BANKIERI No.3 April 2012

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Publication of Albanian Association of Banks

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BANKIERI is the newest official

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provide readers with valuable

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ContentsEditors’s dEsk

In brick & mortar we trust! by Elvin Meka

FrontlinEBanking sector in Albania is strong and will continue to remain so by Klodian Tomorri

BAnkinG sYstEM

EXPErt ForUM

EConoMist CornEr

soCiAl CAPitAl

BAlkAn nEt

tECh toPiCs

FinAnCiAl AUditoriUM

AAB

p.5

p.7

intErviEw

Asset Management - The beginning of a new era within Albanian Financial IndustryInterview with Mr. Christian Canacaris

Compulsory Execution: its efficiency would boost up the market economy by Erion Doko

The new law on registration of imovable properties and its expected impact on banks’ loan practice by Veronika Prifti

Competition in the T-Bill marketby Klodian Tomorri

Bank Contracts’ transparency - a legal perspective by Ledia Plaku

Banking reform - the appropriate response to the crisis by Adrian Civici

Interbalkan news

Mobile payments – an alternative payment method by Linda Shomo

Project finance by Junida Tafaj

Banks robberies and the crime scene by Roland Tashi

Conservatism of Banks: Deliberate choice or forced by the events?by Arjan Kadare p.8

p.9

p.11

p.14

p.17

p.19

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BankieriNo. 3, April 2012

Publication of the Association of Banks

Editorial team:

Elvin MekaEditor-in-Chief

Klodian Tomorri Correspondent

Junida Katroshi (Tafaj)Coordinator

Sonila Krashidesign & layout

Besa VilaEditor

Gert HoxhaPhotografer

Editorial Board:

Seyhan PENCABlIGIlAAB Chairman & Chief Executive Officer, Banka Kombëtare Tregtare

Ioannis KOuGIONASAAB Vice Chairman & General Manager, National Bank of Greece

Christian CANACArISAAB Executive Committee Member & Chief Executive Officer, raiffeisen Bank - Albania

Flutura VEIPIAAB Executive Committee Member & Spokesperson of the Management Board, Procredit Bank

Bozhidar TODOrOV AAB Executive Committee Member & Chief Executive Officer, First Investment Bank - Albania

Endrita XHAFErAJSecretary GeneralAlbanian Association of Banks

Hysen CElAExecutive Director, Institute of Albanian Chartered Accountants

Adrian CIVICIDirector of the Doctoral SchoolEuropean univeristy of Tirana

Spiro BruMBullIrector - Tirana Business university

AlBANIAN ASSOCIATION OF BANKSBulevardi: “Dëshmorët e Kombit”, TwIN TOwErSTower I, Floor 6, A3, TiranaTel: +355 4 2280 371; Fax: +355 4 2280 359E-mail: [email protected]; www.aab.al

Publication of Albanian Association of Banks

Nr. 1

Te

tor

2011

ISSN

222

5-29

59

N0.

3 A

pril

201

2


Recent news & media headlines are crammed, up to the point of astonishment,

with reports about three important facts on banking activity in Albania: a countable deposit growth, a continuous buildup in non-performing loans, and a substantial increase in banking system’s profits. Bunched altogether, it sounds like a paradox, but put into the context of the Albanian banking system, it cannot and should not, surprise anyone. The answer is self-explanatory, at least in two ways: (1) banks in Albania pursue and employ a traditional banking business, and (2) this business model is placed into a conservative regulatory environment, continuously and strictly supervised by Bank of Albania.

It was all but this traditional banking model, which absorbed all sorts of shockwaves, generated by global economic & financial crisis, in various moments of its timeline, and simultaneously, put the Albanian banking system in the hall of fame of general public confidence, a quite rare and precious quality, especially in these times. The ever-increasing bank deposits since 2009, despite numerous financial events and happenings in the regional and global theatre, a sustainable capitalization, satisfactory liquidity, an expanding credit process and a continuously-positive profit, witness for the righteousness and sustainability of the business model, banks in Albania have

IN BRICK & MORTAR WE TRUST!

Editor’s dEsK

by Dr. Elvin MEKAEditor-in-Chief

chosen to pursue. The traditional business model, based upon two strong principles: (1) ensuring simple financing structure, through clients’ deposits and with a moderate use of leverage, and (2) offering plain vanilla products and services, away from sophisticated and crisis-generating products, resulted as the most crisis-proof , management-effective and suitable model, for the actual phase of Albania’s social and economic development.

Surely, NPL management and the return to one-digit NPL rate figure, remain the ongoing challenge, but this is not a tango, which always takes two (bank and client). Bank management, either for a modern or traditional banking, finishes where the responsibility and the duty of justice institutions and other law enforcement bodies, begins.

Typically, the last global economic & financial crisis will definitely reshape the global banking system, if not the entire global financial system, by bringing it back down to Earth. The Albanian banking system, as based upon the bedrock of traditional banking model, has passed the test of fire already, and is progressing, in a healthy way, towards its further expansion and modernization, in permanent and sustainable support to the Albanian economy. Now, everyone could feel confident and say loudly:

IN BRICK & MORTAR WE TRUST!!!

The Albanian banking system, as based upon the bedrock of traditional banking model, has passed the test of fire already, and is progressing, in a healthy way, towards its further expansion and modernization, in permanent and sustainable support to the Albanian economy.


FroNtliNE

prepared by Klodian TOMORRI

Dr. Ioannis KOUGIONASGeneral Manager, NBG Bank

The effects of the crisis in Albanian economy have often been subject

of hot debate during the last three years. But, all the experts converge in one point, that the country has a solid banking system, which success-fully weathered the crisis. “During this time the most common question, many people were asking, was: Is the Albanian banking sector strong? The answer is undoubtedly yes”, says Dr. Ioannis Kougionas, Vice President of the Albanian Association of Banks, AAB. Dr. Kougionas admits that, the fact for the Albanian banking system, which resisted the crisis successfully, is not a surprise. On the occasion of a scientific meeting, with the topic: “European Economic Crisis and its consequences on the periphery”, held in Tirana recently, he lists several reasons, which kept Albanian banks away from the crisis. “First and fore-most, the Albanian banking sector is liquid and well-capitalized. Capital adequacy ratio, which measures how well-capitalized the banking system is, in Albania stays currently at 15.6 percent, when in most countries of the world it varies from 8 to 10 per-cent” - he explains. Capital adequacy ratio improved from 15.4 percent by the end of 2010 to 15.6 percent. But, that’s not the whole story. Banks are liquid and well-regulated. “Currently there is a broad regula-tory framework, in terms of liquid-ity and risk management. Last year, some new changes in banking law were introduced, which have con-tributed toward the strengthening of the system’ immunity, which is very important” - follows Dr. Kougionas. Albanian banks have stayed away from high-risk assets, the so-called toxic assets, which originated the fi-

nancial system crisis in the U.S. and the throughout the world. Banking activity in Albania has been focused primarily on traditional banking, staying away from high risk instru-ments, which generated the crisis. “In addition to the above listed factors, I would emphasize the cooperation between the parties involved: Bank of Albania, the Albanian Association of Banks and the banks between each other, which is deemed as a point of strength” - explains Dr. Kougionas.

now approximately 80 percent of total banking sector assets”- follows Dr. Kougionas. “Certainly, there has been a slowdown on borrowing dur-ing the last two years, but it should be noted that the trend is still positive and the loan-making continues to grow” - stresses Dr. Kougionas. Also, the banking sector has an important role in bringing innovations. “New products and services have entered the financial market, like: project fi-nancing, mortgage loans, consumer loans, electronic banking, leasing, etc.” - says Dr. Kougionas.Collateral enforcement - the issue in the frontlineThe last three years were turbulent years for the global financial system. This situation has highlighted some issues for the banking system in Al-bania, where, one of the most crucial issue, is the increase of non-perform-ing loans, which is already discussed publicly. “All banks have sufficient reserves to absorb the impact of the increase in non-performing loans. Banks are also implementing pru-dential lending standards,” he says. Experts say, it is necessary to main-tain the country’s sound banking sec-tor, because it is quite indispensable for banks to protect their customers’ money. “At this point, the collateral enforcement gets an important role, which is another issue we are faced with” - says Dr. Kougionas – “al-though the private bailiff service has improved the situation”. However, he remains convinced that the bank-ing sector in Albania is built on sound foundations. “As I said, the Albanian banking sector is strong and will con-tinue to remain so” - concludes Dr. Kougionas.

Albanian banks have stayed away from high-risk assets, the so-called toxic assets that originated the crisis in the U.s. financial system, which then spread throughout the world.

BANKING SECTOR IN ALBANIA is strong and will continue to remain so

Banking activity in Albania has been focused primarily on traditional banking, staying away from high risk instruments which generated the crisis.

Continuous growthDuring the last ten years, the banking sector in Albania has continued to expand its activity, in a quite steady way. Banking assets today account for about 95 percent of total financial assets in Albania. “It is important to stress that, the asset growth of the banking sector was mainly driven by domestic sources. Deposits are


Despite the demise of Lehman Brothers and its ramifications in

Europe, the bank deposit withdraw-als in the fourth quarter of 2008 in Al-bania, came somewhat as a surprise. After all, the banking system was vi-brant and in a very good shape with assets, loans and deposits growing steadily and a return on assets ratio well above the respectable level of 1%. The overall performance of the economy was good as well, with a growth rate above 6% and govern-ment debt and deficit levels under control.

Here we are, three years later, and the panic is history. In 2011, bank de-posits and loans grew at double dig-its and the return on assets is expect-ed to reach the pre – 2009 levels with a capital adequacy ratio of about 3% higher than the minimal benchmark of 12% required by the Central Bank. The only disturbing problem is the increasing ratio of non-performing loans vs. the total loans outstanding.

A decade earlierThe private banking system in Alba-nia is rather new. It was created more than a decade ago by means of licens-ing foreign bank branches and sub-

sidiaries, privatization of old state owned banks and acquisitions of new banks by foreigners. The main actors in privatization and acquisi-tions were well known European banking groups.

At the time people were well aware that following the privatiza-tion/deregulation of the banking system and the liberalization of the capital flows, a credits boom it was to be expected. On similar occasions, such booms have been common in other emerging countries and unfor-tunately in many instances, due to the lack of expertise in screening and monitoring borrowers and a weak supervision by bank regulators, have led to huge bank losses and eventu-ally to banking crises. So, the crisis of Mexico in 1994 and that of East Asia in 1997 – 98 were preceded by the lib-eralization of the banking system and capital flows.

The Albanian banking system passed without big damage the first hard test of its existence

CONSERVATISM OF BANKS: Deliberate choice

or forced by the events?

FroNtliNE

by Arjan KADARE, PhDEuropean University of Tirana

Indeed, as can be seen from graph 1 there was a steady increase in the ratio of bank loans to deposits from 22% in 2006 to about 60% in 2011. So the risk taking by the banking system, as proxied by loans to deposits ratio, was increasing steadily. However, even in 2009 when the ratio reached the highest level of 65%, there were enough bank deposits to safely sup-port loans.

Two warning events and the con-servatism of banks There were two almost simultane-ous warning events for the banking system: the deposit withdrawal from the fourth quarter of 2008 till around mid-2009 and the steep increase in non – performing loans, which al-most doubled in 2008. Banks reacted by quickly decelerating lending and the credit to deposits ratio fell from 65% in 2009 to 58% in 2010. The dip

Graph 1

(Data source: Bank of Albania and Albanian Association of Banks)


in credit pace was more severe con-sidering that in 2009 the deposits fell in absolute terms.

