SKY TOWER, 9/3, TiranaTel: ‘+355 4 2280371/2 Fax: +355 4 2280 359E-mail: [email protected]; www.aab.al

Bankieri is the official publication of Albanian Association of Banks which mainly focus the Albanian banking industry. Bankieri provide readers with valuable information on the financial industry’s developments in general, and of commercial banks in particular.

EDITORIAL TEAm:

Elvin MekaEditor–in-Chief

Eftali PeçiCoordinator

Junida Tafaj (Katroshi)Collaborator

Andis RadoPhotographer

Design & Layout: PIK Creativ

Printed by:

EDITORIAL BOARD:

Seyhan PENCABLIGILAAB Chairman & CEO of Banka Kombëtare Tregtare

Ioannis KOUGIONASAAB Vice Chairman & CEO of NBG Bank Albania

Christian CANACARISAAB Executive Committee Member & CEO of Raiffeisen Bank Albania

Periklis DROUGKASAAB Executive Committee Member & CEO of Alpha Bank

Frédéric BLANCAAB Executive Committee Member & CEO of Societe Generale Albania

Bozhidar TODOROVAAB Executive Committee Member & CEO of First Investment Bank

Endrita XHAFERAJSecretary General, Albanian Association of Banks

Hysen ÇELAChairman of Albanian Institute of Authorized Chartered Auditors (IEKA)

Adrian CIVICIPresident & Head of Doctoral School European University of Tirana

Spiro BRUMBULLIChief of Cabinet, Ministry of Finance

Enkeleda SHEHIChairwoman of Albanian Financial Supervision Authority


Editor’s Desk

Profitable banks Think positive!

1 Deputy Dean & Head of Department of Finance, UET-EUT

In today’s economic landscape of Albania, the presence of profitable banks must be the least discussion point instead it ought to be cheered up, because when banks are making profit, they are stable and successful banks help the economy to thrive and contribute to households well-being.

The news about the profit level of the Albanian banking system made the headlines during sum-

mer, but not in the sense of logical en-capsulating the overall financial results of it, rather it was dressed with aston-ishment and raised eyebrows. The most quoted question was: How could it be possible for banks, in the frame of cur-rent economic developments, to make such “fatty” profits? From a popular and ordinary viewpoint, generating profit in today’s lackluster economic situa-tions may be judged as a bit strange and abnormal, especially for the financial industry, but from a professional stand-point, it is quite relevant and more than welcomed. It is not amazing that banks in Albania realized profits during the first half of 2014, and there are a bunch of technical, business and management arguments, which could easily explain such a fact.

Specifically, if anyone reads between the lines, it is easily understandable that the substantial curb on provisions’ ex-penses has been the key for such “dra-matic” rise in banks’ profits, by reflecting the latest regulatory and fiscal changes in provisions’ calculations. For the time being, the interest income, usually the main driver for any bank’s profit, has played a relatively modest role in this profit “jump”, typically by following a stiff competition between banks for ex-tending new loans and building up their client base, by way of attractive loan in-terest rates. In today’s economic landscape of Al-bania, the presence of profitable banks must be the least discussing issue, as there are several substantial issues, which need to be carefully handled and addressed by some other stakeholders, let alone and beyond banks. We all have to be very attentive about the payday loans and loan sharks, which should not be considered as banks’ competitors, but as a threat to the financial stability and social security, as well as the current modest credit growth and the not-so-rosy future for bank credit, especially from businesses. These are real discuss-ing arguments, which will either pinch

the future profits generated by banks, and not only, or push the brake pedal, instead of the accelerator, on the growth of national economy. So, the existence of profitable banks ought to be cheered up, because when banks are making profit, they are stable and successful banks help the economy to thrive and contribute to households’ well-being. Profitable banks mean more direct and indirect jobs with-in national economy, more tax revenues for government and more social and community programs to be supported. Profit is the “raw material” for strength-ening banks’ capital base, which is one of the main pillars of the stability of the entire financial system, and also being the best guarantee for deposits in Alba-nia. In a few final words, all of us benefit from profitable bank, either directly or indirectly, so everyone must think posi-tive about this fact and not questioning the existence of profitable organizations within a market economy, even during tight economic situations.

by Prof. Asoc. Dr. Elvin mEKA1 Editor–in-Chief


concerned, the sustainability is closely related to the increase of a sound lend-ing activity. On that purpose, I’d like to point out we should go deeper in the figures, paying more attention to the actual growth of the “performing loans”, that represent the real and main contribution to the development of the economy; under this point of view data are not satisfactory at all yet. Main causes and factors driving the rise in Albanian banks' profitability during the last year

Looking at the official data, it is evi-dent that, the two main reasons based on which banks are increasing profits are the substantial stabilization in the

Good and fair profits normally trigger a lot of desirable developments, let say a clear positive spiral. On the opposite, lack of profits could induce negative consequences only!

To begin with, when it comes to the fact whether profitable banks within a financial system are a

good thing, at all, I would say: “Yes, definitely it is”, and for several different reasons, despite the fact of actual mod-est levels of credit growth. We have al-ways to take into consideration that any company (no matter being a bank or not) finds its ultimate goal in making profit; the absence or lack of profits can be just a temporary and dangerous situation. Good and fair profits normally trigger a lot of desirable developments as, for example, a positive attitude toward new investments, increase of employment as well as renewed confidence in the fu-ture; let say a clear positive spiral. On the opposite, lack of profits could induce negative consequences only! Of course, when I think of profit-ability, I mean “sustainable” and not “one off” profits and, as far as banks are

Frontline

Profitable banksIs it good or no good?

level of the “non-performing loans” (even if still at an extraordinarily high level) and the correlated decrease in the “credit provisions”, i.e. the amount of money banks put aside for covering such loans. There is another important factor to be carefully considered, too. During the second half of last year, as well as in the recent months, the yield on Trea-sury Bills has been constantly dropping, by reaching historical low levels; as we know, given the extremely high liquid-ity of the banking system, banks have been trying to offset the negative impact on their margins, by easing the lending conditions and thus offering quite lower interest rates for all kind of loans. Unfortunately, the demand for loans is

by mr Silvio PEDRAZZICEOINTESA SANPAOLO BANK - ALBANIA

The current profitability is very good news for the shareholders, knowing that the expected future expansion can be currently sup-ported by self-produced financial resources. Actually the drawback is that, missing a real need of additional equity resources, share-holders could consider to cash-in dividends just in order to opti-mize the capital allocation.


still weak, even if slightly improving, and the whole economy couldn’t lever-age more than something on such favor-able situation. In the medium term, giv-en the forecasted long lasting period of low interest rates, if we will miss a more robust demand, the sustainable profit-ability of the banking system could be negatively impacted. Moreover, let’s not forget that, in a globalized world, also external events could severely impact the internal situation.

Positive aspects of profitability as a cheaper capital injection alternative…maybe!

I don’t really think that, in the short term, the level of bank capitaliza-

tion could represent an issue for the Albanian banking system. Actually, the additional contribution from the shareholders’ side is not required and, as previously mentioned, the majority of the largest banks have an extreme-ly high level of liquidity and one of the lowest loans-to-deposits ratio in the re-gion. I take the opportunity to stress that this situation is almost unique and makes the system absolutely safe. This fact should be appreciated more than it is actually considered, especially by depositors. Nevertheless, also looking forward, the current profitability is very good news for the shareholders, know-ing that the expected future expansion can be currently supported by self-pro-

duced financial resources. Actually the drawback is that, missing a real need of additional equity resources, sharehold-ers could consider to cash-in dividends just in order to optimize the capital al-location. Profit building and positive effects for supporting quality lending for the Al-banian economy and businesses

It should be noted that, this is a very important consideration. As already mentioned, the profit building and its sustainability is a pre-condition for a steady support of the business through a sound lending activity. Notwithstand-ing, it is worth pointing out that other pre-conditions are necessary and com-plementary. Albanian entrepreneurs should be more active in the most prom-ising sectors of the economy as industri-al agriculture, tourism, labor intensive manufacturing (in which Albania en-joys a concrete competitive advantage), as well as all export-oriented produc-tions. It is necessary to realize that some sectors that perhaps had ensured in the past big, quick and easy profits are not as such anymore. In addition, as a matter of fact, the need to compete with other advanced and developed countries, i.e. in a Euro-pean perspective, requires an enhanced business environment, which is able to attract foreign high-value investments and technologies. In this light, a more transparent, efficient and sound com-prehensive framework is strongly ad-visable, including the legislative and judiciary systems. Under these circum-stances, all the ongoing reforms and the announced ones are more than wel-come for the financial system and for the whole economy. In short, what I mean is that banks in Albania are only a part of a bigger system; it is true they are the indispens-able backbone of the economy but with-out a comprehensive and common effort from all the stakeholders their efforts are not enough to boost the recovery, as much as it is needed.

It should be noted that, banks in Albania are only a part of a bigger system; it is true they are the indispensable backbone of the economy but without a comprehensive and common effort from all the stakeholders their efforts are not enough to boost the recovery, as much as it is needed.



by Prof. Asoc. Dr. Arben mALAJLecturerDepartment of EconomicsFaculty of EconomyTIRANA UNIVERSITY

Down to its core, banking does not consist simply in securing the maximum profit, but achieving the most sustainable profit. A sustainable profit results from a sustainable loan-making process, and this is exactly the necessary condition to achieve the sustainable economic growth.

Lending downward, profits upward?!

Frontline

The financial system’s development is often attributed by researchers a quite significant impact on eco-

nomic development itself. Such impact is outlined lending quality, the allocation of savings and other sources of lending to the most successful projects. A high lending quality helps to increase the competitiveness level of the economy. In case of poor lending quality the positive effect on the economy erodes, as sav-ings are allocated to projects with low productivity and high risk of return. In the economic literature there is a wide-ly accepted opinion and also supported by empirical studies, that the level of lending to economy is first indicator, an economist needs to assess its health. Also, it is a well-grounded fact that the first symptoms of a banking crisis are the noticeable differences between cred-it (lending) growth rates and econom-ic growth, respectively. This difference distorts the assets’ price in the economy,

as the aggregate demand is artificially increased whereas the aggregate supply is small or shrinking. Such relationship is displayed at inflating prices during the boom period, while the bubble outbreak corrects market price distor-tions. During this period, the level of non-performing loans increases, lend-ing starts to stagnate until a standstill, whereas the decreased demand, then-fed by lending, causes a deep and acceler-ated price fall, which transforms the expected high profits into substantial and instant losses. This chain reaction effect hurts both borrowers and lend-ers, where the latter are "victims" of their own, rather than of other factors. The experience of countries with high absorption potentials of financial resources shows that businesses or indi-viduals who focus their activities on low productivity entrepreneurships, have a higher probability to end up in a posi-tion of failing to pay back loans. In the frame of our economic reality, it is con-cluded that lending activity, during the last two years, has sailed in very shal-low waters, by being in negative terms during the past 10 months, as well as by decreasing, each month, by an average of 2 per cent. In July 2014, according to the latest data by Bank of Albania, the

total stock of bank loans increased by 0.5 per cent, as compared to July 2013, thus feeding hopes for a possible reviv-al of lending, during future months1. The private business has been, by far, the main contributor to the growth of total loan stock during this period. The level of non-performing loans, until the second quarter of 2014, reached 24.6 per cent, a decrease by 0.02 per-

The faster pace of drop in deposit interests, compared to loan interests is viewed as an "indirect subsidy" from depositors for losses caused by the mismanagement of banking activity. The best guarantee of a sustainable level of bank profits is the support they provide to the economic growth, through increased credit and improving its quality, rather than some pure arithmetical calculations of short-term profits.

