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Albanian banks on a race and system changes during 2018

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7 years ago
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TIRANA, Apr. 13- The banking sector for 2018 seemed to hit another year of stagnation with slow growth in assets and idle lending, with weak deposits expansion, mostly impacted from Euro savings, and declined profits. Bankers often claim that the progress of a banking system is closely linked to the country’s economic ones, thus agreeing that the 4 percent growth Albania experienced during 2018 came from energy sales, Trans-Atlantic Pipeline (TAP) project and the Devoll hydropower plant, because none of these developments had any crediting, and the actual banking and lending system performed rather weakly.

The positive development that the banking system experienced during 2018 was clearing off the balance sheets the problematic loans, specifically the loans which had not been paid for more than three years, and also a restructuring on the lending system. Another positive development as most bankers have seemed proud of is the digitization process. Most banks have endorsed technology and are constantly looking to update their systems in order to provide quicker and safer services for their clients. However, the most important point remains the consolidation, which has been praised by the Bank of Albania as well.

“The changes that are happening within the banking sector, are associated with the local capital weight growth and the decline in the numbers of banks present. This process is expected to positively contribute in the progress of financial mediation,” said the BoA in a press conference.

So to explain, the second-rate banks in Albania have been busy endorsing deals and finalizing transaction bargains during 2018, rather than carrying out expansions. 2018 started off with 16 banks, and enclosed with 14, as Veneto Bank was bought off by Intesa Sanpaolo, and National Bank of Greece (NBG) was bought by the American Bank of Investments (ABI). There are currently two more deals being consolidated, Union Bank is finalizing its purchase transaction of the International Commercial Bank (ICB), and Credit Bank of Albania (CBA) is also on a process of liquidation. It is expected that by June 2019 there will be 12 second-level banks left in Albania.

Regardless of various geographic origins of the capital, the system is still well-diversified. In Albania there is officially one Greek bank left. If its capital used to be over 20 percent during 2008-2009, that amount has now reduced to 5.2 percent held by Alpha Bank. The capital started to reduce after the Commercial Bank of Greece (Emporiki Bank) was bought off by Alpha Bank in 2013, and then after Tirana Bank (part of the Piraeus Bank Group) and finally NBG were bought off by non-Greek capitalized subjects.

Another change which has happened to the banking system in Albania is the introduction of the Hungarian OTP Bank Group (National Savings Bank). This bank bought off the French capital held by Societe Generale, a contract finalized on Mar. 29, 2019. Societe Generale used to hold 6 percent market shares in Albania, which made it the fifth largest bank in the country. As of April 12 this year, Societe Generale has been already rebranded to OTP Bank.

Nevertheless of the changes, the system is still dominated by the Turkish capital held by the Albanian Commercial Bank (BKT) at a level of 30 percent market shares, followed by the Austrian Raiffeisen Bank which holds 15.5 percent market shares. The Albanian capital is on the rise which currently is at 18 percent market shares comprised by Union Bank and Credins. This capital is expected to rise at 23 percent during 2019, as Tirana Bank was bought by Balfin Group.

The total number of banks branches dispersed around all cities of Albania amounted to 474 branches in the last nine months of 2018. This number was only five branches less than the previous year. The number of employees working at all banks and branches amounted to 6816 persons, with 78 employees less than the previous year. However, due to the ongoing consolidation process it is expected that the number of branches and employees will be further reduced.

The bank race

BKT is the largest bank in Albania. During 2018 the bank grew its assets by 1.5 percentage points in the total system weight, amounting to 29.4 percent making it the most active bank in the country. BKT dominates also in loaning and deposits, even though it is pretty close in these parameters to Raiffeisen Bank which comes second in market shares weight. Seyhan Pencabligil who is CEO and Board Member of BKT said that the bank has has a great progress during 2018 with record profits, and with their financial indicators are constantly improving.

Raiffeisen Bank which is the second largest in the country, has been actually lowering the weight of their balance during the years in accordance to its Vienna parent’s strategy to lower exposure in the Central and Southeastern Europe countries, especially after the money-laundering implications scandal. A considerable part of its assets are relocated in the bank’s investments funds, which has experienced a strong growth in the last years. During 2018 however the assets declined by 1.8 percentage points, leaving Raiffeisen with only 15.5 percent in market shares. This bank also results second in deposits and third in loanings. In 2018 the bank experienced a positive demand for loans both from business and individuals, as Raiffeisen Bank Albania CEO Christian Canacaris admitted.

Credins remains in the third position per its assets weight of 13.5 percent market share. This position was gained by the bank in 2016 when it grew by 1 percentage points, and it is currently growing and approaching second place. Regardless of Intesa Sanpaolo absorbing Veneto, this deal still didn’t manage to displace Credins to fourth place. Credins outweighs Raiffeisen in loaning holding 17.5 percent of the total, and is the third in terms of deposits. Maltin Korkuti who is general director of Credins said that the bank continued to finance the needs of individuals and businesses, both existing and new clients, which kept it the second position in the market for lending.

