Investment funds increased their share to the GDP to 3 percent in 2013, overcoming non-bank financial institutions with 2.5 percent and insurance companies with 1.6 percent.
TIRANA, April 21 – Systemic risk in the Albanian financial system has increased with the recently established investment funds, warns the IMF in its latest financial system stability assessment.
“While these funds have helped diversify the ownership of government securities, they are inadequately supervised and regulated, invest mostly in longer-dated securities and their clients appear to consider these funds as substitutes for bank accounts. Given the lack of a functioning secondary market for government bonds, the funds face high liquidity risk. Moreover, given the close links with banks, redemption pressures may spill over into deposit runs on banks.”
The IMF encourages Albanian authorities to lessen the systemic risks arising from the large holdings of government securities by banks and investment funds. Establishing a regulation with minimum liquidity and capital standards for investment funds is an immediate priority, and these funds should be required to have adequate liquidity contingency arrangement with banks. Their assets should also be fully marked to market. In addition, it is important to support the development of the secondary market by rationalizing bond issuances and expanding the range of assets that banks can use to meet the Central Bank of Albania’s (BoA) liquidity requirement by including all tradable government securities with longer maturities and, similarly, expanding the range of collateral accepted in BOA operations.
Investment funds increased their share to the GDO to 3 percent in 2013, overcoming non-bank financial institutions with 2.5 percent and insurance companies with 1.6 percent.
The first fund began operations in 2012 when the Albanian subsidiary of Raiffeisen bank established an investment fund. The timing coincided with the decision of Raiffeisen decision to scale back its participation in the public debt market to limit its exposure to the Albanian sovereign. A second fund was added later.
The financial sector in Albania is concentrated and dominated by foreign banks. Banks represent over 90 percent of total financial system assets, equivalent to about 90 percent of GDP in 2012. The remainder of the financial system is small (6 percent of financial system assets). As of mid-2013, it included 11 insurance companies, 2 investment funds, 124 Savings and Credit
Associations (SCAs) in 2 unions, 2 independent SCAs, 3 pension funds, and 21 other non-bank (that is, non-deposit-taking) financial institutions (NBFIs).
Investment funds assets treble
The two newly established investment funds operating in Albania more than trebled their total net asset value to 50 billion lek (Euro 352 million) in 2013 according to a report by the Financial Supervisory Authority. The market is mainly dominated by investments in government bonds which account for 84 percent of the funds’ assets, where around 28,442 people have invested.
Currently only two investment funds, Raiffeisen Prestigj and Raiffeisen Invest Euro operate in Albania. The funds were established in early 2012 by Raiffeisen Bank Albania, the leading commercial bank operating in Albania. Investment funds include a supply of capital belonging to numerous investors that is used to collectively purchase securities while each investor retains ownership and control their own shares.
Investment funds, supervised by the Financial Supervisory Authority, accounted for 1.1 percent of the GDP at the end of 2012 compared to 1.5 percent of the GDP for the insurance companies and 0.02 percent by pension funds, according to central bank data. The banking system supervised by the central bank accounted for 87.9 percent of the GDP, non-banking financial institutions for 2.6 percent and saving and credit unions with 0.78 percent of the GDP, according to a financial stability report by the Bank of Albania.
