TIRANA, July 4 – 2006 was a year of great import for the American Bank of Albania (ABA), said its last annual report.
Since its creation in 1998, the ABA’s goal has been to create a leading financial institution in Albania by providing superior banking services to the people of Albania, said Michael D. Granoff, Chairman of the Board. Now the Bank is ready to take the next step to create the corporate structures necessary to lead the Albanian banking industry in the future.
After receiving expressions of interest from several European banking groups, the ABA’s sole shareholder, the Albanian-American Enterprise Fund, has agreed to sell 80% of its shares to the Intesa Sanpaolo Group of Italy, one of the largest banking institutions in Europe.
The interest of foreign investors in Albanian banking is an important sign that the economy of Albania is maturing and integrating into Europe and into the global economy, said Granoff.
Due to he sale, the bank will be positioned to meet the growing financial needs of Albania as a nation; able to finance infrastructure and other important national projects, and to meet the growing financial needs of individual Albanians and local businesses.
2006 was another year of great achievement for the ABA. Total revenues increased by 35% to USD $31.2 million. Net Income increased by 67% to USD 10 million. Assets grew by 59% to over USD 854 million. Also, the ABA is one of the largest lenders in Albania with outstanding loans of over USD $267 million, a 29% increase from 2005, and with exceptional credit quality.
The bank’s reach continued to expand with the opening of branches in Lushnja in Albania and Thessaloniki in Greece. The bank now serve over 68,000 customers through 21 locations in Albania and Greece.
Bringing world class technology to its customers has been a vital part of the ABA strategy. During 2006, it doubled the number of Point of Sale terminals, including those using mobile phone networks, and now has installed 34 ATMs. The bank also expanded the options for Internet banking, processing over 20,000 transactions.
Most importantly, the ABA continued to grow its team with a staff of 367 professionals.
“2006 was an important year for ABA. Our results are a reflection of the commitment and hard work of the leadership of the Bank, each and every employee and my fellow Board Members. While we have made considerable progress, there remains much to do. All of us at the ABA are committed to making that bright future a reality,” said Granoff.
Last week the Supervisory Board of the Bank of Albania announced it had approved the transfer of the controlling package of 80% shares of the American Bank of Albania over to the Group of Intesa Sanpaolo S.p.A. Italy.
The new shareholder of the American Bank of Albania, Intesa Sanpaolo, is an Italian leader of European scale whose aim is to create an operator of primary importance, able to come up with valuable products for its customers as well as to compete effectively in the financial and banking sector.
The Intesa Sanpaolo Group is represented in 48 countries. The Italian network of Intesa Sanpaolo is made up of 5,500 branches spread out throughout Italy, serving about 12 million customers. Moreover, its network of banks in 13 Central and Eastern European countries is made up 1,650 branches, serving about 7.7 million customers.
As regards its role within the corporation, the American Bank of Albania will now be part of the Intesa Sanpaolo Group of Italy.
ABA on Albanian Economy
Macroeconomic Overview
Albania’s macroeconomic environment continued to be characterized by strong GDP growth and subdued inflation. Overall, during 2006, Albania’s stable economic environment was maintained.
However, the country suffered frequent power supply shortages at the end of 2006 and beginning of 2007. This was mainly as a result of the strong dependence on hydroelectric sources for its electricity supply. While the effects of the crisis on the economic growth were estimated at 0.5% of GDP in 2005, the impact in 2006 is not yet estimated.
The trade deficit widened to 25% of GDP in 2006, compared to 24.1% of GDP in the previous year. Due to the appreciation of the Albanian LEK and stronger competition in the textile industry, growth in export of goods increased by 18% in 2006 from 9% in 2005. For the same period, imports of goods grew by 15%. Part of this continuing deterioration likely reflects the improvements in customs administration, with more goods going through the formal channels.
The strong import demand and higher oil costs during the first half of 2006 further increased the trade deficit. The export base in Albania remained very low, narrow and undiversified. Due to the deterioration in the trade balance, the current account deficit (excluding official transfers) recorded an increase to 7.6% of GDP in 2006, compared to 7.8% in 2005.
The trade deficit continued to be the chief factor determining the current deficit amount. The degree of coverage of imports by exports remained at about 26%. The foreign trade flows were mainly directed to and from the European Union countries, with Italy and Greece covering the majority of these transactions.
Transfers from abroad and other remittances were estimated at around 12.8% of GDP in 2006, compared to 14.6% in 2005. Private transfers continued to play a very important role in maintaining the current account deficits at relatively stable levels.