1 http://www.bankofalbania.org/web/Statistics_Entry_230_2.php?kc=0,3,0,0,0


than the credit growth rate, during the same period. The challenges faced by the banking system remain bold and complex and its profit indicators must be based more upon expanding credit activity and its respective quality. Ben-efits reaped from factors not directly related to banking activity, such as a reduced cost of money by the central bank, should not go primarily to im-prove their balance sheet; instead they must fuel the expansion of credit activ-ity. The faster pace of drop in deposit interests, compared to loan interests is viewed as an "indirect subsidy" from depositors for losses caused by the mis-management of banking activity. The best guarantee of a sustainable level of bank profits is the support they pro-vide to the economic growth, through increased credit and improving its qual-ity, rather than some pure arithmeti-cal calculations of short-term profits.

centage points and 0.33 percentage points, compared to the first quarter of 2014, and the second quarter of 2013, respectively2. These facts reveal the need to improve the quality of lending. During the second quarter of 2014 the banking system recorded a profit 261.3 per cent higher, as compared to the same period of last year, but when compared with previous quarter, the in-crease was only 20.4 per cent, or about ALL 3.9 and ALL 0.9 billion, respec-tively3. Net profit, by the end of second quarter amounted to ALL 5.4 billion. Experts argue about factors causing such unusual increase, but what are the real factors, affecting it and how much sustainable they will be? Getting a clear response require some in-depth studies by Bank of Albania, other experts and scientific research centers. According to some hands-on analysis it seems that there are several factors which have contributed to reach such a level of profit by commercial banks, during 2014. Thus, net interest income has pos-itively affected banks’ financial results, by increasing 9.7 per cent (y.o.y) and 102.4 per cent (q.o.q). In annual terms, such increase was driven primarily by a sizeable decrease in interest expenses (- 29.2 per cent), rather than an increased interest income (- 9.3 per cent). These figures reflect the easing monetary pol-icy, pursued by Bank of Albania, which has reduced the key rate just 10 times, since mid-2011, to 2.5 per cent, down from 5.25% at that time. This policy has led to a drop in interest rates on deposits and loans. Because of tighten-ing bank lending policies, the drop in loan interest rates was not in tandem, thus hindering an efficient transmis-sion of monetary policy, as in case of deposits. It should be noted, however, that improving the transmission mech-anism of monetary policy onto the real economy is not an easy task for many central banks throughout the world. On the other hand, the evidenced stabilization in non-performing loans has resulted in a drastic reduction in provision expenses, which are posi-tioned at the lowest level since 2005, so being the key factor that has led to increased bank profits. They scored an annual decline of 94.3 per cent, or a de-crease of approximately ALL 7.4 billion.

Such expenses were significantly erod-ing banks' profits, during several years in a row. In fact, from a medium-term perspective, it is easily analyzed that, during 2014, banks experienced some corrections in provisions’ deformation, rather than a sustainable improvement in bank profits’ level. A non-permanent factor contributing to the uncommon bank profit increase during 2014 may be also the legal clarification of fiscal principles of provisions’ calculation. In conclusion, we must admit that the growth rate of bank profit during 2014 was impacted by quite a few fac-tors, directly related to the success of commercial banks, but in this regard, an in-depth analysis to identify base-line factors affecting bank profit rates, is a must. Also, it should be mentioned that the analyzed time period is short; it spans from 2013 to 2014, only. Extend-ing the time period in concern and con-ducting a thorough analysis is quite in-dispensable, as the growth rate of bank profits during 2014 are by far higher

We must admit that the growth rate of bank profit during 2014 was impacted by quite a few factors, directly related to the success of commercial banks, but in this regard, an in-depth analysis to identify baseline factors affecting bank profit rates, is a must.

2 http://www.bankofalbania.org/web/Statistical_Report_June_14_7114_2.php?kc=0,27,0,0,0

3 http://www.aab.al/al/statistics.php.


During the first half of 2014, banks recorded a profit of ALL 5.4 billion, the highest historical record per se,

ever scored for any first half year. Certainly, breaking such a record of profitability sounds a bit surprising, when putting it within the context of actual times, but this result is not related to the system’s performance during the first half of the year, only. If we read care-fully the sector’s P&L statement, it is clearly understood that provisions’ balance is the heavyweight, as the banking system spent only ALL 445 million during the first half, not to mention that during the first quarter such item recorded positive results, with a total of ALL 1.3 billion in provisions’ rever-sal to banks’ equity. Reducing the burden of provisioning leads to a logical conclusion that the record profits of this half year relates to an important milestone: the stabilization of non-performing loans rate, stationed near the 24 per cent level for about a year in a row. Given that the outstanding credit to econo-my, during this period, has been declining, then problem loans are by far less, in nominal value. According to AAB statistics, in June 2014, the stock of loans with over 90 days

in arrears reached ALL 134.4 billion, about 2.6 per cent less, when compared to the same period a year ago. Therefore, the key to in-creasing profits is practically pressing a bit hard the brakes on non-performing loans. It is also believed that, the new rules adopt-ed by Bank of Albania to facilitate loan re-structuring, in the frame of boosting lending package as approved last year, have produced a positive impact on banks’ balance sheets. On the other side, it should be noted that, the banking system has managed to maintain adequate levels of net interest income, despite the overall credit (loan) contraction. Hence, a helpful hand seems to be a diversified asset structure, where investments in securities make up a sizeable share of assets, about 30 per cent, thus coming next to loans. Anoth-er element that kept banks afloat has been the significant growth of other components within profit structure, during recent years, especially Forex activities.

ThE ImPETuS FOR LENDINgA banking system with positive results and healthy balance sheet is definitely a strong pillar of support for a country's economy. The crisis caused a sharp drop in credit growth, going even in negative territory, in mid-2013. Now, businesses and households expect a more active role of banks in financ-ing, but this is not that easy, given that the issue at hand is not Albanian-based rather, it is virtually global. A prudential approach by banks was understandable, in terms of a deteriorating real economy, but according to

In the light of price component, and even from the borrower’s viewpoint, loans are at bargain rates now, when compared with those of several years ago. Although monetary policy is not fully transmitted and reflected to loan rates, their trend is clearly downward.

by mr Ersuin ShEhu

Increasing bank profits, a prelude to credit recovery?

Journalist corner

It should be mentioned that, even during the crisis period, the majority of banks continued to expand their loan portfolio, even with double-digit rates. This shows that when applying a more upbeat and dynamic approach, loan opportunities do exist, even in times of modest economic growth.

banks, even the credit demand by private sec-tor has been pale and most importantly, not at required or expected quality. Nevertheless, things are moving forward, as lending in July returned to positive growth rates on an an-nual basis, following a 12-month decline. Ac-cording to Bank of Albania, the bank loan portfolio increased by 0.5 per cent, compared to July 2013. Although modest, such increase marks a turning point. Today, the banking system more than interested at crediting the economy, considering that yields of govern-ment securities, almost the only alternative financial investment, have reached histor-ical minimum levels. In the light of price component, and even from the borrower’s viewpoint, loans are at bargain rates now, when compared with those of several years ago. Although monetary policy is not fully transmitted and reflected to loan rates, their trend is clearly downward. According to Bank of Albania, the average interest rate for new loans in ALL, for all maturities, was 8.95 per cent in the first half of 2014, down from 10.9 per cent of the first half of last year. This means that the cost of new investments in the economy is lower. Now it’s the right time for both businesses and banks, to show entrepreneurship and courage. It should be mentioned that, even during the crisis period, the majority of banks continued to expand their loan portfolio, even with double-digit rates. This shows that when applying a more upbeat and dynamic approach, loan oppor-tunities do exist, even in times of modest economic growth.



customer needs and offer personal-touch service, so we build on that existing asset.

BANKIERI: Could you prescribe UBA’s most striking and unique feature in the Albanian banking market? UBA is doing business based on Islamic banking principles, all within the framework of the Alba-nian banking legislation. The Islamic banking principles emphasize moral and ethical values, and all financial relationships have been participatory in nature. Partnership share of both the client and the bank in investment projects is defined before signing the financing agreement. By being partner in the project, bank not only provides its portion of investment funds, but also takes care that the project has been run and completed as per the contract. Partnership commitment gives added value to the investment project and goes beyond a pure lender-debtor relationship aspect. If practiced strictly according to the contract, it means additional security for successful realization of the project, which better protects the interests of both the bank and the client.

BANKIERI: How could you describe Bank’s activity for the current year 2014?This year, the bank has been diligently working to address loan problems, raise capital and restruc-ture its balance sheet. We can see improvements in problematic loans collection, and intensifi-cation of lending activities. Our activities were also focused on improvement and strengthening

united Bank of AlbaniaA bank within the framework of moral and ethical values

Interview

mrs Emina ŠIŠIĆChief Executive OfficerUNITED BANK OF ALBANIA

BANKIERI: What are the real operational and strategic chal-lenges for UBA, as a small bank of the Albanian banking system?The global economic crisis has had an enormous impact on all the players in Albanian banking market regardless their size, resulting with high level of non-performing loans. A sluggish economy and slow real estate market mean weak loan demand and low interest rates, both factors that compress the net interest margin. Running a small bank under these circumstances is a very challenging task. Competition in the market is very high, especially in terms of loan and deposit interest rates and also in products and technology. Our banking operations have to be carried out leaner and under more complex compliance regulations. Despite increased banking competition, in UBA we are commited to apply a value-driven credit culture. Credit quality is our highest priority, and the earnings pressure in this highly competitive environment, where high-lending quality oppor-tunities are scarce, will not push us toward an immediate-performance culture. As a small bank we try to be flexibile and more responsive to

Partnership commitment gives added value to the investment project and goes beyond a pure lender-debtor relationship aspect. If practiced strictly according to the contract, it means additional security for successful realization of the project, which better protects the interests of both the bank and the client.

of corporate governance and the organizational structure of the bank. As much as any other businesses, banks have to keep up with changes in the digital era. We have prepared for develop-ment of new technology platforms which will enable our customers, especially those located out of our geographical reach, to consume bank’s products and services. We paid special attention to both in-house training programs and customized workshops and seminars for our employees in order to enable them to gain expertise on the job and learn more about Islamic finance.