However, at the time of the events the system took less risk than the po-tential, because it was lending to the private sector an amount roughly equal to 60% of the bank depos-its. Nevertheless, the overall figure hides the fact that the big banks were lending only 40% of their depos-its, whereas the rest of the systems much more, presumably in order to gain market share. So the more con-servative big banks were in a much better shape to face the events. One question remains: what is the right (conservative) pace of risk taking? Typically, it should mimic the pace of credit absorption potential of eco-nomic sectors. Note, however, that credit absorption potential does not necessarily coincide with the sector’s growth potential. Let’s consider the agriculture sector which is consid-ered to have a high growth potential. In 2011, it received only 2-3% of the banking credit, but the ratio of non-performing to total loans extended to that sector was 18.6%. Clearly, the metric of non-performing to total loans indicates that the credit absorp-tion is well below the growth poten-tial of the sector.

Nonperforming loans and scale economiesThere are also a couple of facts worth explaining. For the 2005 – 2011 pe-riods, according to Bank of Albania Annual Supervision Reports 2006 - 2010, the return on total average assets (RoAA) went well below the respectable 1% level during 2009 and 2010, when the non-performing loans reached and surpassed one-tenth of the total loans outstanding.

However, the RoAA of the bank-ing system on average is expected to have turned for the better in 2011, (see graph 2). It can also be said that, although the non-performing loans reached 18.8% by end-2011, the sys-tem’s profits seem to be more than enough to allow banks the expansion of their provision funds for non-per-forming loans, as a safety and conser-vative measure required by the Bank of Albania.

In Albania most banks are sub-sidiaries of the Europian banking groups, so they enjoy part of their

There were two almost simultaneous warning events for the banking system: the deposit withdrawal from the fourth quarter of 2008 till around mid-2009 and the steep increase in non – performing loans, which almost doubled in 2008.

parent’s good business models and practices. However, to fully exploit the scale economies, they must in-crease their market share in Albania, as well. The ‘reason’ is explained in graph 3 where according to the AAB’ unaudited data, larger banks (as identified by their share of total banking system assets) performed relatively better in terms of RoA and consequently weathered better the

challenging situation of the non-per-forming loans expansion.

So, maybe the conservatism was a deliberate choice, at least by the big banks, or maybe it was forced by the events, at least on part of smaller banks or maybe both. Be it as it may, it can be said that the Albanian bank-ing system passed without big dam-age the first hard test of its existence.

Graph 2

(Data source: Bank of Albania)

Graph 3

(Data source: Albanian Association of Banks)


iNtErviEw

Christian CANACARISChief Executive Officer, Raiffeisen Bank

BANKIERI: – A few weeks Ago you introduced the first Asset mAnAgement firm in AlbAniA, rAiffeisen inVest. whAt does this compAny stAnd for?This is an asset management company which provides an opportunity for individuals to invest in mutual funds. The main focus will be to provide funds in local and foreign currencies. We offer as well a pension fund to individual and institutional clients. Clients can find out more about Raiffeisen Invest’s pension and mutual fund offerings through any of the Raiffeisen Bank’s 103 branches throughout the country. Or they may call our Call Centre for introductory information before visiting a Branch or speaking with their account manager.BANKIERI: – you Also lAunched rAiffeisen prestige - the first inVestment fund in AlbAniA - within rAiffeisen inVest. whAt kind of innoVAtion does this fund bring into AlbAniAn finAnciAl mArket?We offer this new fund to our existing and any new clients. It gives to our clients a convenient alternative investment option for their savings, in addition to time and saving deposits. Our mutual fund allows them to participate in Albanian government securities with a very reasonable small investment amount.With as little as 5,000 LEK customers can invest in government securities. Normally, through other channels, this type of investment has a minimum amount that is much higher. We want to give the possibility to our customer to invest a smaller amount and to have a good return.We have started with Prestige, a LEK denominated government securities fund and over time we will launch additional funds, starting with a FCY fund later this year.BANKIERI: – inVestment funds hAVe A wide scope of business ActiVity, As they proVide A wide rAnge of finAnciAl products And serVices. prActicAlly, whAt would be the mAin focus of rAiffeisen prestige’s ActiVity?The Prestige Fund will invest mainly in Government securities (T-Bills and Bonds). These are investment products that many customers already feel familiar with, and that generally offer a good return.

ASSET MANAGEMENTThe beginning of a new era within Albanian Financial Industry

BANKIERI: – ActuAlly, indiViduAls mAy inVest in goVernment pApers through trAditionAl trAding chAnnels, like commerciAl bAnks And bAnk of AlbAniA’s t-bills window. whAt is the AdVAntAge, this inVestment fund brings, for the AlbAniAn inVestor? Ease of entry. For the moment, if an individual would like to buy a T-bill, s/he needs a much higher amount than 5,000 LEK. It means that T-bills are not in reach of all customers.BANKIERI: – could we see the estAblishment of this fund As A wAy to AlleViAte or cushion recent restrictions, imposed by europeAn union, on priVAte bAnks, within the AlbAniAn finAnciAl system?There is no link with our launch of the fund and the new EBA regulations. We wanted to establish a line of funds since 2 years to give another option for investments to our customers. A Government Securities fund was always our planned first entry. A LCY money market fund focussed in government securities is a very logical first step in establishing the market. It came by coincidence that the launch coincided with the timing of the new EBA regulations. As I mentioned, we will continue our development plans, our next step being to establish FCY funds as well, which have no link with any restrictions from EBA or the EU.

The introduction of RAIFFEISEN INVEST, an asset management firm, marks a genuine

step forward in the development of the Albanian financial system and the financial

intermediation.



During the last 20 years, Albania has pursued its efforts in devel-

oping a market economy. For the economy to be highly efficient there is always need of fast and free cir-culation of monetary values. This is only possible in a system that guar-antees the settlement of the obliga-tions within reasonable timeframes. On such grounds, there have been several substantial developments in the Albanian legislation, in the past years, of which it is worth mention-ing the liberalization of the bailiff services and the changes to the Civil Procedure Code in 2008. Neverthe-less, there are still some pending is-sues which keep on hindering the free circulation of capital flows in the Albanian economy, and hence the development of a favourable busi-ness climate. The enhanced efficiency of compulsory execution processes and the faster settlement of obliga-tions towards banks would definitely bring new liquidity in the economy, which would easily translate into new jobs, increased consumption, and therefore economy growth.

Certainly, the inability to execute collateral efficiently, within reason-able timeframes and acceptable legal and economical terms, has become a major obstacle to the sustainable de-velopment of the economy and to the lending expansion in Albania.

The commercial banks as the ma-jor lenders to the economy, with the full support from Bank of Albania, have repeatedly raised their concerns regarding the numerous issues faced in the processes of compulsory collat-eral execution. The Albanian Associa-tion of Banks has given an important contribution in raising awareness re-garding the obstacles and difficulties both of a legal and bureaucratic na-ture, in a series of roundtables it has organized with different actors.

However, after about a year of multilateral efforts to find the best so-lution to the difficulties encountered, and keeping in focus the concern of the increasing ratio of nonperform-ing loans, which is an actual subject of debate, it is worth revisiting some of the main concerns which are still pending.

It is time for further changes to the Civil Procedure Code, as well as for a unification of the judicial practices. A minimal commitment is required by legislative institutions such as the Ministry of Justice and the Parliament for an update of the legal framework, but the impact and contribution to the development of the economy will be substantial.

COMPULSORY EXECUTION: its efficiency would boost up

the market economy

BANKiNG sYstEM

by Erion DOKOHead of the Legal DepartmentFirst Investment Bank Albania

The method of calculation and pay-ment of private bailiff feesOne of the objectives of Law No.10031 dated 11.12.2008 “On private bailiff service” was the liberalization of the bailiff service, providing fast and ef-ficient endorsement of the judicial decisions. However, the method of calculation and payment of private bailiff services fees does not add to such objective and obstructs fair competition.

Contract Form approved by the Ministry of Justice provides amongst others that “the service fee is paid in full at the beginning of the process of compulsory execution”. Based on such provision, private bailiffs claim their full service fee upon initiation of the execution process. It should be pointed out that no part of the collat-eral has been yet executed on behalf of the creditor at this stage. The full bailiff service fee is calculated based on the value of the lawsuit, thus on the amount of the liability required by the creditor at the beginning of the execution process. This method of calculation and payment is not convenient for any of the parties in-


volved in the process, as it adds to in-efficiency as well as leaves room for speculations.

Firstly, from the creditors’ per-spective, this method of calculating and paying the fee unduly increases their costs, simultaneously increas-ing the obligation of the debtor. At the beginning of the execution there is a high degree of uncertainty re-garding the collectable amount and required time for the full or partial collection of debt. Unfortunately, cases of failure of the process of col-lateral execution, or of only partial executions, are not only theoretical

examples. In such cases the creditors (banks) face an unpleasant situation, where besides the lack of liquidity caused by the unsettled obligations of its debtors (fully or partly), they have also registered additional bailiff expenses, which have been unnec-essary considering that the purpose they were paid for has not been met.

Secondly, from the debtors’ per-spective, considering that they are the ones who eventually bear such expenses at the end of the execution process, they may deem this method of calculation and payment unfair. Again, in cases of failed or only par-tially succeeded execution processes, the obligation of the debtor has been increased unduly by the bailiff ser-vice fee. This artificial increase of the debtor’s obligation may be easily in-terpreted as deceptive.

Thirdly, from the perspective of bailiff offices, this method does not contribute to the fair competition and efficiency. Clearly, the private bailiffs, notwithstanding their level of scrupulosity, would tend to lose their motivation for carrying out the service in the best possible way, if they were to be paid fully since at the beginning of the process. If their mo-tivation would be sustained by ap-plying and paying fees based on the proportion of the amounts collected by the execution, than bailiff officers would be more interested into in-vesting in logistics resources and in

developing their intellectual and pro-fessional capacities. In addition, the Guideline of the Min-istry of Justice, which prescribes fees for services offered by private bai-liffs, sets out fixed tariffs. In order to promote competition, reduce costs of execution processes, and above all, in order to safeguard the interests of the debtors, a very necessary ac-tion would be the amendment of this Guideline, by setting ceiling fees for each service, in addition to establish-ing success fees, based on the amount collected by the bailiff. Thereby, the creditor and the debtor might nego-tiate amongst themselves the fee for the service, not exceeding in any case the ceiling fee set by the Guideline.

Trial extensions beyond deadlinesAs it has been highlighted in other oc-casions, one of the issues of concern regarding the execution of collateral is the delay caused by the extensions of trial periods, mainly due to the se-curity measures issued on contests for bailiff orders, especially by the District Courts. Albeit the positive recent amendments to the Civil Pro-cedure Code, related to the timelines for assessing the appeals against bai-liff actions, we believe that the provi-sions in the Civil Procedure Code re-garding the Appeal Court should be amended and completed by impos-ing to the latter reasonable deadlines for assessing the appeals against bai-

An amendment to the method of calculation and payment of private bailiff fees is deemed very necessary, whereby by the setting of ceiling tariffs and charging success fees on the collected amounts shall be the proper solution for everyone.

A solution, acceptable for all the involved parties, could be to determine a legal rate to be enforced and calculated from the moment of issuance of the execution order until full execution of the obligation.


liff actions. This would avoid a series of undue appeals from the debtors, which only aim at suspending the bailiff actions for as long as possible, meanwhile the District Court evalu-ates the appeal. It is important to un-derline here, that the District Courts often exceed the deadlines stipulated by law, thus making up for one of the main reasons for banks’ failure to ex-ecute the collateral within reasonable timeframes.

