TIRANA, May 2 – Albania’s banking system has entered a consolidation stage as two small commercial banks were acquired by bigger internal competitors in the past few months, reducing the number of active banks to 14 after more than a decade of 16 commercial banks.
In early 2018, the Albanian subsidiary of the National Bank of Greece was acquired by the American Bank of Investments, an American-Albanian bank that has been operating in Albania since 2016.
Back in mid-2017, Italy’s Intesa Sanpaolo Albania unit, the country’s fourth largest bank acquired the bankrupt Veneto Bank in Italy and its subsidiaries in several European countries including Albania.
Banking experts say the consolidation process, the process by which one banking company takes over or merges with another, is expected to continue and further the reduce the number of banks in the country, but at the same time not affect competition in a market where the four largest banks already hold more than two-thirds of total assets, at 68 percent at the end of 2017.
Experts believe the consolidation process will lead to tougher competition and improved access to banking services at a time when credit still remains sluggish, negatively affected by both tight lending standards applied by banks and poor demand by businesses and households.
Banks are expected to further cut branches and staff this year following two internal market acquisitions in the past year, leading to restructuring that could also cut the number of commercial banks in the country to 14 if the acquisitions are rebranded.
The 16 commercial banks operating in the country cut dozens of branches and jobs nationwide last year as lending remained sluggish and e-banking gradually expanded despite banks registering record high profits.
The country’s banking system is considered well-capitalized, liquid and profitable.
However, in its latest statement, the IMF recommends that “ensuring that new market entrants have solid banking experience and meet fit and proper criteria to operate in the Albanian banking market will be critical.”
Turkish-owned BKT, Austria’s Raiffeisen and Albanian-owned Credins bank were the top three banks in terms of assets that include loans, investment in securities and interbank placement at the end of 2017.
Below are the opinions of three experts, originally published in Albanian on the “Bankieri” (Banker) magazine of the Albanian Association of Banks.
Elvin Meka, banking expert
2017 marks the beginning of a consolidation process in all of Albania’s banking system as Veneto Banca was acquired by Intesa Sanpaolo Bank in Italy and as a result also in Albania, while ABI Bank fully purchased the shares of NBG Bank in Albania. Those deals could be followed by efforts and other purchase agreements in order to further consolidate the sector considering signals coming from business corridors.
This is an important process and at the same time special for Albanian customers, the banking system and the regulator as everybody was used to an increasing number of banks in the past 20 years, at least until 2007 when the number of banks reached 16. The Albanian banking environment has now made a huge step forward as it has entered the maturity stage when mergers and acquisitions are being carried out as normal business deals and not forced by major problems generated by the banking sector or the country’s economy. This is a positive step which shows that the Albanian banking system is stable and able to manage such special operations which are difficult, complex and easy manageable.
The consequence that customers mostly fear in this respect is that a smaller number of big commercial banks remaining after mergers and acquisitions could damage competition.
The number of banks in a country’s financial market is not very important as far as competition in the banking system is concerned as a bigger number of banks does not necessarily imply tougher competition and lower competition is not necessarily accompanied by a smaller number of banks.
Competition in the banking sector is not simply a question of numbers, but involves how qualitative or how poor the banking system is toward customers, its added value per unit of cost and how much the economy of scale allows bigger banks to offer more services at cheaper prices, the strength of the banking market to force higher customer fees for the services provided, the efficiency of the regulatory measures by the respective authorities to discourage inappropriate anti-competitive behavior etc.
Such a consolidation could be key to encouraging banks in Albania to start considering offering other financial services related to asset management, investment banking and securities in order to contribute to the deepening of the financial system as they will be big enough to engage in these value-added operations. In addition, this will be a ‘must’ for them as banks will have to make calculations about the possible sectoral and inter-sectoral competition they could face from new potential competitors either by commercial banks or non-bank financial institutions and FinTechs especially in the payment system and financing of startups.
As a result, the consolidation process in the Albanian banking system will bring important benefits for the Albanian banking system and economy regarding the efficiency, diversification and expansion of credit. That means more market power, more services for bank customers, more efficient and professional human resources, more access to finances for everybody by preserving the stability of the financial system.
Edvin Libohova, secretary general of the Albanian Insurers Association
The 25-year-old story of Albania’s banking system has gone through several development stages as a reflection of the country’s economic development itself, although banks have always been one step ahead and continue to remain the country’s most developed financial institutions.
The first stage of the development of banking market was marked by the entrance of foreign capital, initially in the form of joint ventures with the government and then as 100% private enterprises representing foreign financial groups.