BANKIERI: What are your bank’s main objectives and targets for the near and distant future?The operational plan for the year 2015 and the strategic plan for the five-year period underline a differentiation strategy, based on Islamic banking, by offering our products to different customer segments who would like to do banking based on partnership principles.We will be also working on enhancement of the level and quality of our services and introduction of new distribution channels, with particular focus on retail banking. The increase of the capital by our main share-holder, Islamic Development Bank, which is a reputable, Triple “A”-rated financial institution, shall enable further business expansion, increase of the market share and customer base, as well as opening new outlets in the Albanian market. This should result in increase of bank revenues, with the positive impact on both return on equity and return on assets ratios.


Banking System

As an integral part of a developing country economy, the Albanian Banking System has gone through

fluctuating macroeconomic situations, during the last couple of years, positive-ly affected by measures undertaken from Bank of Albania to boost the national economy and investments. Specifically, the drop of the base rate down to histor-ical levels could be pointed out, which has directly impacted the commercial banks’ policies. Today, almost all banks have signifi-cantly decreased their deposit rates, both in local and foreign currency. This may be considered not only as a good sign, because it shows a stable and healthy li-quidity situation in Albania, but also as a huge opportunity for businesses and indi-viduals. Lower deposit rates mean lower cost of funds, and this means enabling banks to be more flexible on loan pricing, by applying lower loan rates.

Optimizing liquidity and asset & liability management have been a real challenge for all commercial banks, active in todays’ financial markets. Liquidity is very important indeed, but profitability is what it really counts at the end.

Interest RatesThe Complex Equilibrium between deposits and loans

by mr gent SEJKODeputy CEO & Head of Retail Banking DivisionSOCIETE GENERALE ALBANIA

Furthermore, the deposits’ growth and the stable liquidity situation, that char-acterized most of banks, have transmit-ted their own positive effect. Surely, being over liquid comes with a cost for banks, but on the other side it creates security and guarantee for depositors, as import-ant points during todays’ uncertain times. In the light of these facts, optimizing li-quidity and asset & liability management have been a real challenge for all commer-cial banks, active in todays’ financial mar-kets. Liquidity is very important indeed, but profitability is what it really counts at the end. But let’s treat deposit and loans sep-arately and in this case let’s start the analysis from loans. It has been a while since almost all banks have entered into a real race, especially when it comes to interest rates. In the quest for acquir-ing as much business as possible from an almost fully-saturated market, the commercial banks have competed stiffly with each other through going lower and lower with the loan rates, thus creating a big pool of opportunities for individuals and businesses to take advantage from this situation. Surprisingly, the response from the market has not been as expect-

ed, actually far away from it. Uncertainty and over prudence have led to a certain hesitation among customers, who have been quite skeptical in their investment decisions, thus impacting directly and ad-versely the loan demand. As a result, lack of investments has led to longer waiting time, eventually more savings, so instead of a boost in lending, banks have been faced with a growth in deposits. Under these circumstances, some other unexpected issues emerged for banks and they were liquidity, inflation and higher costs. On one side the funds collected could not be invested as they

Today, almost all banks have significantly decreased their deposit rates, both in local and foreign currency. Lower deposit rates mean lower cost of funds, and this means enabling banks to be more flexible on loan pricing, by applying lower loan rates.


were budgeted to, while on the other side they were carrying costs that could not be otherwise discharged in the market. At this point, in order to overcome such unpleasant situation, all banks started to gradually drop their deposit rates and this solution was found helpful, as it does not only decrease the costs, by ensuring sta-bility for banking activity, but also allow them to afford a further lowering of loan rates, thus creating an increasing facilitat-ing ground for individuals and businesses to obtain a loan. However, this was not just a bank’s problem but has become a problem for the overall Albanian economy, as every-thing is a shackle of a chain and each of them has an impact on the others. The lack of loan demand and the increase of savings’ appetite means not only less loans and more deposits for commer-cial banks, but also less investments in the country’s economy, less jobs and a reduced consumption, therefore making a direct negative impact on country’s economic growth. In addition, the debts’ chain between all stakeholders and ac-tors, government to business, business

to banks and partners, has trapped the financial sector under the dilemma: “to lend, or not to lend”. The solution to this equation has become the main challenge for bankers, since the outbreak of the cri-sis, just 5 years ago. Therefore, in order to properly deal with this phenomenon, Bank of Albania has intervened systematically, by drop-ping systematically the base rate and by strongly suggesting that banks be instru-mental to further facilitate and boost lending and almost all banks reacted, accordingly. The deposit rates went even lower, in some cases quite close to the floor. Additionally, different loans cam-paigns were launched by nearly all big banks and the offered rates were the low-est ever. Despite these efforts, there was a very weak response from the market again, and still not a proper reaction from customers; banks were repeatedly facing the same troubling situation with a lot of willing and funds to be invested from their side, but a limited demand from the other side. Should this trend is not about to change, than the next question is: What’s next?

However, the current year has shown, for the first time, some positive signals in the lend-ing activity. There is a slight growth in lending from banks toward all segments of the business clientele, mainly in-dividuals but also to corporate banking, as well. The partial repayment of government debts to large corporates has already given some breath to some large companies, en-abling them to repay, at some extent, their bank debts in arrears.

However, the current year has shown, for the first time, some positive signals in the lending activity. There is a slight growth in lending from banks toward all segments of the business clientele, mainly individuals but also to corporate bank-ing, as well. The partial repayment of government debts to large corporates has already given some breath to some large companies, enabling them to repay, at some extent, their bank debts in arrears. This fact has not only marked a turning point in the business trend and banking activity, but what’s more important, has broken down the “crisis syndrome”, that had seized banking system during the last years. Is that the real turning point into positive economic growth territory? Maybe it is yet early to judge. Further evolution of the trends until the end of this year, up to the middle of next year, will tell us if we have left the crisis behind and entered into the era of the positive economic growth. Let’s wait and see, by not losing the optimism and continue to be risk taker in the lending activity, as we have successfully proven to be during all these difficult years.

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Deposit insurance, quality steps forward

Banking System

The ADIA's vision to create an effective deposit insurance scheme, aiming at strengthening the depositors’ confidence in the banking system and contributing to country’s financial stability, goes in tandem with its aspirations to create a modern scheme with adequate capacity to fulfill its obligations.

The key role of deposit insurance for the financial stability was one of the many lessons drawn from the finan-

cial crisis the world left behind. In general, deposit insurance schemes avoided depos-its’outflows and contained panic outbreak among depositors during the crisis period, therefore providing protection mainly for retail deposits. Deposit insurance gives depositors clarity, patience and security, thereby contributing to a country’s finan-cial and banking system stability. Currently, ADIA activity is based on the new law "On Deposit Insurance ", adopted on 22 May 2014, which enables the strengthening and integrated expansion of deposit insurance scheme’s capacities. The necessity for a new law was evidenced within the IMF matrix for financial sector modernization (DPL Matrix), whereas the main innovations in this law were based upon recommenda-tions of World Bank mission and IMF Fi-nancial Sector Assessment Program (FSAP)

by mr Renis ZAgANJORI, LL.m.Assistant to General DirectorALBANIAN DEPOSIT INSURANCE AGENCY ADIA

in Albania in 2013, as well as regulatory changes of European Union’s acquis com-munautaire.

NEw AmENDmENTS FOR DEPOSIT INSuRANCE LEgAL FRAmEwORK The ADIA's vision to create an effective de-posit insurance scheme, aiming at strength-ening the depositors’ confidence in the banking system and contributing to coun-try’s financial stability, goes in tandem with its aspirations to create a modern scheme with adequate capacity to fulfill its obliga-tions. In this context, ADIA is committed to pursue of international best practices and initatives, pertaining to deposit insurance, with regard to legal and regulatory aspects. In general, the main changes and amend-ments of the new law consist in improving the overall process of deposit compensa-tion, clarifying relationships with banks and SLAs, increasing autonomy of ADIA, improving financial resources management, as well as determining the coverage level, eligible deposits and insurance premium. Specifically, the new law clearly sepa-rates the deposit compensation process and the ADIA participation with funds’ trans-fer to the bank being sold or in establish-ing the bridge bank, thus accomplishing the ADIA’s main objective. Regarding the bridge bank, the prescribed provisions are

consistent with the institutional framework of bank liquidation, where ADIA has a sup-porting role for Bank of Albania and the liquidator. These include the ADIA rights to make partial and early payments, or to meet its obligation for deposit compensa-tion, by transferring funds to a member bank or a bridge bank. Under these pro-visions, ADIA supports solutions given by the Central Bank, by applying the criteria of insured deposits level and the lower cost. As regards the compensation process, the law has revised the deadline for such pro-cess and has specified provisions for match-ing claims of subjects and depositors in any insurance event. Similarly, it has revised the ADIA’s claim priority in reversals, by completing and clarifying the ADIA’s claim right during this process. With regard to membership in the de-posit insurance scheme, the law establish-es a parallel procedure of their admission into the scheme with the licensing process conducted by Bank of Albania. In this way, the ADIA function is to verify the entities’ eligibility to comply with deposit insurance require-ments, including also their eligibility and compliance during any transformation or changes in their activity. Also, the law provides in particular, some detailed obli-gations for entities to be a member of the


scheme, mainly consisting in the obligation to keep and report the electronic data on deposits and depositors, as well as those for public information. In terms of ADIA functions, the law contemplates detailed functions in compli-ance with the "principe de specialite" doc-trine of the administrative law. On the other hand, a special article sets forth the powers of ADIA, aiming at providing a clear sepa-ration of these two concepts. These include: (i) the ADIA financial and functional au-tonomy, (ii) private law means (an entity’s capacity and the capacity to contract) and (iii) public law means (competence to pro-pose and endorse bylaws and ADIA acts, participation in the compensation and se-lecting regime for banks and staff employ-ment). The overall institutional structure is preserved, whereas the operational au-tonomy is enhanced, simultaneously with ADIA accountability and governance, to minimize potential influence from third parties. An important part in this respect is, inter alia, the approval of ADIA budget by the Managing Board. The law stipulates the ADIA obligation to report to Bank of Albania, Albanian Parliament and Council of Ministers, as a balance for the ADIA en-hanced autonomy. Also, it requires ADIA to publish its audited financial statements, along with more detailed and tightened governance provisions, such as the qualify-ing criteria for ADIA Board members and staff, conflict of interest, confidentiality and legal protection while on duty. A separate chapter is dedicated to in-ternal financial regime, which covers the prerequisites for ASD risk management activities. The law includes concepts of re-serve funds assessment, their potential defi-cit and measures that could be taken in this regard. Also, specific provisions have been formulated, which guarantee compliance with accounting principles and legal ba-sis. As another quality step ahead, the law specifies the ADIA's obligation to manage, in separate accounts, its funds for deposit insurance paid by banks and SCAs, espe-cially for compensation processes purposes. The law provides improved means with re-spect to investment ADIA funds, according to principles of liquidity, security, account-ability and rate of return. Regarding the deposit insurance, the

law makes clarifications about eligible and non-eligible deposits, by harmonizing them with respective provisions found at Banking Act and SCAs Act. Also, the law improves the methodology for insurance premium calculation, by changing the calculating ba-sis from annual to a three-month one, for bank deposits held during last days of each month of the preceding quarter. The advan-tages of a quarterly versus annual premium are ease of calculation and verification, as well as a continuous tracking of any enti-ty’s deposits progress.