Calculation of interests and penal-ties subsequent to issuance of the execution OrderAnother pending issue, which is not resolved in the actual legislation, is the calculation of interests and pen-alties, during the period from the issuance of the execution order by courts until the full execution of the obligation. It is clear that the accrual of interests and penalties after the issuance of the order of execution and during the entire period neces-sary for carrying out the compulsory

the bank loan...

should be clearly

distinguished, in

legal terms, from

other contractual

relations between

two individuals or

other entities

execution, provides for a necessary equilibrium and for protecting the savings of banks depositors. First, the awareness about the accrual of inter-ests and penalties would motivate the debtor to put all his efforts to re-pay the debt as soon as possible, oth-erwise it would deepen. Second, the creditor (the bank), which is already facing lack of liquidity and addition-al expenses for the execution process, would use such accruals to primarily pay interest to its depositors. Failure to accruing such interests and penal-ties goes completely against the basic principles of a market economy.

What can be considered as an ac-ceptable solution, for all the involved parties, could be the establishing of a legal rate to be enforced and calcu-lated from the moment of issuance of the execution order until full execu-tion of the obligation. In absence of such legal rate, the lenders ought to persist on calculating accrual inter-ests and penalties under the provi-sions of the loan contracts.

Inappropriate approach of Courts during the process of compulsory executionThis problem derives mostly by the short experience with executions during the last 20 years. The main difficulties arise when the debtor appeals against the bailiff action of evaluating the price of the seized object. During these trials, it seems that it has not become yet clear that the value of collateral determined by the bailiff, upon his statutory respon-sibility, is not the price at which the collateral must be sold, but merely a minimal value basis, whereby lower value bids shall not be accepted.

Another issue of concern are the practices often adopted by the Court, under which the latter may exercise the right to change and postpone the terms of repayment of the obligation in cash, or divide it in several instal-ments. By doing this, the Court takes an active role and stands in a biased position in advantage of the debtor.

It should be emphasized that the bank loan, as a relationship well-de-fined by the regulatory framework of Bank of Albania, should be clearly distinguished, in legal terms, from other contractual relations between two individuals or other entities. Es-tablishing such a relationship is an exclusive right of the financial insti-tutions licensed by Bank of Albania, as the only institutions that can col-lect deposits and grant loans.


tive real rights, obtained in one of the prescribed legal forms.

Precisely, the legislator imposes on ORIP the legal duty, to guarantee the information this Office admin-isters and distributes, as regards the property right and the registered real rights, on the identified underlying property, as well as on the respective subject, holding that right. Addition-ally, it prescribes the liabilities of the Office and the cases when it will be kept liable for possible damages. In this way, the law stipulates, for the first time ever, the creation of a provi-sion fund, in the form of a guarantee fund, which would make ORIP’s civil guarantee quite applicable, and fur-thermore, will enable ORIP to honor its financial liabilities against dam-aged caused to third parties.

This is a very important moment, not only for users of the system for registration of immovable proper-ties, but also for commercial banks, which handle, on a daily basis, the information from the registration of immovable properties, given their loan-making activity, which is not al-ways complete or accurate, therefore compromising banks’ right to use the property or exercise respective real rights, regarding loan guarantees or repayments.

Also, the law provides, for the first time, public or private subjects, with the opportunity to consult the elec-tronic register of immovable proper-ties. This would definitely produce practical advantages for banks, by shortening the time factor, and en-

by Attn. Veronika PRIFTIHead of Department

of Legal AffairsBanka Kombëtare Tregtare

Commercial banks are the largest users of the Register of Immov-

able Properties, following their loan making activity, and in this way are expected to be the first line oppo-nents, in terms of issues related to the registration system of immovable properties, in different phases of de-velopment on the Albanian economy, as well as the needs for amending the regulatory framework, in the field of immovable properties.

In 21 March 2012, the Alba-nian Parliament endorsed the Law No.33/2012 “On registration of im-movable properties”, by abolishing the Law No.7843 of 1994, as amend hereafter, thus accomplishing simul-taneously, one of the commitments set out in the National Strategy for Development and Integration.

The new law stipulates the judi-cial security of the Office for Registra-tion of Immovable Properties, ORIP, as the fundamental principle of its activity, which is a very important el-ement, in guaranteeing the constitu-tional right of property. Typically, the law regulates, in a more precise and practical way, as compared to the old law, data guarantee, contained in the registers of immovable properties, as well as the security of property and the owner’s or third parties’ respec-

The new law brings some substantial improvements in OrIP’s functionality, by

guaranteeing judicial security and transparency in the overall activity of the most important

institution, regarding the immovable properties.

The new law on registration of imovable properties and its expected

impact on banks’ loan practice

BANKiNG sYstEM

suring better human resources man-agement in the course of conducting preliminary verifications, related to loan-making process. Furthermore, accessing the register, would enable banks to identify immovable proper-ties, owned by debtors or guarantors of non-performing loans, as well as to monitor status of bank’s applica-tion for properties as collateral, or in the course of the foreclosure process, thus aiming at avoiding abusive or improper procedures, intending to postpone or impede the bank exercis-ing its rights, related to a certain im-movable property.

The law regulates, in a more thor-ough way, the mechanism to upgrade and update the existing information, administered by ORIP, following the not-so-positive experiences during the last two decades.

One thorny issue, affecting banks’ loan practices and foreclosures through Bailiff’s Office, is the restric-tion on immovable properties, im-posed by the Registrar, when facts or documents, administered by ORIP, witness the owner’s restricted right on the respective immovable prop-erty. Different from the old law, the new one regulates the issue of restric-tion measures on immovable proper-ties in a more rational way, typically by providing clear prescriptions, re-garding the way restriction measures are imposed, respective complain procedures, and the fact that, the re-striction cannot exceed a 30-day time period, unless a court order, which may exceed the restriction situation,


The law provides, for the first time, public or private subjects, with the opportunity to consult the electronic register of immovable properties. This would definitely produce practical advantages for banks, by shortening the time factor, and ensuring better human resources management in the course of conducting preliminary verifications, related to loan-making process.

beyond this defined period. This fact will assist banks, especially in cases of imposing restriction measures on immovable properties, when apply-ing for passing the property title on bank’s behalf, thus eliminating the legal loophole related to the so-called “unlimited restrictions”, or other am-biguous and ill-grounded restrictions.

Moreover, the new law attempts to provide better regulation on the registration of new building & con-structions in process, as temporary registrations, aiming at using them for loan practices and preliminary registration. However, the registra-tion of preliminary contracts is left as an option to the request of the in-terested party, whereas banks would deem as very helpful, the preliminary contracts for building & construc-tion in process to be an obligatory requirement for registration. This would clearly eliminate potential use of building & construction in pro-cess as loan collateral (guarantee), in a time when preliminary contracts with third parties are already signed upon them. This would protect third parties as well, especially individuals, who may be in unfavorable position, or may be involved in legal disputes for their rights on this new building & construction in process, caused by lack of knowledge on the legal oppor-tunities in this regard, or by the exist-ing practice of preliminary contracts, unilaterally drafted by construction companies.

From administrative point of view the new law outlines ORIP, for the first time, as an independent (no-bud-getary) institution, self-financed by

income generated in the course of its activity. Most importantly, a part of generated income shall be used to cre-ate the annual provision fund, which will be used as compensation fund to cover damage liabilities against third parties. The law also prescribes the ORIP to be managed by a Manage-ment Board, with representative form Council of Ministers, Ministry of Jus-tice and Ministry of Finance. The law vests the board with well-defined competences, which aim at ensuring proper monitoring of policies in the field of registration of immovable

properties, as well as overseeing the ORIP activity, in full function of pro-tecting property rights.

The enactment of this new law would, unavoidably, require a long process of regulatory framework re-view, as well as drafting new acts and regulations. Hence, banks may and must, through the Albanian Asso-ciation of Banks, ask to play an active role in this process, aiming at creat-ing a favorable climate for practical implementation of the law, especially in terms of he principle of judicial se-curity.

Based on law no. 10237, dated 18.02.2010, commercial companies in Albania are obliged to establish within their structures the Council for the Safety and Health at Work.Banks are amongst the first subjects complying with this requirement. A good example is that of Intesa Sanpaolo Bank, which since September 2011 has es-tablished its Council for the Safety and Health at Work.This council aims to improve safety and health of employees, and its main func-tions are the assessment of risks, their prevention and avoidance during the ac-tivity, as well as the ensuring of physical and mental health of employees. It is composed of 12 persons out of whom 6 are representatives of employers and 6 of the employees. In a brochure published on the occasion of the elections for the Council were listed the names of the candidates interested to represent the em-ployees. In total 409 out of 538 or 76% of the employees voted for such elections.The council in its first two meetings discussed, among other, on the selection of the company that will take care of the health issues, on equipping all branches with first aid boxes, on diminishing, or eliminating noise caused by printers or by other equipment in the head offices, etc.

ThE COUNCIL FOR ThE SAFETY AND hEALTh AT WORK, A NEW OBLIGATORY STRUCTURE FOR COMMERCIAL COMPANIES



Although there have often been discussions and debates about them, both the primary and the

secondary market of Treasury Bills are open to all investors and operate based on supply and demand.

BANKiNG sYstEM

At the end of 2007, households were holding only 7 percent of

the total domestic debt of the Govern-ment. According to official data from the Ministry of Finance, at the end of last year the share of individuals’ holdings of the domestic debt of the Government reached 13 percent. Fur-thermore, latest data from the Central Bank show that by the end of March this figure reached a record amount of 60 billion Lekë, or about 14 percent of the total public domestic debt.The overall structure of the government debt holders is quite diverse, how-ever, the greatest part of this debt is held by the banking system. At the end of last year, the two largest hold-ers of the public domestic debt were: Bank of Albania with 14.3 percent of the total, and one of the commercial

by Klodian TOMORRI

banks with 33.7 percent. The other private banks hold 35.5 percent of the market altogether, while individuals and businesses hold the remaining part of the debt. Albeit its diversified structure, the Treasury Bill market, particularly the primary market, and the competition therein, have often been subjects of debate. This debate reemerges every time that there is an increase in the interest rates of the papers, and there is an unusual sen-sitivity about it. With regards to the individuals’ holdings, one the bar-riers most frequently emphasized is the minimal amount of ALL 300.000 required for participation in an auc-tion, which has to be transferred to Bank of Albania through an account at a commercial bank. Nevertheless, the market now offers an opportu-

nity also to those who want to invest small amounts, in fact several times smaller. The first asset management fund was officially established in Al-bania a few weeks ago, incorporating also an investment fund that focuses on government securities. Through this fund, individuals can invest in Treasury Bills amounts as small as 5 thousand Lekë.CompetitionThe government issues Treasury Bills by auctions in the primary market. It implies that the investors have to compete for the purchase of this in-strument. The subsequent trading in the secondary market can be carried out by the entities licensed for such trading by the Financial Supervision Authority (FSA), including commer-cial banks. The FSA licensed last year

The constant trend of treasury bill yields does not depend on the number of investors in the market, but rather on a mixture of factors, related to the financial market depth, its structure, the intersectoral competition, the range of instruments, the risks associated with financial instruments and products, etc..