Regarding its assets, the fourth largest bank in the country is Intesa Sanpaolo. The bank grew by 1.2 percentage points after absorbing Veneto, reaching an overall 11.8 percent market share. The general growth was small regardless of the absorption, especially that Veneto was a bank with a high level of problematic loans. Nevertheless Silvio Pedrazzi who is CEO of Intesa Sanpaolo Bank Albania said that they are quite satisfied with the results, even though their net profits was acquired by their merging with Veneto Bank.

OTP which has replaced Societe Generale in Albania, has retained the fifth position as it acquired the 5.8 percent of market shares from the bank it bought. Before being bought off by OTP, Societe Generale experienced a slow growth during 2018 compared to the previous year. Even though the ownership was changed to 100 percent part of the OTP Bank Nyrt, this bank will keep the tendency of being one of the most active ones in lendings. Bledar Shella who is the director of OTP Albania said that the bank’s strategy will be focused in growth and improvement, by increasing lendings, opening new branches, and investing in digitalization.

Alpha Bank which is the only bank left in Albania with Greek capital, has had a steady activity during 2018. The bank has remained the same market share with 5.2 percent of assets. Georgios Papanastasiou who is general director of Alpha Bank said that the main indicators of the economic and financial activities were improved by the growth to 6.33 percent in the loan market from 5.61 percent which was in 2017. Also the ratio of problematic loans was decreased to 8.46 percent from 9.79 percent in the previous year.

A great leap from ninth to seventh place during 2018 was marked by the American Bank of Investments (ABI) after it bought NBG. The number of assets grew by 2.3 percentage points, reaching a total of 5.2 percent in market shares that ABI now holds. The CEO of ABI Bank Albania Andi Ballta, said that the bank also reported a positive organic growth which was less noticeable due to the record cleaning of bad loans to 4 percent level, and also the clientele transformation carried by the bank bought in 2015, a clientele which matches the lending culture of ABI.

Tirana Bank has lowered its assets weight to 4.9 percent of the total. During 2018 the Greek party from the Piraeus Group reached a deal of selling 88.95 percent of its shared to the Albanian Balfin Group, and 9.88 percent to the Komercijalna Banka AD Skopje. CEO of Tirana Bank Dritan Mustafa said that during 2018 the bank successfully closed an important transition process and a shareholding restructure. He added that during this period the bank has been active in all the products and services range, has further expanded its clientele, and has also maintained a satisfying stability in all the important regulating and financials indicators, where a key position was liquidity and sufficient capital.

Union Bank has increased its market weight by 0.3 percent during 2018, reaching a 3.5 percent market shares in the end of the ear. After this bank finalizes its mergence with ICB, it is expected that its assets to grow at 4.2 percent. Comparing to the system this bank has been active in lendings, having increased to 3.8 percent from 3.2 percent. CEO and board member Gazmend Kadriu said that once the deal with ICB is finalized in 2019, Union Bank will certainly have a greater presence in the market with higher number in clients and assets, which will be brought by the natural growth of the bank.

ProCredit has held an almost unchangeable market weight with a 2.3 percent of the total assets. Its non-aggressive strategy is reflected from the number of branches and employees this bank holds, as it has been more focused on its service digitalization. Executive board member Agan Azemi said that 2018 was a positive year regarding their business strategy consolidation for private clients, as well as the development of “direct banking” and all services included in it. Direct banking offers services predominantly or exclusively over the Internet, thus online banking.

First Investment Bank (FI Bank) experienced a growth by 0.3 percentage points during 2018, reaching an overall of 1.7 percent market shares. During 2018 however, the growth was in accelerated speed. Bozhidar Todorov who is general director FI Bank said that the bank experienced its greatest growth during 2018, surpassing the amount of 3.5 million euros. It has however also marked the highest value in lending in the banking system with more than 30 percent, as also in the deposits.

Lastly, the United Bank of Albania has a modest share of 0.6 percent of the total assets, whereas the Credit Bank of Albania holds only 0.1 percent of the market share. The latter has no lending activity and it is currently in a voluntary liquidation phase.

Slowest growth in assets

According from data provided from the Bank of Albania the banking system owned a total of 11.4 billion euros worth of assets in the end of 2018. When compared to the previous year the growth experienced was only 0.5 percent, and the BoA reports that this is the lowest growth since 1998. Even though the devaluation of the euro has somehow affected, it has to be reminded that euro was only devalued starting mid-2018, whereas the stagnant, slow growth of assets in the banking system has been present since 2011.

Banks have preferred to invest money from depositors in government securities. This item has annually increased by 8 percent. Following the restrictions imposed by the Bank of Albania, unlike previous years banks did not want to take the money abroad in 2018, but the low interest paid on investments in the “money market” or the negative interests paid on the account of correspondent banks also affected. “The relationship with banks, credit institutions and other financial institutions” item experienced its first annual decline of 5 percent after a continuous growth recorded in the last decade.