LOAN AgREEmENT wITh EBRDOn 16 July 2014, ADIA signed a Loan Aagreement with the European Bank for Reconstruction and Development (EBRD), through which ADIA obtains a credit line of EUR 100 million for a 5-year period. The credit lline aims to provide addition-al funds, along with ADIA's own funds, to meet legal obligations against depositors, in case of any insurance event. According to the Loan Agreement conditions, this line can be used for direct compensation to insured depositors, or to transfer funds from ADIA to a bridge bank, or purchasing bank, pursuant to legal provisions. Funds from this line will be made available from EBRD within 7 days after ADIA’s request, which allows the latter to meet its obliga-tions to depositors, which may arise from

an insurance event, within a shorter period of time. The credit line guarantees ADIA with necessary funds to increase its coverage ratio of insured deposits in the banking system, from 3.7 per cent to 6 per cent. Furthermore, in terms of insured banks, the fund provides full coverage of two ore banks, compared to ADIA’s current port-folio. Currently, ADIA funds cover 100% of insured deposits in 8 banks, with a cov-erage ratio of 3.7 per cent of all deposits in the banking system. Through this credit line, ADIA covers 100 per cent of insured deposits at 10 banks, with a covering ratin of 6 per cent of all deposits in the bank-ing system. Moreover, the coverage at four consecutive banks of the system (B3-B6) reaches more satisfactory levels (70% -80%). According to basic principles of deposit insurance schemes, these indicators prove the healthy financial situation of the scheme and its compliance with interna-tional best practices and standards. Also, the credit line will provide funds in euros, thus serving as a hedge against foreign ex-change risk, which could adversely affect the coverage level in case of any insurance event (40 per cent of insured deposits are in foreign currency, 95% of ADIA portfolio is in ALL, whereas deposits are compensated in ALL with the exchange rate at the date of the insurance event).

COVERAgE AT BANK LEVEL (BEFORE ThE CREDIT LINE)

COVERAgE AT BANK LEVEL (AFTER ThE CREDIT LINE)


tax treatment in details, necessary expla-nations should be given in the related and forthcoming Instruction of the Minister of Finance. The taxpayers should clearly foresee the consequences of their actions or omissions that arise from provisions of the Law and the Instruction. In this context, I think that the VAT application on financial services, espe-cially in relation to the components or supplies that are part of, or are closely

Banking system and the new VAT lawIssues to be addressed in the forthcoming instruction, for the law implementation

Experts’ Forum

by mr Fatmir KAZAZI Tax Consultant

The Parliament endorsed, in July 2014 the new law on “On Val-ue Added Tax in the Republic

of Albania” (Law no.92/2014 dated 24.07.2014), or shortly called as “New VAT law”, which will come into force from January 1st, 2015. This law marks significant steps forward and contains important improvements and additions, in accordance with the European Union’s Directives on VAT. In my personal opin-ion, the “New VAT law” provides some clear and complete definitions and pro-visions about many problems, which do not find any solutions in the existing law. It was just for the confusion and gaps in the existing law that many conflicts have risen, thus generating administrative and financial high costs for taxpayers and tax administration, as well. Specifically, some of the problems are related to the issue of

“VAT Representatives”, the sale of assets or goods, for which the VAT for purchas-es has not been credited (reduced), export of services, etc. In other words, the ele-ment of “uncertainty”, which is unfortu-nately present in many law and by-law tax provisions and regulations, has been substantially reduced and shrunk in the new VAT law.

Unclear provisions create uncertainty and unpredictable financial and admin-istrative costs for taxpayers and the state

The purpose of this article is not to make evidence about the improvements this law brings into, instead it addresses some particular issues and problems, related to the VAT implementation on financial and banking services and the supplies that are part, or closely associated with these services. The unclear provisions cre-ate insecurity for taxpayers and tax in-spectors, too. They trigger intentional or unintentional mistakes by taxpayers and tax inspectors, produce an administrative and financial burden for taxpayers, tax authorities, courts, and in some cases, create premises for corruption. Certainly, in cases where the law cannot explain the

Questions to be answered on VAT on financial services

1. Is the VAT applicable (through VAT Reverse Charge) on the following supplies, received from non-resident companies?

2. Does it make any difference if the non-resident supplying company is resident in any EU member state?

3. How would the VAT reverse charge and the payment of VAT occur in cases when the VAT is applicable?

Given that the new law “On Value-Added Tax in the Republic of Albania” is based on the EU directives on VAT, it is necessary that the treatment of financial services be in accordance with the respective EU directives and with the best international practices on VAT on financial services.



related to financial services, are not pre-scribed in details within the law. Conse-quently, a detailed prescription is neces-sary in the Instruction of the Minister of Finance, expected to be introduced for implementation of the new VAT law, which is under drafting process. Should these problems be not addressed in this instruction, then the taxpayers (banks) will implement the law based on previ-ous experience, on multinational group’s practices to which they belong to, and/or on consultancy received by experts and consulting companies. In such cases, the tax inspectors, presumably being orient-ed toward increasing the state tax rev-enues through “discoveries” during tax audits, or based on any interpretation or explanation received during the audits or during tax periods, much after the entry into force of the law, may estimate, at their discretion, additional tax dues and related penalties. In other words, dis-cretionary judgments, or such technical documents will have an ex post facto, or retroactive effect and will generate a long process of tax penalties and appeal-ing procedures, which have high costs for taxpayers, tax authorities and the judiciary system. Additionally, taxpayers feel insecure and cannot make accurate predictions about fiscal consequences of their business transactions.

QuESTIONS TO BE ANSwERED AND ADDRESSEDIn practical terms, I would like to bring to attention some questions, which are not found or do not get a clear answer in the new VAT Law, and as I mentioned above, they should necessarily be treated in the VAT Instruction, as per following:

1. Is the VAT applicable (through VAT Reverse Charge) on the following supplies, received from non-resident companies? Such examples include:

•Servicesrelatedtothedevelopmentof banking systems, through which support and implement bank trans-actions, financial deposits’ adminis-tration, operations though accounts, financial transfers, etc.;

•Servicesforthemaintenanceoftheabove-mentioned banking systems;

•Royalties(paymentsfortherighttouse intellectual properties, licenses and patents), related with the bank-ing system;

•REUTERS services, SWIFT andother similar services related to the implementation of banking opera-tions;

•Servicesrelatedtofinancialopera-tions through debit and credit cards (Master card, Visa Card, American Express, etc.);

•Servicesrelatedtothesupply,main-tenance and management of ATMs;

•Specialized services for e-bankingoperation;

•Otherservicesrelatedtobankdataprocessing, or other banking opera-tions.

2. Does it make any difference if the non-resident supplying company is resident in any EU member state?

3. How would the VAT reverse charge and the payment of VAT occur in cases when the VAT is applicable?

Also, in cooperation with Albanian Association of Banks, the experiences of EU member states, or other countries’ experiences that are in the process of EU membership, could be analyzed, in order to consolidate a sustainable and clear VAT treatment approach, in accordance with best international practices.

In my personal opinion, supplies such as: SWIFT, REUTERS services, operations with debit or credit cards (Master Card, Visa Card, American Express, etc.), supply and maintenance services of elec-tronic transfer systems that enable finan-cial transactions of cashing, payments, deposits, loans etc., should be excluded from VAT, as part of the financial ser-vices which are VAT exempted by the law. In other words, the recipient shall not apply for VAT reverse charge, in re-lation to these services, when supplied by a non-resident company. Meanwhile, services like: trainings, management ser-vices, financial and business consulting, technical assistance, royalty payments, related to the right to use licenses and patents, sale and ATM maintenance, etc., are VAT taxable services, and when supplied by non-resident companies, the Albanian company (the bank), as the re-cipient of the service, shall be responsi-ble for VAT reverse charge and for VAT declaration and payment. Surely, without pretending that I have analyzed and studied in details the above transactions or other similar ones, and moreover, their VAT treatment, I would like to emphasize that as the new VAT law is fully based on the EU Directives, therefore, it is necessary that the VAT treatment of financial services must be done in accordance with respective EU directives on financial services. Also, in cooperation with Albanian Association of Banks, the experiences of EU mem-ber states, or other countries’ experienc-es that are in the process of EU mem-bership, could be analyzed, in order to consolidate a sustainable and clear VAT treatment approach, in accordance with best international practices. It must be emphasized that the pur-pose of this article is to raise and discuss the issues and not to make any recom-mendations, or otherwise find the cor-rect solutions of such issues.


declared "a decline in solvency" quote, in 48% of cases, "the decline in house-hold income", as its main reason. Given that informal lending is not observable, and therefore, we have no data, the information obtained from the above observation raises some concerns about the financial markets in Albania. Often informal markets for lending are not seen as parallel market of the econo-my, instead they are seen as an outcome of lending pressure and contraction in the formal system. What is evidenced in Albania is that lending penetration, i.e. the total debt-to-GDP has remained around 40% of GDP, which is among

by mr Besart KADIA, PhD CandidateExecutive DirectorFOUNDATION FOR ECONOMIC FREEDOMFLE

Such a phenomenon requires elevated attention of all stakeholders across the Albanian financial system, even beyond it, as its effects and consequences are not simply an opportunity cost, or of financial nature, but instead they are of a substantial social nature and security.