Rising Energy Prices keep Inflation at 2.5%
Within the total CPI, the position of “food and non-alcoholic beverages” is the most important item in the basket with a weight of 42.6%.
The annual inflation rate reached 2.5% in December 2006. It followed an upward trend since July 2005, when CPI inflation reached a low of 1.8% (year-on-year). It peaked in October 2005 (3.3% year-on-year) due to persistent pressure from rising oil prices on certain domestic prices. After a temporary decline in the first quarter of 2006, modest inflationary pressures resumed in the second quarter of 2006. These were derived from external developments, continuing excess liquidity in the banking sector and reduced supply of agricultural products. Rising concerns on inflation were under strict Bank of Albania scrutiny. In order to maintain annual inflation within 2-4% range, Bank of Albania twice increased the base rate by 25 basis points reaching 5.5%.
According to statistics published by INSTAT, the unemployment rate during 2006 had gradually decreased compared to end of 2005 figures. The latest unemployment rate published by INSTAT was 13.8% compared to 14.2% in 2005. Statistics of the employment structure show no change regarding the percentage of the work force employed in the public sector. However, the decrease in the unemployment levels during the year was not reflected completely in the registered level of those employed, which suggests that part of the demand was fulfilled outside the formal employment registered market.
The 2006 budget envisaged a set of reforms for the tax administration and public finance management. These measures were focused on increasing tax administration efficiency, tax collection and debt management.
Public debt remained on a declining path, reaching 55.2% of GDP at end-2006. Given the low interest rates and increased confidence, the Treasury increased maturities of domestic securities, including the successful issuance of 5-year bonds.
Declining levels of public debt relative to GDP, together with improvements in revenue administration and public debt management, were further emphasized in 2006.
Given a favorable performance of the budget in the first half of 2006, a supplementary budget was adopted for the second half of the year to match higher tax revenues and customs duties collection. Public investment in road construction made up almost 70% of the supplementary budget. During the period Jan-Nov 2006 the current deficit reached a historic minimum of 1.7% of GDP, confirming the good control and sound policies of the Ministry of Finance.71 Annual Report 2006
During 2006, responding to the increasing demand for liquidity of the domestic economy and the government, Bank of Albania has intervened several times by injecting liquidity through the “Reverse Repo” instrument.
The money supply growth showed a slight increase in the last quarter reaching an annual average rate of 1.9%. The level of money outside the banks showed a small decreasing trend throughout the year, estimated at LEK 139 billion, from LEK 140 billion in 2005.
While in 2005, the ratio (Money outside banks / M3) was very steady at around 25%, in 2006 it went down minimally to 24%.
The financial sector in Albania is dominated by 17 commercial banks, which are completely under private management. Total assets for the banking system in 2006 reached LEK 624.2 billion.
During the last year, the sector showed an increased dynamism in several directions, accompanied with an increase in the number of outlets as well as the range of products and services offered. Banks demonstrated good performance and took a more proactive stance towards retail banking. 2006 also marked a rapid increase in loans extended to individuals.
Moreover, sector developments were accompanied by the introduction of more foreign investments through mergers and the purchase of major blocks of shares in several local banks. Lending levels throughout the year were considerable reaching LEK 191.2 billion, meanwhile the loan portfolio remained within satisfactory levels despite a light increase of non-performing loans to 2.77% from 2.50% in 2005.
Banks invested heavily in expanding their geographical coverage and their product range. In 2006, the numbers of banks’ branches and agencies increased to 187 and 100 respectively. Credit to the private sector remained low as a percentage of GDP, but grew fast at about 71.7%. Although starting from a low base, the credit activity growth from 13.7% of GDP at the end of 2005 to 21.8% at the end November 2006 was very impressive.
Regarding the currency structure of loans portfolio to economy, loans in foreign currency decreased from 74.8% in 2005 to 70.38% in 2006. The maturity conversion continues to be evident in lending to economy.
Reflecting international markets, interest rates for loans denominated in foreign currency have followed a rising trend during 2006. However, the growing competition is increasing the downward pressure on lending margins.
In ABA’s opinion, a word of caution must be said about this trend. Banks have been lending too fast, producing a trend which, due to competition, has caused spreads to become non-remunerative. If this continues, the banking system could possibly face some difficulties in the near future.
Total deposits increased by about 15.3% for 2006 or LEK 65.4 billion. Foreign currency deposits increased from 35.7% of total deposits at the end of 2005 to 38% at the end of November 2006.
After decreasing substantially in the first half of the year, interest rates offered for LEK deposits rebounded in the second half. On the other hand, USD and EUR offered interest rates increased steadily throughout the year following the international rates.
