We expect the Justice Ministry to propose the necessary changes in Parliament and that banks are part of the consultation process, says the Association of Banks
TIRANA, Jan. 9 – Legal steps that would require changes to the Civil Procedure Code are needed to accelerate the execution of collateral, one of the key barriers which has led to bad loans jumping to a record 22 percent and accounting for around 1 billion euros. Seyhan Pencabligil, the Chairman of the Albanian Association of Banks and CEO of BKT, the country’s second biggest commercial bank, says two steps are necessary for an efficient execution of collateral.
The first measure involves the reduction of the collateral price up to 50 percent of the original price in the second auction or the introduction of a third auction under which the price of the collateral will be set based on market prices. The liberalization of the bailiff offices and the tariffs being determined by the market is another measure banks suggest. Both measures would require changes to the Civil Procedure Code which need a qualified majority of 3/5 of votes in Parliament.
“We expect the Justice Ministry to propose the necessary changes in Parliament and that banks are part of the consultation process. We also expect the Bank of Albania to be in compliance with the international standards of financial reporting in its requests for provision coverage,” Seyhan Pencabligil tells reporters.
“If no immediate measures, banks will spend more and more time on non-performing loans rather than providing new loans. Bad loans will exhaust our human and financial capital without which we will be unable to provide loans,” adds Pencabligil.
The efficient execution of collateral implies that banks are able to sell buildings and lands at affordable market prices. While 95 percent of non-performing loans are covered with collateral, a well functioning system means the banks would be able to sell the collateral and recover their money, but this does not happen in practice. “There are legal, regulatory and procedural barriers in the efficient execution of collateral. Court procedures and trials take a long time and different courts have different interpretations on laws. The execution procedures are not very efficient and transparent. The private bailiff offices must be paid at the same tariff in advance despite the execution. Finally, the price floor is too high considering the feeble markets and demand,” says Pencabligil.
Albania’s banking system improved its performance in terms of profits in the third quarter of 2012 despite non-performing loans registering new record high levels. Latest bank of Albania data show the 16 commercial banks operating in the country, which are overwhelmingly foreign owned, more than doubled their net profits to 3.14 billion lek (Euro 22 million) in the first three quarters of 2012, up from 1.31 billion lek (Euro 9.2 mln) in the same period in 2011, on lower expenditure on provisions which at 4.8 billion lek, was 2.3 times lower compared to the first three quarters of 2011. Nonperforming loans at the end of the third quarter of 2012 climbed to 22.3 percent, up from 21.17 percent in the previous second quarter and 19.47 percent in the third quarter of 2011.
Bad loans which have trebled to 22 percent during the past three years remain the key problem the Albanian banking system faces, central bank governor Ardian Fullani has warned.
“The increase in non-performing loans has increased stress levels in the banking activity, lowered the contribution of the sector in financial intermediation and in supporting economic growth in Albania,” said Fullani.
According to him, delays in the execution of collateral remains the key problem for the sharp jump in bad loans and joint efforts by the banking system, the Bank of Albania and other state institutions, including Parliament and courts are needed to overcome the situation.
“It is necessary that some improvements to the legal and regulatory framework as have now been identified by joint working groups with the banking industry are implemented correctly so that the collateral gains its optimal value,” says Fullani.
A newly drafted law by Albania’s central bank and the Association of Banks on the acceleration of procedures for the execution of collateral, a key barrier which has directly influenced on rising bad loans and falling banks’ profits as a result, is expected to bring positive changes. The draft law which has already been submitted to government foresees changes to the Civil Code requiring a qualified majority of 3/5 of votes.
Other measures envisaged in the draft law are the establishment of a special court section dealing with the execution of collateral and an amendment to the law on registration of real estate because of problems with the real ownership of property put up as collateral.
The rising level of non-performing loans is a concern and requires prompt action. NPLsحainly in trade, construction and manufacturingبave risen faster than in other countries in the region, largely because of the economic slowdown, government’s nonpayment of suppliers’ bills, and continued delays in collateral execution, says the IMF. This has affected the profitability of banks and their ability to extend credit to the economy. Concrete actions, such as easing collateral executionءllowing property prices to adjust to market forces by facilitating foreclosure sales (including, by removing the regulated price floor), increasing efficiency of private bailiff offices, and limiting inconsistent application of the lawءnd clearing unpaid government bills and VAT refunds would help.