Loan sharksExperts’ Forum

A phenomenon to be considered

Loan sharks are those persons or groups of persons who lend mon-ey but are not licensed by the state

and therefore are illegal subjects. In fact, loan sharks are better known as a defor-mation in financial markets that occurs in times of crisis, as well as for high in-terest rates that they require from bor-rowers. Usually the parties enter into a short-term lending agreement, mainly with low-income consumers, who find difficult to borrow from banks. Al-though the amounts they borrow are small, let say 100 - 200 Euros, the effec-tive rate of return actually ranges from 300% to 3,000%! Despite these high costs customers use this informal sector of the market, as they do not have a fix job, have lost their job, or have delays in receiving sal-aries, etc. All these concerns get bolder when an economy goes through a severe economic crisis, such as the global crisis

of 2008 – 2009. To illustrate the revival of such phenomenon we could use the UK data, where the industry funding payday loans amounted to GBP 4 bil-lion in 2012, from GBP 100 million in 2004. According to studies conducted in UK, about 38% of respondents who sought funding through payday loans, had borrowed from other family mem-bers, too. On the other hand, the survey, conducted by Bank of Albania in 2013 with over 1,210 individuals surveyed in 16 districts of the country, showed that the ratio of consumers who receive bank loans is almost the same as that of the informal debt, or the debt that is not re-corded as such, but that is often a cause for social conflicts. The two main goals, Bank of Albania lists for borrowing, are: purchasing and repairing a prop-erty and the essential consumer goods. Specifically, the survey concludes that, in approximately 40% of borrowing cases, households have used the formal sources (banks and non-bank financial institutions) and in the rest of 60%, the informal sources (individuals and bor-rowing directly from stores). The main household borrowing purpose remains "consumption", with 32% of cases. It should be noted that families who have

At a time when the economic growth is below potential, when there are multimillion dollar public works still unpaid, and when loan requirements are tightened significantly, could it be the case for loan sharks to have displaced, or replaced, the banking sector, en masse?


loan sharks, who despite operating on boundaries of the financial system, may be associated, perhaps indirectly but not only, with the banking system. Surely, such a phenomenon requires elevated attention of all stakeholders across the Albanian financial system, even beyond it, as its effects and consequences are not simply an opportunity cost, or of fi-nancial nature, but instead they are of a substantial social nature and security.

the lowest rates in the region, whereas non-performing loans are among the most the highest in the region. Joseph Stiglitz writes, among other things, that financial market failures are caused by high cost and lack of full information. However, transaction costs give only a partial explanation the presence and im-portance of financial intermediaries and the indirect finance in the functioning of financial markets. Another reason is the information asymmetry, i.e. one party in a financial transaction has less (or more) informa-tion than the other party. For example, under a loan contract, the borrower has more information about the risk of the project which is being financed, than the individual who gives the loan. The information asymmetry creates a prob-lem, either before or after the contract’s signing. In the frame of high risk per-ceived for granting the loan, due to low-er rates of economic growth and high levels of non-performing loans, banks have reduced the pace of loan-making process during recent years, thus fu-eling maybe involuntarily, the lending process outside the banking system. To avoid the problem of adverse selection, the problem that arises from informa-tion asymmetry before the transaction (signing the contract), the lenders are based upon "client's reputation in the market", where the family and social networking guarantees the borrower’s reliability. This process is usually quick

and without high initial cost. At a time when the economic growth is below potential, when there are multi-million dollar public works still unpaid, and when loan requirements are tight-ened significantly, could it be the case for loan sharks to have displaced, or replaced, the banking sector, en masse? Also, another question arises in this re-gard: does such informal system exist in parallel with the banking system, or it could be possibly intertwined with the latter, in one way or another? Banks in Albania are making stren-uous efforts to find a difficult balance between maintaining quality lending standards and avoiding a tightening in extremis of requirements for their cus-tomers. In fact, the Bank of Albania’s periodic surveys about credit to business show that banks’ tightening policies, during the past two quarters, have been increasing. The even more worrying fact about the long-term economic growth is that, the loan standards (requirements) were tightened for investment purpose loans, whereas those for the purpose of funding the working capital, were relaxed. Under the conditions of tight-ening loan-making procedures, various business associations in the country have often raised the concern of a flour-ishing informal financing, as an alterna-tive to the banking system in Albania. Hence, the banks’ main focus on their asset management cannot ignore and circumvent what happens with

In the frame of high risk perceived for granting the loan, due to lower rates of economic growth and high levels of non-performing loans, banks have reduced the pace of loan-making process during recent years, thus fueling maybe involuntarily, the lending process outside the banking system. To avoid the problem of adverse selection, the lenders are based upon "client's reputation in the market", where the family and social networking guarantees the borrower’s reliability.


Experts’ Forum

Business ECO Investments

by ms Alda ShEhuHead of Environment Unit PROCREDIT BANK

ProCredit Bank employs an active approach by informing, encouraging and supporting financially various efficient projects, in the business sector, because business as well as ECO investments support and help the sustainable development of our country’s economy.

Every business undertaking con-sumes electricity to ensure produc-tion or service continuity. Lack of

financial support as well as modest in-vestments in machinery or production lines, at the onset of economic activity for Albanian businesses, have often led to an abusive use of power and higher operational costs for companies, not to mention the impact of pollution on the environment - because not all business equipment and machineries, used in many industrial processes, are highly efficient. The machineries that many businesses use during the first stage of their activity are often second-hand ones and purchased after a multi-year use at industries of ex-porting countries. Today, a growing number of business-es are pondering the need to be more pro-ductive, along with reducing operational

costs, to provide quality goods and ser-vices, to expand customer network and thus increasing their business’ profit-ability. Businesses, by reducing monthly operating costs, are more likely to make further investments in their own eco-nomic operations. Also, those businesses which invest in ECO products improve their company’s image, as a business that invests in quality and cares for the envi-ronment. ProCredit Bank has launched ECO loan, as a special financial service, in the frame of environmental standards, the bank promotes and supports during its own daily financial activity. This financial service is focused not only in supporting new efficient technologies, invested in the business sector, but also in providing technical and financial consulting, as an added value of this service. ECO loan in-cludes financing the Energy Efficiency and Renewable Energies measures, as well as financing other environment-friendly in-vestments. Today, the Albanian market is be-coming increasingly competitive and therefore businesses must be headed to-wards machinery automation and state-of-the-art technologies, aiming to have a

more sustainable and long-term devel-opment. ECO investments in businesses are diverse and vary by different business sectors (manufacturing, services, etc.), or by type of investments (equipment, ma-chinery, building, business, etc.) Manufacturing businesses that pro-vide consistent quality in the market and, at the same time, a competitive price, will be those businesses that invest in new and efficient technologies. By replacing exist-ing machineries with new efficient pro-duction lines (which consume less energy for the same working hours), businesses in the manufacturing sector will reduce not only operational costs, but also im-prove processes and working conditions,

The effect of ECO technology in businesses goes beyond energy saving, so saving it is not an aim per se, instead it is an important contributor for country’s economic growth and social development.


thus earning competitive advantage in the domestic market, and not only. In-vestment opportunities are numerous, for example: a bakery or patisserie, will save up to 30% electricity, should it replace old ovens with new efficient ones. In the retail sector, for example su-permarkets, by investing in efficient re-frigerators and in efficient central heating and cooling systems, they could save up to 20-30 per cent electricity, and at the same time, improve their internal con-ditions and comfort. In the service sec-tor, like restaurants, by using (investing) efficient thermo insulation materials for buildings, they could ensure comfort-able conditions for their clients. A ther-mo insulated building preserves cool air during summer and heat in winter, thus achieving an energy saving up to 50 per cent. Using devices with Class A energy efficiency label, just halves the energy consumption, compared to the same de-vices of Class G energy efficiency. Given that the transportation sector is one of the main contributors of polluting gases’ emissions, the bank supports all invest-ments in vehicles that use efficient and environment-friendly fuels. ProCredit Bank also supports and funds the use of renewable energy sourc-es, such as: solar, water, biomass etc. For example, in the tourism sector where electricity costs are significant, the instal-lation of solar panels for water heating provides a reduction of electricity costs ranging at 70 – 80 per cent. Albania has very favorable climate for installing so-lar panels for hot water. This leads to a significantly reduced energy cost, as the electricity is substituted for solar energy. In addition to solar panels, the biomass use is also increased (biomass is an organ-ic composition - wood, grain, agricultural waste products such as: fruit and olive seeds, wheat grain, etc., which can be used as an energy source), as for exam-ple in the case of stoves or furnaces, using "pellets". ProCredit Bank goes beyond sup-porting energy efficiency measures and renewable resources, by supporting even environment - friendly investments, such as: investment for recycling various ma-

terials, waste management, investments for land, air and water protection, filters for clean air and water, etc. ProCredit Bank employs an active approach by in-forming, encouraging and supporting fi-

Since 2009, ProCredit Bank has incorporated and optimized relevant service structures, to ensure the best exspertize ever in the country, to finance new technologies in business. The positive performance in the market for efficient equipments in Albania has helped our bank to establish contact points for prospective suppliers of ECO efficient products.

nancially various efficient projects, in the business sector, because business as well as ECO investments support and help the sustainable development of our country’s economy.



earnings are in Lek, therefore they are very interested about the ALL/Euro ex-change rate, since the price of their debt depends substantially on its respective fluctuation. Naturally, a weakening Euro lowers the price of their loans, while a strengthening one makes them more ex-pensive. Traders, whether importers or exporters, are naturally interested about Euro and US Dollar’s depreciation or appreciation, in order to orientate their purchases and sales to the more favor-able markets of Euro or US Dollar zones.

Economist Corner

by Prof. Dr. Adrian CIVICIPresident & Head of Doctoral SchoolEUROPEAN UNIVERSITY OF TIRANAEUT - UET

A weakening Euro or a strengthening DollarWhich scenario lies ahead?

The actual reality and our daily activity are witnessing a sharply increasing interest and attention

about the exchange rate performance of major currencies, such as: Euro or US Dollar. It is the “bread and butter” not only for banks or exchange bureaus, but instead a significant number of econom-ic and financial stakeholders and busi-nesses check and ask for the exchange rate of these currencies several times a day, especially the ALL sustainability against their respective fluctuations. Ba-sic financial and monetary knowledge and culture is becoming an increasingly indispensable decision-making tool, and also is transformed into a certain kind of knowledge and information, which can-not be absolutely neglected or treated as something theoretical or a luxury of ex-perts in this field. Many individuals and economic enti-ties have borrowed in Euros, while their

It is crystal clear that the more stronger the Euro against the Dollar, the more reduced will be the prices of oil, gas, minerals, etc., which translates into more lower inflation and serious deflationary threat, which risks to confront the Eurozone with Japanese deflationary disease in the late 90s.