COMPETITION IN ThE T-BILL MARKET


two other entities, which may trade securities on the secondary market. There have been several debates on whether the Government securities market is a competitive or concen-trated one. There have also been in-stitutional divergences in the past be-tween Bank of Albania and the Com-petition Authority, both armed with relevant arguments. The Competi-tion Authority required from Bank of Albania to reinstate the method of investment of the individuals direct-ly through the Treasury Bill window, without having to transfer the money from an account previously opened

Legally, both the primary and the secondary market of Treasury Bills are open to all investors. There are no barriers stipulated in the Law to impede investments in Government papers, be it from businesses, financial institutions or individuals, unlike many international practices, which restrict the participation of individuals in the primary market.

at a commercial bank. Returning to this method would imply that indi-viduals would have to circulate large amounts of cash. In fact, there have been allegations in the past towards the Central Bank, that this practice had created space for money laun-dering. Probably that was the main reason why Bank of Albania decided that the participation in the Treasury Bills auctions would have to be done through private banks. The primary market of Treasury Bills has always been open and with no legal restric-tions for participation in it, and as long as a market has no legal barri-

ers to entry, its structure is merely defined by economic interests. All those individuals or businesses that consider investing in Treasury Bills as economically convenient can do so at any moment. Those who have not invested so far, have not encountered any legal obstacle; they simply have not considered it as a convenient in-vesting option, have not been in pos-session of funds, or cannot invest due to numerous other reasons.

On the other hand, in a financial system where over 95 percent of the financial assets are held by commer-cial banks that are by far the major fi-nancial intermediates, the price of se-curities will definitely be determined by the banks. In a market economy, the prices are set by the market mak-ers based on demand and supply, and if the demand for liquidity is consistently high, then so will also be the price that will be paid to have this liquidity.

Treasury Bills issue auction calendar is defined and set out by the Government, represented by Ministry of Finance. Auctions for 3 and 6-months Treasury Bills are held once per month, whereas, 12-month Treasury Bills are held every two weeks. Normally, auctions are held on Tuesdays, and the issue date is two days after, on Thursday. The auction is initially announced by the Ministry of Finance and Bank of Albania through a public notification on respective websites. Individuals are free to participate in Trea-sury Bills auctions with both competitive and non

OPEN INFORMATION

competitive bids. A competitive bid means that the investor sets the yield, upon which the Treasury Bills purchase price will be calculated. A non-competitive bid means that the investor does not set any yield but accepts the average yield, which is calculated as the weighted average of all winning & accepted competi-tive bids’ yields. At the auction, the competitive bids are listed from the lowest yield (the highest purchase price) to the highest yield (lowest purchase price), up to the cut-off yield level, where the asked amount by the Government, is matched.


for every offered banking service or product. Given the complex nature of these contracts, the law requires that the pre-contractual information dis-closed should be as full and compre-hensive as possible, so that the cus-tomer understands thoroughly every detail of the banking transaction. A phenomenon emerged as a result of Bank of Albania’s interventions in the formulation of contractual provisions

The bank-customer relationship has been reshaped qualitatively after the recent changes made from Bank of Albania, granting to the customers access to essential information that shall support them in making well-informed and appropriate decisions.

BANK CONTRACTS’ TRANSPARENCY - A LEGAL PERSPECTIVE

EXpErt ForuM

by Ledia PLAKU (LL.M)Director, Legal DepartmentINTESA SANPAOLO BANK

ALBANIA

Transparency is a broad notion that generally stands for communica-

tion, accessibility, and responsibil-ity. In this context, the transparency of contractual terms of the banking products and services receives spe-cial attention in the daily activity of banks. It is obligatory for banks to include in the banking contracts clear and accurate information on bank-ing products and services, in order to minimize the conflicts with custom-ers and to avoid loss of reputation in the market. From the customers’ perspective, transparency supports the free choice, the possibility to compare various offers on the mar-ket, and therefore the careful selec-tion of one or more products within the scope of their needs and paying potential. Whereas, at a general level, transparency not only grants the fair competition between banks, and the possibility to confirm that the terms published in advertisements are ex-actly those that are being offered, but also decreases the costs of banking products.

Banks are required by Law no. 9662, dated 18.12.2006 “On banks in the Republic of Albania” (Arti-cle 124) to sign an agreement (con-tract) in writing with the customer

As long as the banking activity is of public interest, it is the duty of the legislator to balance the concurrent law principles, such as the “freedom of contracts” versus the “consumer protection”, and further establish a fair and reasonable relation amongst them.

was the “uniformity of banking con-tracts”. Thus, from contract forms, that used to be prepared in advance and unilaterally by the bank, and which the customer could only ac-cept or refuse, banking contracts are being transformed, and their word-ing is being regulated according to the requirements of the regulations of Bank of Albania. Here comes a question: How free are banks in es-tablishing a contractual relationship with the customer? At first glance, it seems that there is a violation of the principle of free will of contracting, but on a thorough interpretation it can be concluded that as long as the banking activity is of public interest and as such it “must” be conducted within a clearly defined legal frame-work, it is the duty of the legislator (in this case, the Bank of Albania) to balance competitive differing princi-ples of the right, such as the “freedom of contracts” versus the “consumer protection”, and further establish a fair and reasonable relation amongst them.

Some of the main specific ele-ments included in the banking con-tracts as a result of the recent changes in regulative acts of Bank of Albania are:



The right of the customer to with-draw from consumer credit contract / agreementAccording to Article 11 of the Regu-lation of Bank of Albania no. 05, dated 11.02.2009 “On the consumer credit and the mortgage credit for households”, the customer has the right to withdraw from the consum-er credit contract without having to give any reason, within 14 calendar days, this period beginning from the day of credit agreement signing, or from the day on which the consumer gets knowledge of the contractual conditions. If the principal is fully or party disbursed and the consumer exercises the right to withdraw from the agreement, he should return to the bank the disbursed principal and the interest accrued for the respec-tive days, as well as the possible ex-penses of the bank, arising from the transactions with third parties for the purpose of disbursing the loan, all of which should in any case be dis-closed in the contractual information.

The right of loan repayment before contractual maturity Another novelty brought by the latest changes made by Bank of Albania, is sanctioning the right of repaying the loan before the contractual maturity. Article 12 of the Regulation of Bank of Albania no. 05, dated 11.02.2009 “On the consumer credit and the mortgage credit for households” stipulates that the consumer has the right, at any time, even before maturity, to repay part or all of the obligations arising from the consumer loan contract. Regarding this issue, legislations of other countries stipulate that in case such “right” is recognized to the bor-rowers, it can only be exercised in pe-riodical terms predetermined in the loan contract (for e.g. every 5 years). This aims not only at protecting the interests of individual depositors, but also those of banks, which may have invested in various long term market instruments. In addition to the right of repayment before matu-rity, the abovementioned Regulation determines also the maximum com-

pensation that the bank may require for the early settlement (not more than 2 percent of the amount of the paid loan, if the period between the early repayment and contractual ma-turity of the loan is over 1 year, and not more than 1 percent, if this period does not exceed 1 year).The terms of the loan contractsThe Regulation of Bank of Albania no. 59, dated 29.08.2008 “On trans-parency for banking and financial products and services”, stipulates the mandatory terms and conditions that should be included in the pro-visions of banking contracts, which improved significantly the previous banking practices, where these pro-visions were opaque and not clearly determined.

In this context, we can mention as novelty elements the following:- The interest rate, aiming at ena-

bling a clear and understandable picture for the customer, right from the pre-contractual stage, with regards to how the contrac-tual interest changes throughout

It is obligatory for banks to include in the banking contracts clear and accurate information on banking products and services, in order to minimize the conflicts with customers and to avoid loss of reputation.


the duration of the contract.- The effective interest rate and the

total cost of the loan, where “to-tal cost of the loan” means all the expenditures, including interests, commissions and any other kind of expenditures spent by the cu-stomer for the loan agreement ac-cording to its specifications, while the “effective interest rate” – EIR shall imply the total cost of the customer’s loan stated as an an-nual rate of the loan’s value and calculated in accordance with the method of calculation determined in the Regulation of Bank of Alba-nia no. 59, dated 29.08.2008 “On transparency for banking and fi-nancial products and services”.

- The detailed description of the risks associated with the loan, through which the client’s atten-tion is drawn towards the risks that may be faced in case of bor-rowing in foreign currency, or in a currency different from that of the customers’ income, due to the potential adverse fluctuations of the exchange rate, or the risks associated with variable interest rates throughout the duration of the loan.

- The amendment of contractual terms, through which it is inten-ded to put an end to the previous practices with banks anticipa-ting changing the contractual conditions, mainly at their own discretion. Following the princi-ple: “The contract has the force of law between the parties and may only be amended on consent of the parties”, it is provisioned that banks should inform the client in writing prior to the banking contract’s amendments taking effect (according Article 5, para-graph 4 and 5, of the Regulation of Bank of Albania no. 59, dated 29.08.2008). Nevertheless, the accurate application of this rule requires that in any case banks should have an updated database of the customers and a unified ad-dresses system, which is not easy in practice.In conclusion, the outcomes and

practical usefulness of transparency, requires, among others, the cultiva-tion of a culture of trust and closer and ongoing Bank – Customer col-laboration.

ALO 116

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In 3 years of service, ALO 116 have answered to over 300,000 calls of children, parents and teachers. In 2011 the consultants of the line answered to more than 138,000 calls.

ALO 116 is one of the newest counseling lines in Europe. The continuity of ALO 116 and the services offered by the National Line for Children Counseling depends on the collaboration and contribution of different members of the society.

ALO 116 is one of the biggest causes for children’s’ rights to which anyone (individual or institution) in Albania can be linked by becoming:

1. Part of the fund raising activities for ALO 116

2. A sponsor of ALO 116

3. A Friend of ALO 116

The National Line for Children counseling

For more information please contact:Phone: 355 4 2242264e-mail:[email protected]

www.alo116.al


was that of the cameras installed both by the bank and by another business entity nearby. The area covered by the external cameras of this entity was exactly the one that the robber crossed by after leaving the crime scene. Being “careless”, due to his unfamiliarity with the area, the criminal laid off the cloths he had used for disguising, thus exposing quite clearly towards that particular camera, in his escape after having committed the crime.

But, what is the real function of the camera security system, or as else known by security experts: the closed-circuit television system (CCTV), and why is this security

BANKS ROBBERIES AND ThE CRIME SCENE

EXpErt ForuM

by Roland TASHI Vice Chairman

of AAB Bank Security Committee

The “Friday’s robber”, who shocked everyone with his

actions, was halted in his criminal ritual when put in cuffs for the very brutal event on March 27, 2012. His last criminal act was the attempt to rob an agency of National Bank of Greece, in Tirana, where there were gun shots and as a result a bank teller was killed and a security guard was wounded. What broke the chain of crime that was continuously keeping under pressure banks’ employees, security structures and Police bodies in Tirana and in other cities?

Besides the investigation of the relevant structures of State Police, a very important and determinant role

In every financial institution in the country there are now operative security structures in place, either independent entities, or structured within the organizational chart. Certainly, banks are in “Top Position” amongst these institutions, protecting their premises both with security systems and with security guards. In this regard, a meticulous task is that of preserving the crime scene, until the arrival of criminology experts of specialized state bodies. This is an important measure that helps capture the perpetrators.

system necessary?The surveillance of a given area,

estimated to have a certain degree of risk, is made through the installation of cameras and the recording of images that the latter capture. The information collected on recording devices is used to support the banks’ security structures, as well as the law enforcement agencies, to examine and monitor the activity and circulation in that area.

The information recorded by these systems becomes of a particular significance when a criminal offense, an armed robbery, a murder etc., takes place within the area surveyed by cameras. In this case, the surveyed

The crime scene is undoubtedly one of the main elements in resolving a crime and finding out the perpetrator. The thorough and scientific analysis of the crime scene is one of the most important and sensitive operations during an investigation.


area will be considered as the crime scene. Security specialists in banks, as in other entities, which have installed closed circuit television systems, in cases of criminal acts occurred within their facilities, should not only preserve the information collected on the recording devices, although it is surely very important in the process of “uncovering” the crime; they should also preserve the crime scene until arrival of specialized state bodies.