Commercial banks have increased liquidity holdings to the Bank of Albania especially in foreign currency, even though the offer interest is negative. Bank experts explained that the reason for this growth was the effect of macroprudential measures stemming from a Central Bank regulation that penalized banks for holding excess funds abroad, as are considered 100 percent riskier. Moreover, the loans to the private sector and households have fallen, with a nearly 3.3 percent on an annual basis.

Historical decline in lending

According to data from the Bank of Albania, the loan stock for the economy dropped to 4.278 billion euros in December 2018. Compared to the previous year, loans granted to businesses, individuals and state institutions decreased by 3.2 percent, or about 136.5 million euros less. Historical data from the Bank of Albania show that this is the largest annual historic decline, at least since 1997. From the beginning of 2000 to 2011, the loan to the economy grew at rapid rates, even 50 percent during the 2006-2007 period. Later, the pace slowed down, especially after 2008, when not only did the country began to feel the consequences of global credit, but also the unreturned credit in banks reached 25 percent. After this period, lending to the economy came to a halt, reflecting increased bank custody and lack of feasible business projects.

In 2018, the decline came due to several factors related to the contraction of credit to businesses and public corporations on the one hand, and the depreciation of the euro and the cancellation of loans on the other. The most stable was lending to individuals. According to the Bank of Albania estimations, if the euro effect and clearing are removed, then the loan to the economy has increased by about 5 percent. Loans to public nonfinancial corporations decreased by 44 percent or -131.7 million euros, with the main impact by the restructuring of a Albanian Electricity Corporation (KESH) loan given from the European Bank for Reconstruction and Development, which led the loan settling in the local banks.

Credit to businesses which account for almost 60 percent of the total loans that banks have provided in the economy, shrank by about 3 percent, or -93.2 million euros. The downward trend was both the lek and foreign currency loans, with the latter affected also by the depreciation of the euro. Bankers claim that there is a lack of demand and few good projects that they could be lend on.

Unlike businesses, banks have been more inclined to finance individuals which have resulted in better borrowers. The loan for this segment grew by 3.7 percent, driven by the domestic currency, while it was reduced in foreign currency, but banks prefer to credit individuals in the currency of their income. By the end of 2018, credit in lek accounted for 50.7 percent of the total. Since 2011, when it accounted for 60 percent of the total, foreign currency credit has been steadily reduced, as a result of the Bank of Albania’s “de-eurozation” policy over the last years.

The de-eurozation policy didn’t affect deposits

By the end of 2018, businesses, individuals, state institutions and others had a total of nearly 7.8 billion euros in banks, experiencing a decline of 1.3 percent from the previous year, which arose from a decline by 3.7 percent in lek savings, and increase by 1 percent in currency savings. Data from the Bank of Albania claim that during 2018 deposits in the euro currency reached a value of 4 billion euros with an annual increase of 10 percent, or 370 euros more. This is the highest record level of savings in the common currency. This trust towards euro in a time when the currency is depreciated against lek, goes opposite to BoA’s hopes, which during 2018 undertook a de-eurozition of the economy campaign to lower its usage both in deposits and loans. This trial worked for lendings, however the euro savings account for 53.9 percent of the total.

Individuals showed a lack of interest for banks because of their low interest under 1 percent for 12-month deposits in lek, and almost 0 for currencies. Overall it is noticed that the term deposits of both domestic and foreign currencies have decreased by 329.3 million euros. While some of the savings in foreign currency have been passed on by individuals to long-term accounts, this has not happened for lek. In the absence of investment alternatives, savers have preferred long-term deposits, government securities, or invested in real estate purchases.

Bankers have admitted that it is soon to evaluate the de-eurozation measures taken, yet the foreign currency deposits are driven by remittances, while the low interest rates difference between euro and lek deposits has not encouraged individuals to convert the euro savings in lek. Euro remains very present in commercial transactions, has annual high inflows of remittances from migrants, and we are also surrounded by regional economies where the euro is legal currency.

Banks profits down by 17 percent

According to data from the Bank of Albania the banks’ net profits during 2018 was 145 million euros, experiencing a 17 percent decline from the previous year, mainly due to decreased revenues from losses in financial instruments. Revenue from interests fell by 1.8 percent due to lower interest rates in accordance with BoA’s monetary facilitating policies for lowering the money costs, but also because of slowdown in crediting for businesses. Revenues from fines and commissions slightly increased by 0.6 percent. Administrative expenses grew slightly, while loan provisions decreased, easing bank balances.

The decline in profits has also affected the deterioration of profitability indicators. The return on assets in 2018 it dropped to 1.32 percent, whereas the return on equity reached 12.1 percent. With deposit rates reaching a minimum and the interest rates on loans continuing to decline, bankers predict difficult days for the system in terms of profitability. Low interest rates are posing a risk for the sustainable growth and health of the financial sector. The main challenge for banks are the low interest rates which generate little revenue, when a more developed financial market is absent.  

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