The weakening of Euro favors imports, by making them cheaper as compared to ALL, while a strengthening of US Dollar makes imports more expensive, by ap-preciating exports positively. The last 20-22 years have shown more than once that the geography and orientation of import – export, even in Albania, is significantly affected by the strengthening or weakening of the two base (reserve) currencies, the Euro and the US Dollar. As the result of a “strong" euro and a relatively "weak" US Dollar, during recent years, the US Dollar-based countries or markets have been the most favorite ones for Albanian traders and business community, thus causing, to a certain extent, a reduction of the specific weight of Euro-based trades, in relation to the "dollar zone" trades or goods, that are traded in US Dollars. This is conditioned by the fact that, despite im-provements made during recent years, our trade balance is still overwhelmed by imports from the Eurozone. In this context, we must, from now on, pay more attention and start thinking about increasing our exports’ competitiveness, thus making clear markets’ differentia-tion: imports from markets and coun-tries with weaker currencies and exports

The weakening of Euro and the Dollar strengthening seems to be influenced by another factor: since the beginning of 2013, when the Eurozone began to show signs of a post-crisis stabilization and create more confidence, it was poured into numerous large investments, thus increasing the pressure on the common currency to depreciate.


to countries or areas with stronger cur-rency. Finally, in this view, it should be mentioned the fact that Albania is part of countries with a high Euroization level, although the country is not a EU member or part of Eurozone, nor it does use the Euro as its official currency, as in case of Kosovo and Montenegro. Ap-proximately 30-35% of prices in Alba-nia (for residential apartments, shops and facilities services, cars, school fees, building materials, ferry tickets, raw materials, etc.), are quoted and settled in Euros (relatively less in US Dollars), thus being an important factor in setting the price level, orienting the purchasing power, consumption level, the structure of bank deposits and loans, to end up at the small or large business level, many individuals or subjects are running and handling do, by selling and purchasing different currencies, depending on the profit realized from such business. In this sense, it seems quite of interest making an analysis, or giving some comments, on current performance and the expect-ed relations between two major curren-cies, Euro and US Dollar, as well the respective effects such "clash" between them, in relation to the Albanian Lek (ALL). Beyond the domestic macroeconomic and structural factors that may affect the ALL strength or weakness, the apprecia-tion or depreciation of major currencies is substantially reflected in the exchange rate between ALL/EUR, ALL/USD, or ALL/GBP. Surely, actual disciplines and institutions that study the financial and monetary problems, deem the medium and long-term assessments about the ex-change rate as difficult, if not impossible, however, specific analyses, debates and predictions about its main trends, seem to be more acceptable. During the past six months, the Eu-ropean common currency, Euro, has entered into a strong downward curve, in relation to the US Dollar, by trading, in end- September, at the rate EUR/USD 1.25 – 1.27, down form from the rate EUR/USD = 1.38, in May 2014. Such de-preciation was not verified, at least over the last 15 months. So, what is happen-

ing to the Euro and what explains the decrease of its purchasing power, or the opposite, the increasing power of the US Dollar is merely conjectural, or tells for a more sustainable trend? Analysts and the financial and monetary experts ex-plain this trend, and above all, its sta-bility or transience, through some key following components: First, the strengthening effect of the US economy and the changing course of FED monetary policy. The main in-dicators of US economy have been sta-ble and in a continuous improvement, for some months in a row. Institutions like: IMF, OECD, etc., estimate that the GDP of the United States, for 2014 and 2015 is expected to grow by 2.1 - 3.1%, while the maximum forecasted figure of Eurozone is ranging at 0.8 - 1.1%. The same can be said about the unem-ployment rate. During the last months the unemployment rate in UD dropped below 6.2%, whereas in Europe it is at 11.5%. FED, following a dynamic poli-

cy, called "quantitative easing", through which it increased the monetary base by 467%, over five years since 2008, thus stimulating lending and consumption, currently has walk away from it, into the opposite direction. Now that economic growth has made a comeback, the FED is changing course, by applying a more restrictive monetary policy (called "ta-pering"), through which it aims to sta-bilize the value of dollar, by reducing the monetary base with about USD 85 bil-lion, from end-October 2014, and by an-nouncing a progressive increase of base interest rate, starting from June 2015. Consequently, the yield of the US sover-eign bonds, currently at 2.5%, is found far more attractive than German Trea-sury Bills (1%) or French ones (1.3%). All this provides the effect of a strength-ening Dollar against the Euro, while many monetary analysts estimate that this factor will continue to be present for many months to come. But the weaken-ing of Euro and the Dollar strengthening

ECB is starting to establish a correlative link between low inflation levels in the Eurozone, weak economic growth and the strong euro, which means that one of the important instruments that will used in months or years to come, to cope with the risk of deflation and to stimulate the economic growth, will be "weakening the euro".


seems to be influenced by another fac-tor: since the beginning of 2013, when the Eurozone began to show signs of a post-crisis stabilization and create more confidence, it was poured into numerous large investments, thus increasing the pressure on the common currency to de-preciate. Secondly, a new course pursued by the ECB. The central objective of ECB's monetary policy, in the area of mone-tary policy, has always been the control of the inflation rate and price stabili-ty, but during recent months, ECB has started to be a bit more flexible in re-lation to this target, by being attentive to the exchange rate of Euro against other currencies, such as the US Dollar, British Pound, Japanese Yen, Chinese renminbi, etc. Needless to go up to the institutional evidence of such "second goal", ECB and its President, Mr Mario Draghi, have been openly expressed, in many cases, in favor of the importance and attention that must be paid "to the

Monetary analysts and specialized agencies of financial markets estimate that, through the TLTRO program (Targeted Long-Term Refinancing Operations) European banks will be able to be credited with approximately EUR 400 billion, which are expected to go in favor of recovery and development of the European economy.

euro exchange rate and its power against other major currencies". In this way, it seems that, directly or indirectly, the ECB is starting to es-tablish a correlative link between low inflation levels in the Eurozone, weak economic growth and the strong euro, which means that one of the important instruments that will used in months or years to come, to cope with the risk of deflation and to stimulate the economic growth, will be "weakening the euro". In fact, if we consider that most of the raw materials that are imported to Europe are quoted on the exchanges in dollars, it is crystal clear that the more stronger the Euro against the Dollar, the more re-duced will be the prices of oil, gas, min-erals, etc., which translates into more lower inflation and serious deflationary threat, which risks to confront the Euro-zone with Japanese deflationary disease in the late 90s. This is why the ECB does not attempt to conceal its stance in favor of a weaker Euro against Dollar, that’s

why the ECB lowered the key interest rate for Euro, in September 2014, from 0.15% to 0.005%, while simultaneous-ly announcing the commencement of a special program of securitized asset and bond purchases, ABS (asset-backed secu-rities), in order to facilitate the flow of new loans to the European economy. Also, the ECB launched its new pro-gram of "new 4-year refinancing oper-ations for European banks", the first tranche of which was activated on 18 September 2014. Monetary analysts and specialized agencies of financial markets estimate that, through the TLTRO pro-gram (Targeted Long-Term Refinancing Operations) European banks will be able to be credited with approximately EUR 400 billion, which are expected to go in favor of recovery and development of the European economy. A direct con-sequence of all these operations will be a further weakening of Euro relative to the US Dollar, for months and perhaps years to come. According to analysts of some of the most important European and American banks, the above-cited ac-tions and objectives converge naturally to the conclusion that: "the weakening trend of Euro and the strengthening one of Dollar it is not a temporary and con-jectural, but rather a more stable and long-term, at least for a 2-3-year period. Assessments and projections for them go further to 2015, when there are pro-jections for an EUR/USD exchange rate at 1.00 - 1.25, while during the period 2016-2017, based upon the fact that the European economy and its economic growth is not expected to experience a considerable boom, the EUR/USD ex-change rate could drop further to 1.00 - 1.15, or even to a parity of 1 USD = 1 Euro, by 2017. Euro is expected to be in a weaken-ing trajectory for the coming months, in relation to British Pound, as the British economy by leaving behind the fear of any Scotland’s secession, seems more solid than that of the Eurozone, while the Bank of England has indicated that during the first six months of 2015 it may begin changing the course of its monetary policy, to increase the interest rate for the British Pound.



BKT

The reconstruction of summer resort in Velipoja is over Banka Kombëtare Tregtare organized through Facebook a campaign, by which every sharing of the dedicated account number to this event, the bank donated specific amount, which in total were used for the construction of The Summer Resort in Velipoja. This resort, which was built during ‘60, is ready to welcome visitors from all the orphanages, throughout the country.

multicultural Festival in Berat Banka Kombëtare Tregtare supported the multicultural festival held in Berat, from 21 - 23 August 2014. The Festival, a three-night event, included 12 artistic activities, aiming at promoting cultural legacy and values of Berat.

Social capitalCREDINS BANK

“music Festival”, for the first time in Albania Crédit Agricole Bank - Albania, as a permanent partner in promoting art and culture throughout the country, has supported the organization of “Music Festival”, a massive activity held for the first time in Albania. This event came through the cooperation of French Alliance in Tirana, Embassy of France, Credit Agricole Bank and other partners. Under the slogan “Make music”, such internationalized activity encourages amateur musicians to voluntarily play music in streets, squares and public areas. The festival in Albania was held in the cities of Korça, Elbasan and Tirana, concluding with a great concert in “Scanderbeg” Square. This festival is designed to return to a tradition, for the coming years, and to be added to the country’s artistic events calendar.

CREDIT AgRICOLE

TRA.Ku fest The Credins Bank became one of the key supporters and promoters of this festival, which promoted the values of and the beautiful Albanian traditions through certain events, such as: academic conferences, traditional celebrations, visits (sightseeing), artistic concerts and many other activities, which were organized under the auspices of Ministry of Youth and Social Welfare and the Ministry of Urban Development and Tourism. Credins Bank supports the healthcare in Albania Under the slogan “Credins Bank supporting the healthcare in Albania”, it was the turn of Shkodra regional hospital to enjoy the bank’s support, following those for Durrësi and Vlora regional hospitals. Such an initiative of Credins Bank will continue by providing further support for other important hospital centers, aiming at upgrading the hospitalization service in our country.


Social capitalFIRST INVESTmENT BANK

INTESA SANPAOLO BANK Student’s Credit Card Over a six months period, Fibank’s personnel carried out a number of informative presentations at premises of public and private universities’ auditoriums, with regard to credit cards, specifically tailored for students. Fibank has also invited students to visit bank offices and to attend the internship programs there. “Student’s credit cards” product has the main objective to inform the new generation over the opportunities offered by these means of payments and to establish a strong relationship between this generation and banks.

Beer Festival in Korça Intesa Sanpaolo Bank - Albania participated with its ecological stand at the Beer Festival in Korça,from 13-17 August. During this event, numerous gifts were distributed to visitors, by transmitting the message of revitalizing the city’s tradition, as the city where the Albanian beer was produced for the first time. The festi-val, already a 8-year old tradition, was visited by approximately 80 thousands people. The preservation and development of tradition and culture, in full accordance with the touristic and economic development strategy of the region, is part of the Bank Social Responsibility in all places where it operates.

VENETO BANKA

Veneto Banka and “Neranxi” Culinary InstituteVeneto Banka has decided that its development policies must have the priority to support youngsters with vocational education, by providing them with material basis, and is continuing to make a real contribution in professional improvement of new generation, by creating cooperating opportunities with successful enterprises.

Supporting sportThe bank was one of financial supporters of Beach Volley National Championship, organized by the Albanian Federation of Volleyball, in cooperation with Himara and Saranda Municipalities.