Practices of European Police Science suggest that the crime scene is the set where a crime has taken place and where the experts of criminology and criminalistics will be working on. The crime scene is a meeting point between a more theoretical science which is criminology, and a more practical one which is criminalistics. According to different definitions, the crime scene is a bridge of communication created by the perpetrators, which in absence of closed-circuit television surveillance systems, remains the only opportunity to discover who committed the crime, who collaborated, etc.. During an investigation, there may be witnesses, or they may not be willing to cooperate, while the crime scene is always there. It may be small, it may not offer much information, or it can be difficult to analyze, but nevertheless it exists and can be observed and scrutinised at any time.

It is important that security specialists in banks, or in other

premises where they exert their activity, understand what exactly the crime scene is. There are three different areas in the location of evidence, or the crime scene, each of them very important in the investigation process: (1) The first area, where the criminal act was committed, or where the victim was found, (2) The second area (always close to the first one), where quite probability the perpetrator has made his actions to achieve the final goal, or where he started the attack against the victim, (3) The third area, or the direction towards which the author has escaped after having committed the crime. It was precisely the observation of the third area that induced to the capture of the person responsible for the robbery of March 27, 2012 in Tirana.

Security specialists in banks, as those in other important economic and social premises, should not interfere in the crime scene, especially when the criminal act performed there has been associated with violence, robbery, or murder. It is of vital importance that they consistently inform and train employees in such regards, especially those employees that work in the teller area. The crime scene must be preserved in the best possible way. However, it is sometimes necessary to intervene in the crime scene, especially for the first aid medical teams which shall supervise or treat those who may be injured. Nevertheless, it is important

that once they have left the crime scene, it stays preserved until the arrival of forensic police experts. A precise placement of the crime scene, both in time and space, facilitates the process of tracing any evidence or other elements within it. There are several methods of analysing the crime scene: (1) the systematic search, otherwise known as the “grid” search, whereby the search is conducted by dividing the area into parallel parcels, and by searching in chronological order within these longitudinal zones, and (2) the “point to point” search where the searching starts from the most visible and important spots, initiating at the victim’s site, and moving on to other objects of interest.

When the crime scene is not inside the premises but outside in the open, it shall be divided into rectangular sections, allowing for a more detailed investigation of the area, avoiding any possibility of searching more times at the same area. If firearms, knives or other weapons have been used at the crime scene, and there is a suspect that those have been hidden or thrown therein, the rectangular sectors are further divided into lines not more than one meter long, where the search proceeds with special metal detector devices.

When at the crime scene, the main task of criminology experts of Scientific Police shall be that of searching and collecting the traces of evidence. A huge contribution to this process is expected by the security specialists, or internal security guards in the bank, who may be employees of the same institutions, or outsourced at Physical Security and Defence Companies (SHRSF’s).

A very important contribution to the studies on the crime scene was that from the famous French criminologist Edmond Locard, who since 1910 in Lyon conceived the “exchange” principle, that states that “with contact between two items, there will be an exchange, thus when an individual commits a crime he will take something with him, and will leave something behind”. Based on this principle, after having photographed an observed all the visible traces in the crime scene, the experts keep on carefully searching for biological remains and other traces.

...“with contact between two items, there will be an exchange, thus when an individual commits a crime he will leave something behind at the crime scene, and simultaneously he will take something with him”


The global financial crisis under-lined the essential necessity for

banking reform in the entire actual banking system. The beginning of fundamental reforms in this context was announced during the G20 meet-ing in April 2009 in London. USA and UK, the champions of deregula-tion and financial liberalization, par-adoxically were proclaimed in favor of “banking regulation” and “clear split between deposits and lending activities from investment activi-ties in various markets”. Clearly, the main objective is: protecting deposits from speculation risks.

This was not the first time for the USA to confine its bankers’ appetite. It can be rather regarded as normal routine after the outbreak of any huge financial crisis. The next day to the outbreak of the crisis of the Great Depression in 1929, President Franklin Roosevelt, in the frame of the “New Deal”, established a clear separation between commercial banks and investment banks. The fa-mous “Glass-Steagall” Act, which re-stricted the affiliation between com-mercial banks and investment ones, which created the federal system for banks’ deposits insurance, and set a ceiling on deposit interest rates, was applicable for almost 70 years in the USA. In Europe, it was for France,

which adopted a similar law by the end of World War II.

Nevertheless, by the end of 1980s, the deregulating and liberalizing concepts and practices returned em-phatically. In 1984, the same France put an end to such separation of banks, restoring the universal bank-ing model. In 1986, the British Prime Minister, Margaret Thatcher, initi-ated an intensive and impressive process of deregulation, right in the heart of City of London. Open attacks against the “Glass-Steagall” Act be-gun in USA as well, when as a result of the British and European compe-tition, the American capital began to move massively towards London. The US Congress could not resist any more. In November 1999, by voting the “Gramm-Leach-Bliley” Act, the Congress repealed “Glass-Steagall”, thus returning to the universal bank-ing practices.

However, 9 years later, Lehman Brothers, the financial symbol of “made in USA” went bankrupt, caus-ing a tremendous panic across the world stock exchanges and forcing many governments to refinance their banks. Thousands of people in the USA rushed to their banks to with-draw their deposits, bringing back the fear of a new “bank run”. The Obama administration responded

The unstoppable and inevitable reforming process of the worldwide banking system, remains however a complex process, that requires timeliness and cannot be implemented equally in all countries.

BANKING REFORMThE APPROPRIATE RESPONSE TO ThE CRISIS

ECoNoMist CorNEr

by Prof.Dr. Adrian CIVICIDirector of the Doctoral SchoolEuropean University of Tirana

immediately, by assuring the deposi-tors and penalizing the banks. In July 2010, President Obama signed the “Dodd-Frank Wall Street Reform and Consumer Protection Act”, which would force banks to “choose be-tween speculating in the market with their own funds (prop trading) or carrying out their activity as ordinary commercial banks through deposits and loans”, starting from year 2014.

It was the same situation in Eng-land. Just three years after the injec-tion of EUR 70 billion, in order to avoid the bankruptcy of Royal Bank of Scotland and Lloyds Banking Group, the London’s Government announced a “radical reform” in its banking system, even more ambi-tious after Thatcher’s era. The es-sence of this reform was again “guar-anteeing the deposits in the British banking system”. On 12 September, 2011, the Commission on Banks in the British Parliament, led by John Vickers, introduced new propos-als for reforms on banks, which re-ceived full support by the Conserva-tive Government of David Cameron. The new Law provided for a partial separation, through a system of sub-sidiaries, between trading activities with loans and deposits, and invest-ment activities. Deposits would be protected from speculative risks and


would not provide financing for the markets’ “gambling”. As for prov-ing it right, only 3 days after the Law’s approval, a financial specula-tor called Kweku Adoboli caused a loss of US$ 2.3 billion to UBS, a major Swiss bank, due to his adventurous speculations in the market. The Brit-ish Government proudly proclaimed its Law, by stating that “this case is a further proof to the fact that, it is absurd to trust deposits to rogue in-stitutions that may risk exploding financial weapons of mass destruc-tion”. What was more important from a public finances prospective, was that in case of banks bankruptcy, the government authorities would intervene to save only commercial banks, not all of them. As a result of the British banks lobbying, this reform, expected to cost about EUR 5-8 billion annually, only to four ma-jor British banks, was postponed to be implemented in 2019. This seems like a real revolution in the British banking sector. While London, in the name of the best interests of City, ve-toed against the European treaty for financial discipline, the British Gov-ernment promises to go far beyond Europe to safeguard bank deposits.

In the meantime, the continental Europe seems not yet ready to give up easily on the dominant system of universal banks, which shelters un-der the same covering both the small depositors and their deposits, and the various investment and speculative funds that make good profit but face also high risks. Neither the crises of mortgage loans nor that of sovereign debts have yet casted any doubts on

The debates and the philosophy on banking reform seem to finally stream through two fundamental topics that are: (1) the architecture of banking system structures and (2) the new rules prudential policy management.

this formula as far as it regards the Europeans, rather the opposite; in France, Germany, Netherlands, Italy, etc., this universal structure of banks is quoted as “safeguarding against market speculations”. The main ar-guments of the Europeans rely on facts that refer to two spectacular bankruptcies: “Northern Rock”, which was a common and simple commercial bank, and on the other side the giant “Lehman Brothers” that had not even a dollar of depos-its. Yet both of them went bankrupt. What matters more to Europeans are “institutional changes and improve-ments”, in terms of the creation and functioning of the banking and finan-cial markets regulatory authorities at a European level, changes and ad-justments to the prudential (caution), framework, etc..

The debates and the philosophy on banking reform seem to finally

stream through two fundamental topics that are: (1) the architecture of banking system structures and (2) the new rules prudential policy manage-ment.

The new architecture of the bank-ing system is being discussed in sev-eral directions: banks’ size, banks’ specialization and role play, level of capitalization, the role of the state, etc..

During the last 3-4 decades, the banking sector has been subject to a massive horizontal and vertical consolidation, thus multiplying its dimensions. Many of these banking groups have become international. Their bankruptcy, or even their weak performance, may cause severe eco-nomic, financial, political and social crises. In view of their “giant” size, the high exposure to operational and systemic risk makes their fail-ure extremely harmful to the entire



monetary and financial system. The costs of such failures may be unaf-fordable, even to the public and gov-ernments’ interventions. According to the already famous expression of Nouriel Roubini: “a bank which is “too big to fail” is also “too big to be managed””. Also, the role and pres-ence of the state, in relation to banks, is still to be redefined. When banks are in trouble, should the state in-tervene with capital or nationalize them? Shall they need support or just monitoring? The new architecture of the banking system requires a clear definition of what will be the allowed size of banks in the future.

The specialization of banks, or the exclusion of a part of activities of pure “speculation in the market” for some of them, represents the second stream of banking reforms. Universal banks, through complex financial in-novations or speculative products, often undertake high risk operations, exposing to such risks all of their cus-tomers. Paul Volcker observes, in the universal banks that also perform many speculative operations, the likelihood of a “deviation from the monetary policies”. This is mainly due to the access these banks have on refinancing by the central banks, a monetary measure which instead of being used to guarantee the liquidity of deposits and the financing of the

real economy through loans, may be used by the banks for “purely specu-lative market activities”. Money is a public good and property, and its mission is not to support the specula-tive positions of designated financial agents, or boosting assets in branches and activities, which then end up in financial bubbles. Could it be there a division and specialization of banks, and how can it be achievable? The solution to this problem and a more thorough definition of banks’ busi-ness models shall constitute the foun-dations of this reform.

The new rules for prudential pol-icy management, especially those re-lated to liquidity, have become even tougher in these years of crisis. An important reform for mitigating the risk of banks’ bankruptcy is the new agreement “Basel III”, finalized on 16.12.2010, which focuses on banks’ off-balance sheet activities - especial-ly on derivatives, on their capital ade-quacy in relation to market risks, and on the liquidity risk. As it is expected to enter into force in 2013, “Basel III” contemplates: fixing a certain level of liquidity for banks; fixing a certain level of “leverage effect”; redefin-ing the notion and content of banks’ own capital; reviewing the ways and methods of buffering several types of risks, especially those directly and indirectly related to liquidity; as well

Money is a public good and property, and its mission is not that of supporting the speculative positions of designated financial agents, nor boosting assets in branches and activities, which then end up in financial bubbles.

as the conditions for the application of countercyclical measures.