The inflow of foreign capital laid the foundations for the complete privatization of state-run banks (a process carried out in the late 1990s and early 2000s)
The privatization of banks marked an important step for the country’s economy and the banking system itself as it enabled the introduction of new banking services, the expansion of the network of branches in all areas where the economy developed and increased competition among market operators. In addition to this process, banks with local capital were established as the peak stage of maturity and the business operation as a corporation.
For a period of almost 10 years, the banking system continues to grow and develop fast, being the main supporter and financier of the economy and at the same time successfully handling the effects of the 2008-2010 global crisis.
During this period, new operators entered the market by acquiring existing banks while the number of banks remained unchanged at 16.
After several stages from its establishment, 2017 marked the moment when the banking system organically sought its consolidation. This process started last year and is expected to continue for the next 2 to 3 years, marking an important step in the development of this market. The main events include the acquisition of smaller banks by bigger ones, the expansion of banks by purchasing other market operators, the transfer of inactive banks to active investment groups etc.
Consolidation brings a major process in the banks’ life span. Firstly, banks that grow and consolidate undergo restructuring that involves its network of branches, organizing structures, human resources and banks’ operating systems, relations with shareholders, customers and third parties.
Of course these processes bring headaches to the banks, but on the other hand have a positive impact on re-dimensioning the bank’s status to the current market conditions.
Secondly, the market undergoes structural changes, there will be closures of branches and re-positioning of current branches.
Thirdly, there will be staff cuts, a process that has an impact on the redistribution of experienced human capital in the financial market.
From the general point of view, bank customers are the biggest beneficiaries of the consolidation.
Consolidation brings tougher competition which means better and more competitive deposit and loan rates, commissions, and a diversity of products and terms that the customers are offered.
It also helps expand the presence of banks to uncovered areas and increase the lending capacities.
It is clear that a bank’s expansion through consolidation is accompanied among others with the consolidation of capital which is the prime element for increasing its lending capacity.
Regardless of the number of banks and their network, which can be considered quantitatively enough, the market needs new products and services and especially specialized banks.
We are all aware that the market lacks investment banks, agriculture focused banks, mortgage banks, branchless banking etc.
Ornela Liperi, Monitor magazine editor
The banking system has been recently involved in a stage of consolidations with sales, mergers and acquisitions and that is happening for several reasons.
Firstly, as a result of the restructuring of the Greek banking sector which after the debt crisis, in line with the European Central Bank recommendations, is reducing assets outside Greece.
There are three banks with Greek capital in Albania that hold 14 percent of total assets.
Secondly, other banks, small and big ones seem to no longer have an interest in the Albanian market after years of stagnation and have decided to go on sale.
On the other hand, there are banks who have an interest in expanding in the internal market and plan to do this not only through organic growth, but also through the purchase of other bank subsidiaries.
This year, the banking system will be reduced from 16 to 14 banks as two purchases have already been completed.
The same to 2017, even this year is also expected to bring many developments in the banking sector. Based on the Greek restructuring plan, Tirana Bank, a subsidiary of Greece’s Pireaus Group that holds 5.4 percent of the banking sector assets, is also on sale. Offers on this banks are already underway including from those private groups who until now had no experience in the financial sector.
The [Malaysian] International Commercial Bank is also on sale but its weight on the system at about 0.7 percent is too small.
Since several years, the banking system has been experiencing low growth affected by the high level of non-performing loans which reached about a quarter of total loans in mid-2013. In the past few years, asset growth has been minimal, the number of branches has been declining and the number of employees as well.
The capital adequacy ratio has stagnated at 16 percent while the profitability indicators, the return on equity and assets dropped to 0.74 percent and 7.15 percent in 2016 before recovering to 1.54 percent and 15.71 in 2017.
The system’s financial results are very fluctuating depending on spending on provisions for bad debt. The positive thing is the decline in non-performing loans to an 8-year low of 13.2 percent at the end of 2017.
The sales and purchases do not end here as bigger banks are also on sale if they manage to find buyers, although unfortunately the interest of big international banking groups on the Albanian market has been low in the past few years.
Another new development is the interest of big Albanian business groups to enter the Albanian banking system as part of their expansion and diversification strategy of their investment portfolio.
“To mitigate risks to banking stability, candidates for new banking licenses should possess adequate banking experience and avoid conflicts of interest,” the IMF has said in a message that is directly aimed at businesses targeting to enter the banking system.