Veneto Banka and Lions Club TiranaThe story of Rushani family in Fitore village of Novoselë commune, Vlorë, is really heartbreaking. Lion Club Tirana, Mr Gjergj Liqejza, Consul of Austria in Shkodra and Veneto Banka, responded to the appeal in media by the parents of two paralyzed children, Amarildo and Klodjan, and provided them with electric wheel chairs.

multicultural Festival in BeratThe Multicultural Festival, in the 2400 old year city of Berat, was organized to enhance and promote Agro-tourism and the cultural events in the frame of the city’s economic development. The bank participation in the Agro Fair with its wooden stand, branded lamps and aprons distributed to all visitors and participants, reinforced the commitment to sustainable development even through the usage of ecological and multifunctional materials. This event reaffirmed the historical, cultural, ethnographical, architectonical values of the region, as well as its religious tolerance as a considerable potential for touristic and economic development.


RAIFFEISEN BANK

Supporting Korça regional hospital Raiffeisen Bank has continued its support even in Korça, by sponsoring the reconstruction of the main entrance of Korça Regional Hospital. The inauguration ceremony was attended by Mr Petrika Tollkuçi, Regional Director of Health Insurance Service, Mr John McNaughton, Board Member for Retail Banking of Raiffeisen Bank, Mr Ardit Konomi, Prefect of Korça District, the Mr Ilirjan Pendavinji, Member of Parliament, as well as physicians and nurses form this institution. In his speech, Mr McNaughton, said: “Raiffeisen Bank will continue to support further the revitalization of this sector”.

SOCIETE gENERALE ALBANIA CELEBRATES 150Th ANNIVERSARy OF SOCIETE gENERALE gROuP AND 10Th ANNIVERSARy OF BANK SOCIETE gENERALE IN ALBANIA

On the 3 September, Societe Gener-ale Albania organized a gala dinner to celebrate the 150th Anniversary of Societe Generale Group and its 10th Anniversary of Bank Socie-te Generale Albania. With special participation of employees, business partners, client representatives and certain institutions, this dinner was a special occasion to celebrate together. Societe Generale has been present over these years by financing projects that symbolize modern world and has supported millions of private clients, households, small, medium and big enterprises throughout the world in their various projects.

Kuçova’s municipality to give the name “Raiffeisen Bank” to the main street of the cityThe Municipal Council of Kuçova Municipality decided that the main street of the city to bear the name: “Raiffeisen Bank”, as a token of gratitude for the bank. On this occasion, an inauguration ceremony was organized, in which Mr Bardhyl Gjyzeli, city mayor, Mr John McNaughton, Board Member of Raiffeisen Bank, and representatives of other institutions in the city, took part.

Sponsoring the reconstruction of Employment Office in gjirokastraRaiffeisen Bank, in cooperation with the Ministry of Youth and Social Welfare and the National Service of Employment, has financed the reconstruction of Employment Office in Gjirokastra. The inauguration ceremony was attended by Mr Christian Canacaris, General Director of Raiffeisen Bank, Mr Erion Veliaj, Minister of Youth and Social Welfare, businesses representatives and several organizations, operating in this sector.


News

SwIFT: “20 years in Albania, 20 years of partnership”First SWIFT Business Forum Albania 2014

The Albanian Association of Banks, in collaboration with SWIFT Austria and CIS, organized the First Busi-

ness Forum - Albania 2014 with the topic: “20 years in Albania, 20 years of partner-ship”. The forum, held on 17 September in Sheraton Hotel, Tirana, was attended by representatives of commercial banks in Albania, Bank of Albania, Ministry of Finance, non-bank financial institutions, utility companies, etc. Commercial banks in Albania are users of SWIFT platform for 20 years now, and the infrastructure of country’s payment systems is built upon this platform.

In her opening speech, Ms Endrita Xhaferaj, AAB Secretary General, emphasized the importance of organizing such forum, for the first time in Albania, which is being organized every year in many countries worldwide. Mrs Najada Xhaxha, Head of AAB Payments Committee and SWIFT User Group Chairperson in Albania men-tioned the mutual benefits, for both banking system and SWIFT, during these years of cooperation, as well as the new challenges and opportunities for the future. The forum continued with presentations from the representatives of SWIFT Austria

and CIS, who introduced their products. Representatives from the Bank of Albania and the Ministry of Finance held presen-tations on the development of payment systems in Albania, the participation of these Institutions in the SWIFT network during these years of partnership, and the impact from the usage of this platform.The second section was divided into four parallel presentation sessions, where solu-tions that SWIFT offers to all the partners (banks, governmental institutions, other financial institutions, utilities, etc.), were introduced.


Interview with mr michael Formann,Head of SWIFT Austria

How did you find the Swift Business Fo-rum held lately in Tirana? In what respect was this Forum useful for Albania? My impression it was an event very much worthwhile to be repeated, hopefully in a regular interval. Events like this make sure that local communities get involved in the global discussions held in the SWIFT community.

From your perspective, how does the SWIFT Compliance Roadmap looks like for 2014?In a nutshell, I fully believe we are on track and have progressed a lot over the past 18 months. Nevertheless, still there is way to go, especially in the context of KYC for correspondent banking. It is great that with Erste Bank Group and Raiffeisen In-ternational we have players involved who play a very important role in our region in CEE.

How do you find the payments system infrastructure in Albania? Do you have any practical insights on it?To my knowledge it is a very robust and scalable setup that has been implemented. It uses all of the highly resilient and efficient messaging channels we have created espe-cially for adoption in Real-Time-Gross-Set-tlement Systems. And I am also aware that BoA is always keeping in touch with latest developments on our side.

Given the present financial crisis, what is a real boost for the securities? Unfortunately there is no golden bullet, but what I have witnessed when travelling the region, a sound financial system is just a starting point. We normally see a steep-er increase in GDP and other KPIs when also the state/government makes sure, that people get tax benefits when e.g. investing in pension funds to secure their well being for later.

How can Albania support the standardi-zation and cooperation among the CEE countries in order to address better the issues we are facing in this changing and challenging environment?This is a process that is already ongoing. I regularly meet a number of Albanian colleagues when speaking at conferences in the region, but also current technolo-

gy makes sure that knowledge sharing is much easier compared to just a few years in the past. In your view, to what extent is Albania on the road to establishing itself as a finan-cial good reference point in comparison with the other CEE countries?Not sure if each and every country requires at being a reference point, though I strong-ly believe it is very beneficial to try hard to be competitive and fight to be amongst the best in class. From a technical point I believe a lot of good homework has been done. From an economical point of view there is still some mileage left… I still can-not understand why e.g. the tourism in-dustry has not developed much stronger; I am personally a big fan of Albania, its very well educated people and the amazing nature.

By Ms Rudina Hoxha


NJE BOTE

MUNDESISH REALE

KREDI & PAKETA

PER BIZNESIN E VOGEL

SHUME SHERBIMEME PAK KOSTO

www.intesasanpaolobank.al Call Center 08006000 (Falas)Tel: +355 4 22 76 000Cel: +355 (0) 692080903


Opinion

An overview on Thomas Piketty’s Capital in the Twenty -First Century"

by ms Erjona REBIPhD Candidate in Economics

In the summer of 2014, the book of French economist Mr Thomas Piket-ty: "Capital in the Twenty-First

Century", came into the limelight, out of many books published around the world. This book made numerous head-lines in the international arena, driven by issues it address, the writing style and the new approach it brings into lines. Getting lots praises, but criticism too, it has become one of the world’s bestsellers, as it recalls the debate of Karl Marx’s "Capital" into the current issues of our time, where wealth concentration and the deepening disparity between differ-ent classes of society has become more severe and more evident than before. The main idea Mr Piketty conveys throughout this book is that the in-equality in wealth distribution will be raised further, either in USA or in Eu-rope, as long as the rate of return on capital is greater than the rate of eco-

nomic growth. The result of such re-ality will be the wealth concentration, which will be accompanied by an in-creasing inequality between different social classes and consequently, will lead to social and economic instability. To address this problem, Mr Piketty proposes in his book the use of pro-gressive tax on capital/wealth, which would prevent that the wealth could be under control of just a few people. Through statistical arguments and facts throughout the book, Mr Piketty shows that inequality is not accidental, but rather it is a feature of capitalism, which can be held back only through state intervention. As long as this state of affairs does not change, the demo-cratic regime in the world will be under threat. The author shows that the up-ward trend of inequality was becoming steep by early years of the twentieth century, but events such as: World War II and the Great Depression destroyed many of the existing assets and wealth, in particular those of country’s elite. There were just these events that spurred governments to undertake measures for

When the rate of return on capital exceeds the rate of growth of output and income, […] capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based. (Thomas Piketty)

wealth redistribution and income dis-tribution, particularly after World War II. The rapid economic growth that came later made the inherited wealth less important. Meanwhile, the author argues that the world today has re-turned to sharp inequality of the late nineteenth century, where economies are commanded and dominated not by talented people, but by family dynas-ties and inherited wealth, which is in-creasingly strengthening and piling up. Along with many supporters, there are many critics on this book, who think that the indicators, selected by Mr Piketty to make a judgment about capital, are evasive. Such indicators are significantly affected by the finan-cial evaluation of capital in the market and do not consider its productive use. Even more arguable and debatable is the proposal to introduce the progres-sive tax, as a solution in this regard. Despite these criticisms, "Capital in the Twenty-First Century" is an interest-ing book that must be read and surely time will be its best judge in the future.


by mr Dritan mEZINIExecutive DirectorDM CONSULTING

Tech Topics

heRaA module for most efficient use of human knowledge, talent, skills and capabilities

Because of large numbers of employees, spread of branches on different locations and high turnover of employees, the Banking system needs to have centralized solutions for the management of employee data and information.