The current debate on reforming banks and the banking system is also being developed on another level. The patterns of financing the econo-mies are different, in various coun-tries. For example, in Europe 70% of financing is provided by banking in-termediation, while in Anglo-Saxon countries this intermediation is guar-anteed by the financial markets. Can the same regulatory reform be equal-ly effective both for ensuring finan-cial stability and for ensuring equal competition? The solution or answer seems to be somehow related to poli-tics. Should the financial openness and liberalization be favored against a higher risk of financial instability? On the other hand, the biggest glitch regarding international banking reg-ulations stands in the flexibility of various countries in implementing them. The USA, which inspired the international accounting standards and rules, as well as the prudential rules under “Basel II”, did never strictly apply them. Europe, which also represents a heterogeneous fi-nancial and monetary culture, can not cope to consolidate a set of basic rules, rigorously applicable by all its members. The ongoing reforms ought to ascertain everything!


soCiAl CApitAl

Raiffeisen Bank sponsored the com-plete reconstruction of concert hall, at “Prenk Jakova” music school in Shkodra, and, in cooperation with Energji Ashta it also donated a piano for the school, as part of the project called “Mosaic 2011”.In this occasion, a special inaugu-

ral ceremony was organized, at the music school’s premises. The ceremony was attended by the Minister of Education and Sci-ence, Mr. Myqerem Tafaj, Mr. Christian Canacaris, CEO of Raif-feisen Bank, Mr. Florian Raunig,

Austrian Ambassador in Albania, representatives from Regional Edu-

Fibank as a sponsor of Summer Day in BeratFibank sponsored the Summer Day activity, organized at Castle of Berat, by Berat Municipality and “Margarita Tutulani” Culture Center. The main part of Summer Day festivities, was the concert with various artists and singers. Such activity attracted may citizens from Berat and its neighborhoods. Fibank plays an active role in supporting such local cultural activities, which have a positive impact on people’s everyday life.

NBG Bank supports the establishment of IT, Research, Scientific & Videoconference Lab, at Faculty of Economy of Tirana University. The Lab, equipped with state-of-the art technology, would help not only in facilitating scientific research, by Faculty’s academic staff and students, but also in delivering online lectures for Faculty branches in Kukës and Saranda, through the use of modern system of videoconference. The inaugural ceremony was attended by Prof.Dr. Dhori Kule, UT Rector, Mr. Ioannis Kougionas, CEO of NBG Bank, Prof.Dr. Sulo Hadëri, Dean of Faculty of Economy, and from many other guests. In his speech, Mr. Ioannis Kougionas expressed his pleasure NBG Bank to make such a contribution for the Faculty of Economy and the education system in Albania.

Veneto Banka and “Marin Barleti” University organized a set of lectures: “Communication as an issue, a source or a risk. Communication as a cultural issue”. Veneto Banka and “Marin Barleti” University organized, from 19-23 March 2012 a set of lectures, with the main theme: “Communication as an issue, a source or a risk. Communication as a cultural issue”, delivered by Prof. Dr. Giovanni Bechelloni. The event was also supported by the Albanian Institute for Public Affairs (AIPA). These lectures aim at raising the awareness on the need and importance of communication, as an indispensable social and cultural mean and instrument. Prof. Bechelloni has a vast and admirable experience with the most well-known European universities.

cation Directorate in Shkodra, local government, teachers and pupils of the music school, etc.The ceremony was followed by a con-cert of pupils from “Prenk Jakova” music school, at the new concert hall. In his concluding speech, Mr. Chris-tian Canacaris, CEO of Raiffeisen Bank, expressed his pleasure to be part of this special inaugural ceremo-ny and happiness to see Raiffeisen Bank’s contribution to materialize in the reconstruction of this concert hall, thus supporting in the process of improving school premises, and in satisfying their needs.

FIBANk

NBG BANk

VENETO BANCA


RAIFFEISEN BANk Raiffeisen Bank sponsors “Prenk Jakova” music school in Shkodra


Credins Bank makes gifts for children of police officers killed in the line of duty.Credins Bank organized, at the premises of Tirana County Police, a modest event for families and relatives of police officers killed in the line of duty, where it donated gifts to 40 children of those police officers. This is one the most special initiatives, out of many, Credins Bank is continuously supporting, with the aim of producing a real impact on country’s social life.

The staff of Intesa Sanpaolo Bank - Albania made a special gift for 11 old ladies, who live at the Home for the Elders in Tirana. There were just 11 flower bouquets, donated by the ISBA, on the occasion of 8th of March as well as 11 envelopes, with a symbolic amount of money, one for each lady, collected from personal contribution of many bank’s employees, who wanted these ladies

There are 70 students of the Faculty of Studies Integrated with Practice (FASTIP), selected by BKT to carry on with their internship, as part of the academic calendar, in the premises of BKT Head Office and other branches.

Upon their graduation, these students will follow the first

15 graduates from FASTIP, in becoming automatically part of BKT staff, by signing employment contracts during

INTESA SANPAOLO

BANkA kOMBëTARE TREGTARE

CREDINS BANk


Graduation Ceremony. FASTIP program is quite an innovative idea and reality in the Albanian education market, as it is based upon a business-university partnership, which provides students with the opportunity to conduct their employment internship at the premises of respective institution, thus guaranteeing an immediate employment, following their graduation.

BKT to continue cooperation with Faculty of Studies Integrated with Practice (FASTIP).

to enjoy and spend for their own pleasure, during this special day. No one deserves a lonely life and away from her family and children, or even worse, abandoned. We will all reach the third age and that will be the right time we will need care, love and respect from other people!

The staff of Intesa Sanpaolo Bank - Albania visited the Home for the Elders on the occasion of 8th of March.


BOSNIA & HERCEGOVINA

UniCredit expects NLP ratio in Bosnia’s banks to improve to 7.7% in 2012

Seenews.com 25 January 2012The non-performing loan (NPL) ratio in Bosnia’s banking system is set to improve to 7.7% this year from 13.3% in 2011 with a further decline in the medium term to below 4.0%, UniCredit said in a market overview of the banking industry in Central and Eastern Europe (CEE). NPL dynamics in Bosnia are subject to certain methodological inconsistencies, derived from a different application of the international accounting and financial reporting standards in its two constituent entities, the Muslim-Croat Federation and the Serb Republic. This has led to relatively slower growth of non-performing loans in 2011, the Italian banking group said in its CEE Banking Outlook issued in January.

Bulgaria’s bank deposits hit record high BGN 31.9 billion

Novinite.com 2 February 2012Banks in Bulgaria have been recording consistent and significant growth in deposits throughout 2011, a trend which peaked in the last quarter of the year, data from the central bank shows. Deposits by Bulgarians in local banks increased by BGN 768mln in December last year alone, newswires reported quoting the central bank. The total amount of deposits hit a record-high BGN 31.9bln at the end of 2011, marking an annual increase by 21% over 2010.

Foreign banks pull funds from their subsidiaries in Bulgaria

Business New Europe 2 February 2012Foreign banks are pulling funds from their subsidiaries in Bulgaria as lending growth in the country stalls, local media reported based on preliminary data from the Bank

INTERBALKAN NEWS

BAlKANNEt

BULGARIA

CROATIA

Croatia’s central bank tightens liquidity

Reuters 30 January 2012Croatia’s central bank is ready to further tighten liquidity rather than risk depleting its reserves to defend the KUNA currency, Governor Zeljko Rohatinski said in an interview. The euro zone debt crisis was threatening to virtually halt foreign capital inflows into Croatia’s banking sector, which would raise refinancing costs for banks, businesses and the government, Rohatinski told the Banka business monthly. The KUNA hit a seven-year low this month, reflecting falling foreign fund inflows, weak exports and locals companies repaying debt to foreign creditors.

for International Settlements (BIS). The total exposure of foreign banks to Bulgaria totaled $2.3 billion during the third quarter of last year and about half of it - $1 billion - was withdrawn by Greek banks, Sega daily reported. Greek banks hold nearly a 30% of the Bulgarian banking market, a 20% share of the bank loans and one-third of all deposits.


GREECE

MONTENEGRO

kOSOVO

All major banks in Croatia saw their 2011 gross earnings rise by 10% more than in 2011

Balkans.com 16 February 2012All major banks in Croatia, including those of the Unicredit and Banca Intesa groups, saw their 2011 gross earnings rise by 10% more than in the previous year. According to figures that were released, the banking sector totalled gross earnings of EUR 626 million, EUR 53 million more than in 2010. Of the 32 banks that are present on the Croatian market, 24 closed the year in the black, while eight small banks recorded a loss and one had to close its doors.

Greek bank deposits rise 0.8% m/m in December

Reuters 30 January 2012Greek business and household bank deposits rose 0.8 percent in December, pausing their steady decline in 2011, reported the country’s central bank. Bank of Greece data showed deposits rose to EUR 174.23 billion ($228 billion) in December, from 172.89 billion euros the previous month.

Greek banks may not need all of EU/IMF aid

Reuters 17 March 2012Greek banks might not need all the aid earmarked by the EU and IMF to help them weather the crisis, central bank chief George Provopoulos was quoted as saying. The European Union and International Monetary Fund have set aside some 50 billion Euros to recapitalise and support the lenders, the biggest private holders of Greece’s debt. The recapitalisation of the banks will be completed by September 2012, Provopoulos told to Vima newspaper, and the available amount will not need to be fully exhausted.Provopoulos said he still hoped there would be mergers in the Greek banking sector after Alpha Bank announced that it would not be merged with Eurobank in what would have been Greece’s biggest bank merger in decades.

Kosovo starts issuing government securities

Central Bank of Kosovo 17 January 2012The Ministry of Finance of the Republic of Kosovo, successfully sold at competitive auction 10 million Euro Republic of Kosovo 3-Month Treasury Bills. The bills

which mature on 4/18/2012 were sold with a yield of 3.5%. The auction was subscribed with the Ministry receiving bids for 22.5 million Euro. The Ministry of Finance received noncompetitive bids for 3.1 million Euro. This auction was a historic event for the Republic of Kosovo as it was the first issuance of its government securities. The proceeds will be used for capital investments within the state budget. This auction is the first of regulatory scheduled Treasury bill auctions during 2012. The Ministry of Finance will issue a total of 74 million Euro of government securities this calendar year.

Kosovo may seal IMF Pact amid debt crisis

Reuters 22 March 2012Kosovo may conclude an international standby agreement worth about EUR 110 million ($145 million) by the end of June as it seeks a shield from Europe’s debt crisis, central bank Governor Gani Gerguri said. Kosovo, which declared independence from Serbia four years ago, has yet to agree on the exact amount of the accord. It first looked to the International Monetary Fund in 2010 after becoming the Washington-based lender’s 186th member. So far, aid isn’t needed as the economy is set to expand 3.8 percent this year, Gerguri said, though the growth outlook was revised lower from 5 percent.

Montenegro’s banking sector has started to see positive results

Balkans.com 28 February 2012After a longer period of time, Montenegro’s banking sector has started to see positive results, and its capital, liquidity and solvency are at a satisfactory level, said the Association of Montenegrin Banks (UBCG), adding that the ongoing stress testing would be completed successfully. The Secretary General of the Association Mirko Radonjic told Mina-business agency that the Central Bank (CBCG) had been continuously supervising and analyzing the situation in the sector, performing stress testing when necessary, in order to maintain the stability of banking system.

There is potential for further capital increase of Montenegrin banks

Balkans.com 19 March 2012The stress test results have shown that, despite a stable solvency index, there is potential for further capital increase of certain banks in Montenegro, in order to ensure their full stability in case of external macroeconomic shocks. In cooperation with the European Central Bank (ECB), the Central Bank of Montenegro (CBCG) conducted a stress test of banks, according to the top-bottom principle, starting from the aggregate result at the level of the whole system, to every individual bank.



