The banking system in Albania has gone through the transition periods influenced by the monetary collapse at the end of the communist era, the collapse of the fraud pyramid investment schemes, as well as the lack of political stability in the country until recently. However after 1997 the system started to normalize and after 2004 major privatizations happened which gave a boost to crediting of the economy.
During the communist era the essential functions of a modern banking and financial system were absent. The Bank of Albania (BoA, the central bank) was under the tutelage of the centrally planned economy; Savings Bank had the task of collecting deposits; and specialized banks in areas such as agriculture and foreign trade provided credits along functional lines, according to the directives of the plan and without assessing particular investment projects. The first foreign banks in Albania were established in 1992.
Currently, banks dominate Albania’s financial sector, holding more than 90% of all financial intermediaries” assets and the entrance of large Western banks has increased competition and the range of banking services available. ATMs and plastic cards have become more widely used, especially now that all public sector salaries are paid through the banking system.
The banking system has experienced remarkable developments over 2004. These were mainly privatizations and the coming to Albania of major foreign banks. The sale of Savings Bank to Raiffeisen Zentralbank (Austria) was completed in 2004. This brought tow major novelties, the crediting and the salary system for public employees through the banking system instead of the cash payments.
Before its privatization, Savings Bank was prohibited from lending, and held some 70% of all outstanding Treasury bills as its primary asset. The resumption of lending under Raiffeisen’s ownership has prompted all other banks in the market to follow suit.
The lending activity increased by 38 percent where one can distinguish inter alia the significant growth of medium-term and long-term loans compared to short-term loans. The map of coverage of the country with the banking system has further expanded, including new areas ever covered before. At the end of 2004, the total number of branches reached 88, or 11 branches more that the end of the previous year, while the number of agencies recorded for the first time a full three-digit number, 100 and the number of the employed people increased by 26 percent.
There are now 17 banks (two are Albanian-owned and 15 are either foreign-owned or joint ventures between foreign and domestic investors). The largest player is Raiffeisen Albania and second-largest is Intesa Sanpaolo (Italy), which has bought two local banks, BIA and ABA since late 2005.
In 2007, Societe Generale acquired 75 percent of Banka Popullore. The central bank plans to establish a credit information bureau during 2007 in order to maintain loan quality.
Banks offer already debit and credit cards in co-operation with international companies such as Visa and MasterCard. Six banks provide the ATM service and the number of ATMs reached 108 by the end of February 2005. The banking system results to have a profit level, which has been increasing to Lek 5.1 billion. Return on equity (ROE) was estimated at 21 percent while problem credits represent only 4.2 percent, from 4.6 percent in the previous year. Credit to the economy increased by 82% year on year in nominal terms in 2005, and was still growing by 51% year on year at end- September 2006, despite some tightening measures by the central bank. Nevertheless, the total stock of outstanding loans in late 2006 was less than 20% of GDP, one of the lowest levels in central and eastern Europe. About 80% of bank loans are denominated in foreign currency, principally in euro and US dollars. Although the ratio of non-performing loans is currently low, credit problems tend to emerge with a lag.
The latest development is the creation of a National Digital Credit Registry by the central bank which is a database of all crediting done with client personal information that lowers the risk of bad credit history and improves the health of the banking system by lowering the rate of bad loans.
Boa and interest rates
The Bank of Albania (BoA, the central bank) conducts monetary policy with the overriding goal of maintaining price stability, and has an informal average annual inflation target of about 3%. The control of interest rates was an important part of Albanian stabilization policy during the transition period. Real interest rates turned positive in the third-quarter of 1994 when inflation declined, however these rates remained under Central Bank control until the banking system began consolidating and monetary policy moved gradually towards the use of indirect instruments. The Bank of Albania started to eliminate direct control over interest rates at the beginning of 2000 as its main policy tool for controlling inflation, and now sets a target range for growth of the M3 measure of money supply, as well as a ceiling for net domestic assets and a floor for net foreign assets.
Privatization of banks
The earliest privatizations of the strategic sector were those in the banking field. Raiffeisen Zentralbank ׳terreich AG (RZB) and the Albanian Government signed the first closing regarding the purchase of Banka e Kursimeve e Shqip쳩s련BK), the Savings Bank of Albania, on 15 April 2004 in Tirana. RZB won a tender in last December and then received all necessary approvals from the Austrian and Albanian authorities. The purchase price is USD 126 million for a 100 per cent share in BK, representing a 2.5 multiple of the book value.
Banka Kombetare Tregtare was established as a Joint Stock Company in July 1997, with assets reaching ALL 2.7 billion. BKT accomplished its privatization process in the year 2000. On July 6, 2000, The Albanian Parliament approved the sale contract between the Ministry of Finance and the Consortium of International Investors consisting of Kentbank (60% of shares), International Finance Corporation (20%) and European Bank for Reconstruction and Development (20%). The transfer of ownership entered into force on 17 October, 2000. During 2001, the Kentbank’s ownership was transferred to the Savings Deposit Insurance Fund (SDIF) in Turkey. In 2006 with the authorization of the Bank of Albania and pursuant to the specific court decision issued on June 9, 2006, it was approved the transfer of 60% 2 of the BKT shares possessed by Kent Bank in favor of Calik-Seker Konsorsiyum Yatirim A.S.