DM Consulting Services (DMCS), as Business Support Organiza-tion (BSO), was established in

2005 to provide clients with top-quality, innovative, reliable, cost effective, and time-saving business, Human Resourc-es and IT solutions. The main areas of DMCS expertise consist of the follow-ing: 1. HR Management, Recruitment and Training, 2. IT Solutions and Ser-vices, 3. Web & e-commerce Solutions and Services, 4. Outsourcing, 5. Man-agement Consulting. DM Consulting is composed of a team of professional experts in the main areas of Human Re-sources, web development, e-business, e-commerce, online marketing with ed-ucation and experience in Albania, re-gionally and internationally. Additionally, the above-mentioned expertise, when intertwined with in-

formation technology, are transformed into products and services which help businesses at facilitating the process-es where they are involved, including: Human Resources (HRMIS); Customer Relationship Management (CRM), Ap-plicant Tracking System (ATS); Online Portals; SME Turn-key solutions; IT Audit; IT Strategy, Feasibility Study, IT Assessment, IT Consultancy, IT MIS, Project Management and e-commerce Training. DMCS is focused on design-ing high quality and unique web designs and e-commerce to help the customers trigger makes us improve radically the productivity and the success rate of their business. Human Resources are considered as a crucial element in de-veloping a successful and competitive business, because it allows companies to increase their productivity through bet-ter use of their human capital. DMCS’s HR Management Consulting Services are designed to help businesses improve organizational activities, employee pro-ductivity, and administration.

heRa modules HERA product life cycle development includes modules representing the path to solutions of the main requirements submitted by clients as following:

• OrganizationalStructure• HumanResources(Dossier,

Contract, Leave) • Payroll• TrainingManagement• Recruitmentonline• ReportingSystem• AdministrativeManagement• Security(passcard)• Helpmodule• WarrantyandMaintenance• Interdepartmentalrelationship

Benefits of implementing heRa • IncreasedProductivity• Moreefficientadministration• Moreoperationalopportunities• Reducedlaborrequirements• Superiormanagerialdecision

making• Reducedcosts• Superiorcontrol


mAIN SERVICES OF humAN RESOuRCES FIELD DMCS is dedicated to provide the best possible solutions to all its clients, whether they are big established com-panies, small businesses or qualified in-dividuals looking for opportunities to develop and advance their professional careers. Our main services in the field of human resources are:

• RecruitmentandExecutiveSearch,• EmployeeAssessmentServices,• TrainingandDevelopment,• HRConsultancyServices,• CareerCoaching,• Employmentportal: www.duapune.com

In the meantime, DMCS have just launched the new version of the em-ployment portal (duapune.com) ver 3.0, which is much functional and offers new services for the employers and jobseek-ers, as per the following: Standard CV format, Advanced Search, Internal Com-munication, Social Media Integration and Multiple documents upload.

IT SOLuTIONS AND SERVICESDMCS has provided IT strategies for a large range of SME in the areas of information system implementation, e-commerce, digital marketing and the

integration of IT strategy and process-es with the core business strategy of the organization. We provide a comprehen-sive set of IT solution and services to extract structured data to improve de-cision-making, financial management, regulatory compliance and customer service.

hRmIS – hERA PRODuCT The Human Resource Management In-formation System is by no means a new phenomenon – on the contrary, HRMIS technology has been around for years. Only recently, however, have compa-nies begun to realize the serious benefits such systems have to offer. Nearly every business can stand to gain something in the realm of efficiency and operational cohesion, and HR information software is designed to provide exactly those im-provements. These systems collect, store and analyze the characteristics, actions and the performance of employees (in-cluding future and former employees) also other pertinent information (e.g. job, position data, salaries) for manage-ment decision making. Meanwhile, the banking system be-cause of large numbers of employees, spread of branches on different locations and high turnover of employees, need to have centralized solutions for the man-agement of employee data and infor-

mation. Because of lack of automated systems for the information of employ-ees, absence of generated analytical re-ports and lack of streamlined processes, the banking sector very frequently has not been able to generate strategic ap-proaches to human resources, by auto-mating the processes and reports. Based on this identified gap and strong need for intervention especially on this sector, DM Consulting Services, in consortium with Komptel Project En-gineering, have conceived and moderat-ed the HRMIS, so called HeRa, that has been tailored to provide a full service and accurate for companies that have a large number of employees and to whom the implementation of this prod-uct would be very beneficial especially on cost and strategic plans terms. HeRa enables the most efficient use of human knowledge, talent, skills and capabilities in order to achieve the objectives of or-ganization. Moreover it offers the possi-bility to be used in many companies or branches at the same time, each with its own rights & users. It consists of typical HR integrated modules which helps the HR personnel for a lot of aspects and of-fers to them the possibility to be efficient on their work for the benefit of the com-pany. These modules are the results of product life cycle management such as analysis, design, development/customi-zation, implementation and testing and training. Basing on the needs of the cli-ents and companies, the product under-goes customized solutions and modules reformatting. The HERA represents a robust, tested and proven business management product, already imple-mented successfully for the last years at Kosovo Energy Corporation (KEK) over 8,000 employees, Radio Television of Kosovo (RTK) over 600 employees, Raiffeisen Bank Kosovo (RZB) over 500 employees, Central Bank of Republic of Kosova, Kosova Government, ProCredit Bank of Kosova, and several public utili-ties enterprises in Albania, such as Water Companies in Durrës, Lezha, Saranda and Fier.


by ms Rezarta gODOExecutive DirectorJUNIOR ACHIEVEMENT OF ALBANIA

Financial Auditorium

Financial education through Junior Achievement Program

Albania and the Albanian mar-ket is being faced with numer-ous challenges of development,

competition, European integration and globalization in general, which is raising the awareness of respective stakeholders regarding the importance of orientating the society towards a pragmatic and ra-tional approach, either in terms of educa-tion, learning with practical knowledge and experience, or choices for the pro-fessional career. It seems that teachers, parents and youngsters are moving away from the education and graduation stan-dard in most preferential disciplines with undisputable prestige, but over exhaust-ed, which lead to oversaturation and high unemployment. Currently, parents and youngsters seem to be increasingly attracted by study fields and choices sig-naled by the market, technology, or soci-ety’s growing needs, and what is meant is the employment and the guarantee to yield results from investment made in

education. Parallel to such rational and well-targeted approach, is the awareness about the importance of economic in-dependence and proper management of money, since the early age. When young people are still at school years and eco-nomically dependent on their families, they need, since their childhood, to un-derstand the value of money, the efforts and difficulties to obtain it, with the aim to achieve the desired independence, self-security and to compete successfully in the market. Specifically, if young peo-ple aspire to manage and run commercial companies’ departments, they must first be able to manage themselves, especially personal finances. Junior Achievement (JA) Program, is applied in 150 secondary schools throughout the country, and is in its third year of its life in Albania, thanks

to initial funding of Albanian-American Development Foundation (AADF). It puts young people in situations where they experience in practice the core of fi-nance. They are challenged and practices in several aspects, including knowledge about financial terminology, cost-bene-fit analysis, raising the initial capital in-vestment through shareholders, setting financial goals (manufacturing-sales- net profit), preparing simple financial state-ments (inflows-outflows), etc. Beyond youth-centered learning and their prac-tice, JA provides also the "mentors", who help young people to digest and un-derstand finance, as well as identify solu-tions to increase revenues, by avoiding or minimizing possible risks. Mentors rep-resent a value in educating young people with knowledge about entrepreneurship, business and finance, according to JA


program. Especially mentors who are professionals in the banking industry il-lustrate some best practices in managing personal finance, by referring savings de-posits (savings as a key learning concept for young people), investments through bank loans, etc. Specifically, young peo-ple are acquainted not only with practi-cal concepts and ways to exercise proper financial management, but also with le-gal and financial responsibilities and ob-ligations, associated with various under-takings, such as: investing through bank loans. A quality financial education helps substantially in preparing youngsters for the labor market. Surely, they will not necessarily be professional financiers, but rather individuals prepared to know the value of money, manage their coffers me-ticulously, and earn respect for what they have managed to save, or gain, thanks to their efforts as individuals and young professionals with work ethic, clear ob-jectives, healthy ambitions, and with a

sense of scrupulosity, that conveys trust in them. Given the importance of early prepa-ration of Albanian youths with prac-tical knowledge of doing business and baseline financial knowledge, the future employers are increasingly aware about the importance to contribute to well-ed-ucation of young Albanians. Specifically, some of the largest banking institutions in the country have contributed signifi-cantly in youth education, through JA's, by way of financial knowledge of their mentors, including Raiffeisen Bank and ProCredit Bank. Meanwhile, Credins Bank will contribute this year with some 47 mentors, a very significant intellectual investment for JA program youngsters at various schools throughout the country. Alpha Bank and Tirana Bank will also contribute with their mentors in Tirana and other districts. Mentors and JA's subject content will focus, inter alia, on a careful selection of young people, market analysis and market needs’ assessment,

knowing clients and their expectations, setting the competitive price, identifying and competitive advantages in the mar-ket, assessing the short and long term consequences of different decision-mak-ing (comparative analysis), learning the pillars of a business plan, setting dif-ferent objectives, conducting a research for potential competitors in the market, regular and correct registration of any financial transaction, evidencing every purchase-sale act, completing various forms, including sales orders, etc. Apart from such exercises, youngsters deepen financial and non-financial knowledge, by preparing action plans and strategies with techniques that lead to lasting suc-cess and sustainability.


AAB Trainings

TRAININg ON “IT FOR NON IT-ERS”

AAB, in collaboration with the Albanian

Institute of Internal Auditors (AIIA),

organized on 15-16 September a

training course, which was designed for

Financial, Information Technology and

Internal Auditors, IT Security and Infor-

mation Security Officers. This intensive,

two-day seminar outlined the concepts

of information technology, necessary to

understand the audit concerns in the IT

environment. The training course was

attended by 15 participants.

TRAININg ON hR STRATEgIC mANAgEmENT

AAB, in collaboration with WIFI Alba-

nia, organized on 18 - 19 September a

training course on HR Strategic Man-

agement. The training aimed to equip

the participants with personal skills

and specialist knowledge, required for a

successful HR practitioner. The course

aimed at providing the opportunity that

newly acquired skills and experience

could be conveyed straight back to the

workplace. The training was attended by

participants of 6 member banks.


SwIFT CELEBRATES ThE 20Th ANNIVERSARy IN ALBANIA

SWIFT Community Albania organized on 16 September 2014 a dinner party, supported by CIS, to celebrate the 20th Anniversary of SWIFT in Albania. On this occasion, the SWIFT Community Albania awarded Mrs. Lindita Bendo from Intesa Sanpaolo Bank, Mr. Valer Miho from Bank of Albania and Mr. Alke de Boer from Swift for their con-tribution and devoted work towards the modernization of Albanian Payment Systems, by being the first persons engaged in this project in Albania.

SEmINAR ORgANIZED IN COLLABORATION wITh ICC ALBANIA

AAB organized together with ICC

Albania two seminars, delivered by Mr.

Andrle Pavel, Secretary of ICC Czech

Republic Banking Commission and

Member of ICC Banking Commission.

The seminar on 15 September on “ICC

Trade Finance Rules” was a practical

seminar on international payment and

security instruments and financing with

special focus on new developments in

open account trading area.

The second seminar of 16 September on

“INCOTERMS Rules 2010”, defined

the responsibilities of buyers and sellers

for the delivery of goods under sales

contracts. In total, these two trainings

were attended by 23 participants of 7

member banks.

The seminar of 17 September on “Trad-

ing Frauds in an uncertain economic

climate” was organized in collaboration

with ICC Commercial Crime Services

based in London and was delivered by

Mr. Michael Howlett, Deputy Director of

IMB and a Director of ICC Commercial

Crime Services and Mr. Dave Cuckney,

IMB Manager. The seminar was attended

by 16 participants.


Documents

Bankieri No. 13 - October 2014