MACEDONIA SERBIA

TURkEy

ROMANIA

Fitch affirms Macedonia at ‘BB+’

Macedonian Information Agency 26 March 2012Fitch Rating Agency assigns ‘BB+’ to Macedonia with a stable outlook, according to agency’s rating at its website. Political risks, including the name dispute and resulting delay in EU accession talks, are a constraint on the rating. Resolution of the name dispute that opened the path towards EU membership, with its attendant benefits such as stronger institutions and policy frameworks, better access to financing, investment and export markets, could support a positive rating action, if accompanied by sufficient economic growth, Fitch analysis reads.

Macedonia Sells 676.9 Mln Denars (11.0 Mln Euro) in 5-yr Bonds

Seenews.com 26 March 2012Macedonia sold five-year government bonds worth a combined 676.9 million Denars ($14.5 million/EUR11.0 million) in two auctions last week, the central bank said. The finance ministry sold five-year bonds worth 424.4 million Denars carrying an annual coupon of 5.7%, the central bank said in a statement last week.

Serbia’s government plans to stay the biggest shareholder in Komercijalna Banka

Balkans.com 30 January 2012The Serbian government plans to stay the single biggest shareholder in local Komercijalna Banka over the near term, Belgrade-based media reported. To that end, the government plans a 110.5 million euro capital increase at Komercijalna Banka this year. Serbia owns a stake of 42.59% in Komercijalna Banka, while the second biggest shareholder is the European Bank for Reconstruction and Development with a stake of 25%. Now is not the right time for the government to exit the bank but it plans to do so by the end of 2015, unnamed government sources said.

National Bank of Serbia keeps the reference interest rate at 9.5%

Business New Europe 9 March 2012The National Bank of Serbia on March 8 kept the reference interest rate at 9.5% annually, newswires reported.The bank said the reference interest rate was kept at the same level because of inflation factors with medium-term effect, such as low demand, rising import prices, international risks and fiscal policy. On 19 January 2012, the Executive Board of the National Bank of Serbia (NBS) reduced the rate by 25bp to 9.50%. This was the seventh cut in the key rate after the NBS decided to start relaxing the policy from June 2011.

NPL ratio in Romania reaches 14% in 2011

Business New Europe 30 January 2012The non performing loans (NPL) ratio for credit institutions registered in Romania, per total system, reached 14.18 percent at the end of the third quarter 2011, compared to 11.67 percent, on September 30, 2010, the National Bank of Romania (BNR) data reveal, Agerpres reported.

Romania’s central bank cut interest rates to a record lowBalkans.com 3 February 2012

Balkans.com 3 February 2012 Romania’s central bank cut interest rates to a record low, further beefing up its support for a fragile economy amid hopes that tough government action on public finances means investors will not be deterred by falling returns. Romania’s economy nudged back to growth of about 2.5 percent last year but is still recovering from the shock of a more than 8 percent contraction in 2009 and 2010, prompting the central bank to bring borrowing costs down to 5.50 percent.

Turkish banks are increasing bond sales to a record this year

Balkans.com 21 February 2012Turkish banks are increasing bond sales to a record this year, helping to sustain the growth in lending that’s keeping the economy out of recession. Just two years ago, banks didn’t sell any bonds. So far in 2012, they’ve issued the equivalent of $4 billion, four times the amount a year ago, data compiled by Bloomberg show. Akbank TAS, the biggest by market value, said Feb. 17 it plans to raise the equivalent of up to $1.5 billion of foreign bonds, triple its single sale in 2011. Turkiye Garanti Bankasi AS, the No. 2 lender, issued 1 billion liras ($600 million) of local bonds last month yielding 11 percent.

Turkey’s bank loans growth slows to less than 26% y/yReuters 13 February 201213 February 2012 – ReutersGrowth in Turkish bank loans slowed to less than 26 percent year-on-year at the beginning of February, adding to signs to a gradual economic slowdown after a year of unorthodox monetary policy by the central bank aiming at preventing overheating. The figures were sharply above numbers of closer to 10 percent given by central bank governor Erdem Basci last month and were not directly comparable.


The swift technological develop-ments have a great impact on the

lifestyle of individuals and on busi-ness activities. Internet and comput-ers have significantly affected com-merce, especially marketing wise, but mobile phones have also dem-onstrated to have a similarly huge potential nowadays, due to their popularity and their vast usage in the daily life of individuals. While the telecommunications industry has ensured a penetration rate of almost 140 per cent of the Albanian market, the banking sector has not yet cov-ered all market segments. Not many banks have been active in providing services to attract that share of the market that is still “unbanked”. That is exactly why several non-bank fi-nancial institutions in Albania are endeavouring to cover this segment of the market with services such as mobile and internet payments. Mo-bile phones have contributed to fa-cilitate payments systems and money transfers even to those who are not banks’ clients. On the other hand, the sustainable development of this sec-tor in Albania is challenged by many difficulties and uncertainties.

Overview of the mobile payment industryMobile phones have a great poten-tial to transform the method of car-rying out payments and transfers. The usage of credit and debit cards in Albania is increasing, showing that the Albanian customers are increas-ingly preferring fast and less costly payments. Mobile payments provide this market segment with the neces-sary flexibility, allowing every kind of payment, everywhere and at any time. To begin with, it is important to clarify two concepts that are com-monly confused: Mobile Payments and Mobile Banking.

Mobile payments are payments (transfers of funds paid in exchange of goods or services) where a mobile is involved both in the process of ini-tiation and in that of confirmation of the payment.

Mobile Banking is the accessing of banking services through the mobile. The range of accessible services may include a part or all of the services of-fered by the bank through the inter-net as ‘online banking’.

Mobile payments, for many rea-sons, have become quite attractive to various market players:

Financial institutions, through these payments, can reach out to the market segments that are not covered by the banking sector. Secondly, mo-bile operators have an opportunity to

The main challenge is the integration with the Albanian banking system, as it is crucial that banks recognize the importance of introducing new services and technologies.

MOBILE PAYMENTS – AN ALTERNATIVE PAYMENT METhOD

tECh topiCs

by Linda SHOMO Administrator

EASYPAYexpand the range of services that they offer, thus diversifying the products portfolio and reaching closer to their customer needs and to their new life-styles. Thirdly, merchants shall be significantly advantaged in accept-ing mobile payments by their cus-tomers, considering that the transac-tions shall be faster, their distribution network shall be expanded capturing new markets, and they will need to carry around less cash, thus avoid-ing thefts, etc.. Finally, young people, who make up for a significant share of the market, are more comfortable in using mobile and internet to carry out several actions simultaneously.

An analytical overview on the features of this industry worldwide, would give an insight on the expecta-tions of mobile payments providers in Albania.

There are several business models in the industry of mobile payments. They can be managed by a single operator, as well as by the collabo-ration of a group of operators com-ing from different industries, for instance banks and telecommunica-tions, hence providing added value to the whole system. The most com-mon business models applied so far are: the operator-centric model, the bank-centric model; or provided by independent third parties, which are obviously licensed for these services. The American company “Obopay” is an example of a payment system set up successfully by an independent


financial institution. Whereas, the Spanish company “Mobipay” and “M-Pesa” in Kenya are cases of suc-cessful cooperation of various opera-tors.

The most successful models across different countries in the world so far have been those set up by independent institutions that in-teract with the financial system and the mobile operators, and provide ac-cess to these services to the vast ma-jority of the population

An important challenge to the development of mobile and internet payments is the relevant regulatory framework for the sector. Lack of ap-propriate regulations may translate into the biggest threat to the provid-ers of such services in some coun-tries. The implementation of a regu-latory framework would be very im-portant, first of all, for the consumer protection, as it would enable moni-toring and managing risks, as well as ensuring stability and transparency between the parties. Simultaneously, the barriers to entry for the new op-erators should be low for the sector to develop at a fast pace.

Operators of these payments should also take into consideration their customers’ needs. The psycho-logical barriers associated with be-havioural changes must be evaluated very carefully. For a “cash-based society” it will be very difficult to radically change the method of con-ducting transactions and payments. In fact, the providers of this new payments system should focus their marketing strategies into identifying those market segments that would be willing to change their behaviour and adopt the new methods, and then fol-low up on the acquaintance the new technology.

Despite the great potential pre-sented by the mobile payments in-dustry, it should be emphasized that the developments of mobile pay-ments have not been equally success-

ful across the world. Chances of suc-cess are greater in developing coun-tries, where mobile operators have a wide coverage and the banking infra-structure is underdeveloped creating more room for the development of these alternative payments systems.

Challenges to the electronic money and new payment systems in the Albanian financial systemAs is common also in international markets, EasyPay has encountered obstacles when introducing this type of payments in a new and difficult market such as Albania. The experi-ence to date has shown that some of the greatest challenges are: the mar-ket’s financial education; the integra-tion with the banking system; and the market informality.

Banks should recognize the im-portance of introducing new services and technologies, especially when these are offered through institutions licensed for such services. In general, much remains to be done by Albanian banks, for them to enter the world of e-commerce and strongly invest in this area. Banks should also take into account the ever increasing demands from the businesses for merchant ac-counts and online trading, as well as the likewise increasing necessity of clients for purchasing online through credit and debit cards. The Albanian market also calls for the integration of the Albanian banking system with world’s leading operators in the field of payments, such as PayPal, and for the forthcoming opportunity of the local currency to be accepted in their payments systems.

Another challenge, and at the same time an opportunity, is the co-operation of card operators such as VISA and Mastercard with non-bank financial institutions licensed for payments transactions. This kind of cooperation would be a strong sup-port for the interaction between fi-nancial institutions, as well as would increase the volume of card transac-tions.

Finally, the recent changes in leg-islation related to electronic money are a strong support to the sector of mobile and internet payments in the country, but it is very important that such changes are followed by the adoption of regulations specially pre-pared for this sector, in accordance with the recent EU Directives on pay-ments.

...much remains to be done by Albanian banks, for them to enter the world of e-commerce and strongly invest in this area.

EasyPay was licensed by Bank of Albania on 21.12.2009 to con-duct financial activity in payments services and money transfer, and was the first operator that in Sep-tember 2010 offered payments in Lekë through mobiles and Inter-net. EasyPay is the first Albanian merchant that sells Digitalb sub-scriptions with PayPal on the In-ternet.The volume of transactions has been satisfactory considering the short period of activity and the challenges of the Albanian market. Up to date, EasyPay has channelled a volume of payments of over 200 million, and the ser-vices it offers are increasing. One of its key achievements has been the cooperation with the larg-est companies in the country. To date the range of services that EasyPay provides includes:1. Subscription on Digitalb pack-

ages: through SMS and ON-LINE

2. Recharging PLUS numbers3. Online payments for various

businesses4. Bill payments5. Purchasing Bingo 7 tickets6. Other transactions such as:

a) Credit Transfer (P2P)b) Checking account balancec) List of performed transactionsd) Change of PIN

EASyPAy the first Albanian op-erator that provides mobile and internet payments in Lekë


FiNANCiAl AuditoriuM

Project financing is a method of or-ganizing and funding large capi-

tal – investment projects. Although it is not an invention of modern fi-nance, its application increased, and it reached new heights of innovation in the 1980s and 1990s as it was used to fund numerous large projects in-cluding mines, super tankers, roads, bridges, and even a theme park. The novelty, power, and complexity of this method of financing often ob-scure its economic simplicity.

Project financing is way of dis-tributing risks and returns more ef-ficiently than under conventional financing strategies. Those who have specialized ability to bear specific kinds of project risk are paid to do so. The result is lower overall cost of financing, the elimination of dead-weight losses to consumers and in-vestors, and, simply, the successful completion of projects that might not otherwise be undertaken.

Project finance in few wordsA project financing may be character-ized by some or all of the following attributes:

A separate legal entity is created (i.e., separate from the parent orga-nization eager to see the investment undertaken). This entity may be or-ganized as a partnership or a corpo-ration.

The entity is organized around a specific business or asset, which is separable from the sponsor or par-ent and probably has a finite life. The project will have clearly stated objec-tives and a likely conclusion. Project financings are relatively expensive to set up. Contracts will describe in

detail the responsibilities, contribu-tions, and rewards of various par-ticipants in the project. Accounting and monitoring systems will involve large sums of money.

Project financings can involve many different kinds of assets and operations. It is useful to categorize these into two broad types:

Stock –type projects. These proj-ects depend on the existence of a sufficient stock of some good to be exploited, the proceeds from which service the creditors and provide a return to investors. Examples of this would be mines of all types, and oil and gas fields (i.e., exploiting a par-ticular reserve). This type of project terminates when the stock runs out.

Flow- type projects. These projects depend on a particular flow of busi-ness or traffic through the project, in order to service the creditors and provide a return to investors. Exam-ples would be pipelines, toll bridge, toll high ways, tunnels, super tank-ers, hydroelectric plants, hotels, and theme parks. This type of project ter-minates when the facility wears out.

Parties in a Project FinanceThe diagram here illustrates the re-lationship between the main parties in a project financing and the agree-ments that govern their relationships. If a public authority aims to have the private sector provide a public ser-vice and finance the capital invest-

Project financing is a way of distributing risks and returns more efficiently than under conventional financing strategies. It enables borrowers to obtain financing that is exclusively tied to the characteristics of the project and divorced from the sponsor’s other cash flow.

PROJECT FINANCE

WhY PROJECT FINANCE?

As clean technologies and other health and sustainability products prove com-mercially viable and reliable (low risk, relatively high reward), they become in-creasingly popular with larger and more risk-averse investors and fund manag-ers worldwide. Early stage venture capital remains a key source of technology innovation and new jobs, but in the current economy, early and late stage project finance, particularly in developing countries, continues to be:•Non-dilutivetoexistingornewinvestorpartners-debtfinancepreservesequity

for the owners while delivering needed capital, affordably;•Asourceofgoodjobsthathelpliftpeopleoutofpoverty;•Apowerfulandsustainablewaytoprotectvaluablenaturalresources;•Anengineforsustainableeconomicdevelopmentandimprovedqualityoflife;•A“freeandopenmarket”-notreliantupongrants,market-distortingincentives

or manipulative policies - and thus a more sustainable path to a cleaner envi-ronment and a just society.


prepared by Junida TAFAJ, AAB

ment it can into a Public-Private part-nership (PPP) with the private sector. Quite often, in a large PPP, e.g. toll roads, the project company builds, owns and operates the infrastructure and uses a project finance structure to finance the capital investment. The private party may be compensated from the users of the facility or a combination of the above.

Project Finance vs. Corporate Fi-nanceThe alternative to creating a special project company, which raises funds for the execution of the project, is for the corporate to implement and fi-nance the project on its balance sheet. Some of the differences between these two types of funding entail the following:• Corporate finance is suitable for

smaller projects, whereas project finance is best suited for large projects;

• Corporate Finance is appropriate where the company is strong and relatively large in comparison to the project;

• Corporate finance transactions can be arranged much faster than project finance, which can take years to conclude;

• Project debt is usually more ex-pensive than corporate debt;

• Discipline of project finance is stronger than corporate finance;

• Corporate finance uses more classes of debt. Historically proj-ect finance consisted of bank loans but this is changing and a growing proportion of project debt now consist of bonds;

• Project loans have lower prob-abilities of default and higher re-covery rates than corporate loans. Corporate finance investments exposes a sponsoring firm to loss-es up to the project’s total cost, whereas project-finance invest-ment exposes the firm to losses as large as its equity investment;

• Project finance protects the corpo-rate balance sheet;

• For banks, the expectation is that project finance requires less regu-latory capital;

• A project company provides the opportunity to create a new as-set specific governance structure to manage the conflicts between ownership and control and be-tween owners and related parties. e.g. suppliers, etc. In a corporate financing the assets and cash flow would be governed by existing corporate structures;

• Single asset nature makes a proj-ect’s performance transparent. In contrast corporate borrowers often have diverse stream of rev-enues, complicated subsidiary structures and accounting treat-ments, and cash flow streams that are difficult to analyze.



Proposals for amendments to the Law on Deposit Insurance Deposit Insurance Agency (ASD), in cooperation with Bank of Albania and upon World Bank mis-sion’s recommendations to strengthen and modern-ize the institutional capacity of ASD, prepared the draft amendments to the Law on Deposit Insurance. A significant proposed amendment relates to the fact of increasing legal powers of ASD, in terms of col-lecting a special contribution, aimed at protecting its reserve fund, in case of conducting any compensation process. Banks sent their official comments and objec-tions, with regard to this proposal, to relevant institu-tions.

Meeting with the Head of General Directorate of Taxes and TariffsIn February 2012, AAB organized a meeting with banks’ representatives and experts of General Directorate of Local Taxes and Tariffs. The meeting was focused on several issues faced by banks with regard to frequent orders coming from this Directorate about freezing client’s bank accounts and possible solutions, within the existing legal framework. Both sides stressed the importance of electronic exchange of information and drafting a well-defined cooperation agreement, between banks and Directorate.

Seminar and the draft guidelines by the Office of the Commissioner for Personal Data ProtectionAAB supported the Office of the Commissioner to organize a seminar, concerning personal data processing in the Financial Sector, in the frame of implementing the Law on Personal Data Protection. Moreover, AAB technical committees held, during February, special meetings where they discussed on two proposed draft guidelines, pursuant to the above mentioned Law. Banks comments were summarized in a document that AAB’s Secretariat sent to the Office of the Commissioner, by end-February 2012.

Legal CommitteeLegal Committee met in March 2012 with representatives of World Bank mission for the as-sessment of the financial sector, where it discussed on finding available solutions, as regards the collateral enforcement.In March 2012, Mrs. Veronika Prifti, Chairwoman of AAB Legal Committee, attended the round table of experts, organized by the Law Commission of Albanian Parliament with the business community, to discuss the draft law on administrative courts.

Changes in banks’ reporting to BoA on liquidity risk managementIn January 2012, Bank of Albania introduced the initiative to draft a new set of banks’ reports, in order to realize a better liquidity management and monitoring. AAB organized several meetings with banks’ and Bank of Albania’s representatives, in this regard. Some changes and relevant adjustments were proposed on that issue.

Human Resources CommitteeIn the frame of meeting the requirements of fiscal legislation, concerning electronic reporting of tax declarations, banks faced certain difficulties related to the number of employees and professions structure. In this re-gard, the Board of AAB Human Resources Committee met experts from Tirana Tax Directorate to discuss about finding a technical solution for the transfer of banks’ data, in order to minimize and eliminate errors, coming out from manual mass declaration. The meeting was also fol-lowed by an official letter, for which AAB is still expecting the answer. Also, AAB Human Resources Committee had a meeting with representa-tives from the Division of Occupational and Professional Qualification at the National Agency of Education and Professional Training, regarding the clarification and suggestions on the List of Professions, to which the obliga-tion for online employees’ declaration is referred. The representatives of this agency committed to undergo any changes, if deemed necessary, in the list of professions, to accommodate the specific needs of banks.

Activities ofAlbanian Association of Banks

AAB

during January - March 2012

OPERATIONAL ISSUES

AAB COMMITTEES’ ACTIVITy


AAB’s Committee for Bank SecurityThe Board of AAB Bank Security Committee had, during January 2012, several meetings with employees of commer-cial banks’ branches in Durrës and the management staff of SHRSF and State Police. The purpose of these meetings was the inspection of physical security measures at bank branches and deepening the cooperation between banks’ physical security services and SHRSF and State Police, aiming at increasing security and preventing robbery and criminal incidents in banks, in Durrës. Following the tragic event of robbery at a bank branch in Tirana on March 27th, the Committee held also an emergency meeting, in which it discussed further measures to be taken by banks, in coopera-tion with the State Police forces.

Committee on Payment SystemsThe AAB Committee on Payment Systems assessed the conditions and possibilities to implement the project of waiving transfers free for employees’ salaries. The assessment intended to completely eliminate the manual exchange of information on employee salaries, especially for public administration. For this purpose, the Committee will cooperate with the Department of Public Administration (DPA), about finding a common solution. Also, the Board of the Committee is collaborating with the Department of Payments at Bank of Albania to unify the form of payment orders for the banking system as a whole.

AAB establishes the Committee for Bank’s Internal AuditorsAt the meeting, organized by AAB Secretariat with internal audit personnel of banks in February, the establishment of AAB Committee of Internal Auditors was decided, with the aim to facilitate the exchange of information about fraud schemes, compliance with regulatory framework and different standards of auditors, training opportunities, etc.

AAB - TRAINING AND EVENTS

Bank Security ForumAAB Secretariat and AAB Committee for Bank Se-curity organized, in 31 January, the Bank Security Forum. The forum aimed to increase the level of co-operation between actors and operators involved in bank security issues in Albania and Kosovo. The Forum was also attended by representatives from General Directorate of State Police, Bank of Albania, Physical Security Protection Companies (SHRSF), companies that design, implement, provide and sup-port with electronic protection systems. Special guests at the event were representatives from physical secu-rity structures of ProCredit Bank, Raiffeisen Bank and the Bank for Business, from Kosovo. The guests and participants had very much appreciated the Forum and stressed out the need for other similar activities with broader participation.

Farewell ReceptionAAB organized in February 2012 a farewell reception for Mr. Andreas Galatoulas, who left the position of General Director of Alpha Bank and Albania, and also welcomed the new Director of Alpha Bank, Mr. Periklis Drougkas.


Training course on bank’s collateral enforcementAAB, in cooperation with Luarasi University orga-nized a joint training seminar, during 23-24 and 30-31 March 2012, with the topic: “Banks’ collateral en-forcement”. The lecturers to this training were Ms. Ledia Plaku and Mr. Marjeljan Rriska from Intesa SanPaolo Bank, who had also prepared a compre-hensive text book. The training was attended by 22 participants from member banks, as well as 4 rep-resentatives from Private Bailiff Service. The course was aimed to to convey to participants the knowl-edge, concepts, notions of enforcement process of obligations deriving from executive titles in condi-tions where the mandatory execution constitutes an important element banking activity.At the end of the course, all participants received a certificate, recognized by the Ministry of Educa-tion and Science, and also they obtained two credits available for the higher education system under the Law “On Higher Education in the Republic of Al-bania”

Training seminar organized by AAB & GDPML AAB, in cooperation with General Directorate of Mon-ey Laundering Prevention (GDPML), held on 27 Feb-ruary 2012, the training seminar with the topic: “Com-bating Money Laundering, basic rules and legal & regulatory framework”. The seminar was opened by General Director of GDPML, and was attended by rep-resentatives of GDPML, respective compliance staff,

Training Course on International Financial Re-porting Standards (IFRS)AAB organized, at its premises, a 3 day train-ing course (13-15 February), on “IFRS In-troductory Module”, which was attended by representatives from Alpha Bank, Banka Kombëtare Tregtare, International Commer-cial Bank, Intesa San Paolo Bank, Pro-Credit Bank, Union Bank and United Bank of Albania. The course addressed, particularly, the IFRS, which regulate banking activity and are already required to be applied by banks in Albania. Ses-sions were structured in a way to address stan-dards both theoretically and practically, through exercises and case studies

specialists involved in money laundering prevention issues in banks, as well as representatives from Bank of Albania. The seminar was focused on discussions about real cases of enhanced due diligence for banks’ money laundering, as well as best practices of banks reporting to the Authority, in full compliance with regulatory requirements.


Documents

BANKIERI No.3 April 2012